Looking ahead into the second half of 2023, the government is set to “clawback” over 10% of the £3.0bn NHS dental budget, which the BDA stress “does not reflect a lack of demand for dentistry, but the reality of a recruitment crisis across the frontline, leaving practices unable to fulfil their contractual commitments”.⁸
Clearly, there remains some key challenges in the UK dental market regarding staffing, recruitment and retention of dentists that can deliver NHS funded contracts. As a result, the private dental market, which can leverage investment in digital workflows, increase marketing efforts, and offer more flexible pricing to patients, is expected to experience continued growth over the coming years to fill the void.
The high level of recent deal activity reflects confidence investors have in the resilience of the dental market to periods of political and economic uncertainty
In addition, inflationary pressures that have been impacting the dental market over the past 18 months are expected to begin to ease, with the Bank of England forecasting CPI inflation to fall to around 5% by the end of this year and return to the 2% target rate by late 2024.¹²
Strong underlying macro trends including ageing demographics, shift to private pay dental services so patients can access dentists, and growth in cosmetic dentistry will likely support overall demand for dental services in coming years. The high level of recent transaction activity reflects confidence investors have in the resilience of the dental market to periods of political and economic uncertainty, and the continued opportunity for consolidation activities in a fragmented market. Recent deals in the dental sector have continued to demand high multiples in the region of 10-15x EBITDA, attracting investors who see a clear equity story in a fragmented market requiring consolidation and the greater efficiency that can be achieved from growing scale.
Recently, a trend has been observed of a number of dental laboratory companies consolidating in the European market, with the likes of Corus Dental, Delabo Group, Minlay, and European Dental Group. Investors are also expressing greater interest in dental market adjacencies and view dental laboratories as a segment that needs consolidating. In the current climate, high quality dental laboratories of scale are demanding mid to high double-digit multiples.
There is an opportunity over the next 12 months for a ‘land grab’ exercise to help take the number one position in the market, which remains fragmented with only a handful of consolidators. As the European dental lab groups consolidate, it will be interesting to see if the market receives greater interest from US consolidators, which have previously shown little interest.
The immediate future of the dental market will be characterised by further consolidation in the UK and across Europe, with PE interest expected to remain strong, driving transactions either as standalone platforms, or a bolt on to their existing dental platform. Dental laboratories will also look to consolidate their respective positions both locally and as pan-European players.