Market overview

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The UK dental market remains highly fragmented - in 2018 there were 11,965 registered dental companies/groups and 14,150 dental practices, yet only 12% of these practices were owned by corporate dental bodies indicating that the dental market is ripe for further consolidation.

Indeed the consolidation drive has gathered pace in recent years as investors capitalise on the advantages that operating a larger-scale business brings. These include:

  • The creation of a strong brand which then generates a recurring customer/revenue base
  • Achieving economies of scale through shared services, e.g. exploiting increased buying power and back office synergies
  • Enabling a flexible operation with multiple disciplines under one roof
  • Lower capital expenditure requirement per dentist compared to individual practitioners
  • Giving the option to vertically integrate into laboratories and other services

Private equity interest

Private equity has played a significant role in the consolidation of the dental market to date, with seven of the largest corporate dental groups currently private equity-backed. This interest is showing no signs of abating with investors searching for dental companies with a strong management team and a platform fine-tuned for growth through a buy and build strategy.

Favourable demographics
A population that is both increasing in size and ageing underpins demand for dental care in the UK. The total population in the UK is predicted to increase from 66.9million in 2019 to 68.6 million in 2024, with the majority of this growth attributable to the over-60s, whose population is projected to increase from 16.1 million to 17.8 million over the same period, representing an 11% increase over the next five years.

The increased demand for dental services in later life tends to lead to more recurring treatment such as remedial and restorative work, which along with mounting awareness of oral hygiene across all ages, is expected to drive growth in the dental market in the short to medium term.

Dental services in the UK are funded both privately by the consumer and through publicly-funded contracts. NHS dentistry is fully subsidised by the government in
certain circumstances, such as:

  • Under 18s
  • Pregnant women and for 1 year post birth
  • Individuals with low income, a group which often includes those of retirement age

Subsidised patient groups represent a recurring revenue stream for a dental practice, providing certainty of cash flows. Investors continue to be attracted to the combination of a high growth private dental market underpinned by evergreen NHS contracts, with the nondiscretionary NHS spend reducing the risk associated with highly lucrative but discretionary private dental spend.

The perfect smile
The growing interest in health, wellbeing, and enhancement of self-esteem have all contributed to increasing demand for cosmetic dental treatment in the UK, with this segment projected to be worth £3.3bn (€3.9bn) annually by 2022.

The advertising industry and media play a huge role in selling the concept of perfection through cosmetic solutions, with influencers and celebrities now able to share products and services directly on social media, making them ever more accessible to the wider public.

The new NHS contract and Brexit

The new NHS dental contract is being trialled in dental practices across the UK and is expected to be rolled out gradually throughout 2020. Although the prototypes have reported some initial positive clinical findings, the overall impact on the dentistry profession of moving towards a capitation model is not yet fully known. Questions exist over the economic deliverability of such a contract, and the uncertainty that this is creating may drive dentists towards provision of private services at the expense of the NHS.

Brexit is also expected to impact on the delivery of NHS dentistry in the UK, with a reported 16% of dentists practicing in the UK having qualified in the European Economic Area (EEA), and 32% of recently surveyed EEA-qualified dentists considering leaving the UK in the next few years.

However, in the short term, the private dental market is unlikely to experience the same issues as the NHS, with a potential upside being restriction to access of NHS funded dental care which could force the population to turn to private dental treatment in the medium to long term.

Increased medical tourism could provide a further boost to the private dental sector as a consequence of Brexit, as any further devaluation of the Pound would make the UK an attractive destination for overseas patients looking to capitalise on favourable exchange rates and world class private dental care. Dental groups with great workforce management, and retention and recruitment policies that can attract dentists, technicians, nurses, and hygienists, will be in high demand.

The above factors suggest that the growth of private dentistry in the UK is likely to remain strong in the coming years. While buyers have historically been drawn to the reliability of NHS-led practices for their stability and visibility of earnings, this is likely to change over the next few years as private equity investors and large corporate groups seek profitable growth and reliable income streams.

As such we could see a move towards more investment in entirely private or mixed dental practises by investors in order to protect themselves against a possible downturn in GDP.

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