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Why So Many Buyers?

Posted on May 25, 2016 in Articles & Frank Taylor & Associates

arrowThe numbers of buyers registered with Frank Taylor & Associates is normally met with disbelief or in some cases, from desperate buyers, denial that the competition is really that fierce.

Some numbers of dentists looking for particular practices to give us some perspective.

Predominantly NHS income, three surgeries, leasehold practice in Essex – 1,387

Mixed income, two surgeries, freehold practice in the Birmingham area – 846

Private fee income, one surgery, freehold practice in Cornwall – 235

To understand why the demand is so high we need to go back to 2006 when the GDS NHS contract was introduced. The introduction of this contract moved away from the ‘items of service’ system which in effect offered the ability to deliver NHS dentistry with no earning cap. The new contract meant that most dental practices now had a fixed NHS income and the options to increase the gross to deliver additional NHS services (e.g. minor oral surgery, smoking cessation clinics etc.) or develop the private income side of the business.

Assuming the ratio of profit to fees was maintained then adding additional income would increase the actual cash surplus for the principal. The problem was that, in the short term, very few principals did this. Many looked to contain their costs to improve their profits and in most practices the largest cost is the fees paid to associates.

It was this change that led to the end of the traditional 50% payment to associates which had existed in dentistry for decades. There are still some associates being paid 50% of their gross fees but they are a dying breed.

A cut to associate fees from 50% to 45% had a direct hit on the bottom line and boosted profits without the need for the practice to deliver any more dentistry.

This significant change made many associates uneasy with many feeling that not only could their pay rate be cut, but their working days too. It was this core need to preserve personal earning that led to a sharp rise in the number of dentists looking to buy a dental practice. During 2007 Frank Taylor & Associates had 60+ dentists registering to buy a dental practice per week.

This change in the economic model for how associates were paid was further compounded by the steady influx of dentists from other European countries and a growing number of dental graduates.

These three elements continued for a number of years which resulted in many associates now being paid in the region of £8 per UDA and significant numbers not working as many days as they would like.

Understandably this situation has unsettled large numbers of associates to the point where they believe their long term financial future is safer if they own a practice.

The number of dentists looking to buy has steadily increased since 2007 to the point where Frank Taylor & Associates today have 4,719 registered and actively looking to buy a practice. If we assume that 80% of these, for various reasons, won’t actually ever buy a practice there is still a pool of 940 serious buyers. Plenty for the available practices at any moment in time.

Allied to this is the green light the banking sector has towards dentistry. They are prepared to offer generous terms to first time buyers, multiple practice owners for NHS and private practices. There was an understandable pause when the financial crisis hit in later 2008, but since then the UK banking sector should be congratulated for how it has supported independent dentists fund the acquisition of dental practices all across the country.

There are also the social and status reasons to own a practice. I believe that the art of dentistry is phenomenal and to be able to impact on someone’s well being, confidence and personality through the improvement of their smile is an absolute gift. However, for some the added kudos of owning a dental practice is needed for this journey to be complete and this drives some into ownership too.

The above reasons are ones that kick-started the dramatic increase in those looking to buy, but alongside these the usual reasons of being able to take high level clinical control, wanting to manage a team, develop a vision and alike still exist.

The current market dynamics do make it challenging for buyers as competition has never been more vicious. It is this same competition that is driving up goodwill values and encouraging more principals to take advantage of this perfect storm.

Andy Acton
Co-owner & Director, Frank Taylor & Associates

 

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