=
Dental Times - Price Boom
01332 609318
27 June 2017


PRACTICE ONE
Practice Location -
boasting four surgeries, this practice is strategically located in the heart of the community and is close to both primary and senior schools, the main shopping area and public transport facilities. The immediate surrounding areas are heavily populated with a mix of housing types, including housing association accommodation and privately owned properties. The area is regarded as ‘up and coming’ with ongoing regeneration and improved commuter links directly to Manchester. The airport is approximately a 30 minutes drive, thus making this acquisition opportunity of increased appeal to a growing number of relocating dentists for whom ease of access to an international airport is of particular importance.

Practice type - established for over 70 years in this location, the practice delivers dental treatments to a patient base of approximately 8,000. Most are registered as NHS patients although the practice currently only accepts 20-30 new patients per month on a private or monthly plan basis. The leasehold premises are spacious and the surgeries perfectly functioning, although slightly dated. Some strategic capital expenditure would enhance the presentation to further attract private clientele, consequentially filling available chair capacity and facilitating future growth.

The principal and two full-time associates share the workload relatively equally, with each performing 6,000 to 7,000 units of dental activity (UDAs) per annum and generating a similar amount of private income per annum. All three dentists have a long-standing presence in the practice and have built a loyal patient base and a friendly, stable support team during that time. Currently, the principal’s wife carries out practice management duties, although it is her intention to retire with her husband upon completion of a sale. This enables an incoming buyer to replicate the current arrangement or to recruit a suitable replacement of their own choice at a salary reflective of ability and experience.

Agent’s comments - with the sale being due to imminent retirement, the principal’s key requirement was the ability for both he and his wife to leave immediately upon sale without the need for any clinical ‘tie-in’ period. Due to the level and the nature of the income streams into the practice, it is considered that a change of ownership would not significantly affect the turnover adversely, thus the risk of loss of goodwill is deemed relatively low. All work performed by the principal could be assumed by an incoming owner-occupier (or associate) without specialist skills, although enhanced clinical skills would potentially add another income stream to the business.

The flexibility of a workable business model, together with the stability of income from the NHS contract, attracted intense interest from all buying sectors, including dental corporates, with numerous excellent offers being negotiated. The principal had a personal desire, however, to see his business legacy continue with an independent successor (like himself) and subsequently chose a suitably matched buyer who demonstrated being the best ‘ethical fit’ for the continuing care of his patients.

Financials - the performance of the NHS contract delivers the majority of the £652k turnover, with approximately £165k generated from private fee-per-item treatments and the monthly plan registrations. Staffing costs are currently high due to the salary paid to the principal’s wife, however this will cease upon sale and the total annual wage bill forecast is approximately £95.5k including employers’ national insurance (ENI). Laboratory costs and materials were as expected for a practice of this size and type (at approximately 12% of turnover) and reflect the nonspecialist nature of treatments currently. With the lease at £27.5k per annum, this is a relatively low cost for the space offered and income generating capability. Adjusted net profit margin calculates to approximately 26% and will be further enhanced by a dynamic incoming buyer minimising external referrals and realising growth potential.

Price achieved - £975,000 including goodwill, equipment, fixtures and fittings.

PRACTICE TWO
Practice location -
located in a historic market town within a three-storey Georgian building, providing spacious business premises on a lease costing just £20,000 per annum, this seven-surgery practice is ideally situated on the edge of the town’s main shopping area and car parking facilities. Although the full repairing lease is now approaching the end of its original 15-year term, the landlord has confirmed that a new lease on the same commercial terms will be offered to a suitable incoming buyer, subject to references. The area demographics are diverse, and the practice has been serving patients from the town and surrounding villages for over 25 years. It is understood that approximately 60% of the patient base is ‘exempt’ and that a significant percentage of the remainder earn only ‘minimum wage’ levels, thus ensuring consistent demand for the NHS dental services offered by this practice.

Practice type - under the current ownership of two partners, this large NHS practice houses seven well-equipped surgeries, which are used almost to capacity for the delivery of the £1.3m GDS contract. The decorative presentation is in good order, having recently undergone refurbishment, and there is a planned schedule of renewals for each surgery to mitigate the risk of untimely breakdowns, which would seriously impact on performance and delivery of service. Nine dentists work varying hours to perform the targeted UDAs, with associates being remunerated at £12 per UDA. This is notably higher than typical rates nationally, however is reflective of the ‘supply and demand’ recruitment situation in this geographical location. Income from private treatments is comparatively low, with approximately 12% of the total turnover being generated from this source, and this demonstrates further potential to increase the turnover. All of the clinicians, including the partners, are willing to stay on in a post-sale situation, thus continuing the stability of care for patients and assisting with a seamless transition for the new owner.

Agent’s comments - this is a typical, large practice that is organised for, and committed to, the successful delivery of the NHS contract, this being the significant income generator for the business. It is noted that the opening hours of the practice do not particularly facilitate ease of access for residents/patients working outside of the town and further afield, and it would be worthy of consideration to extend sessions accordingly, which would create further chair capacity and consequential income potential. Although specialist treatments are not offered inhouse currently, other competing clinicians in the area incorporate these provisions successfully into their own business models. With the demographics of the town changing rapidly and a more cosmopolitan vibe evolving, this could realistically be an area of future growth for the business.

Financials - the generous contracted UDA rate of £29+ supports the higher than average associates’ remuneration, whilst still delivering very good levels of profitability – contributed to, in part, by the other low operational costs of the business and premises. Staffing costs are well controlled, with nursing provision closely mirroring clinical time and hourly rates in accordance with local employment parameters. Laboratory and material costs are slightly higher than expected for the predominantly NHS treatments carried out, however there is scope to reduce these to a realistic lower level with carefully managed stock control and price negotiations with suppliers. With turnover averaging £1.43m over the last three years evidenced, and the partners generating approximately 30% of the total gross, net profits are good. The forecasted adjusted net profit for an associate-run business model (retaining all clinicians on current pay rates) is approximately £479k, representing 32.3% of turnover, with enhanced profits possible for an owner-occupier who assumes a clinician’s role.

Price achieved - £2,755,000 including goodwill, equipment, fixtures and fittings.
Posted by: Anne Barker on 12 Oct 2015