DT News - UK - High evaluations could slow down practice acquisitions in the South East

Dental Tribune International

Mon. 17 October 2016

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LONDON, UK: Another rise in practice valuations in the UK could mean that practices in the South East and London will find it increasingly difficult to find buyers, the National Association of Specialist Dental Accountants and Lawyers (NASDAL) has warned. Evaluations in these regions have reached such a level that many potential acquirers can no longer pass the affordability test, London-based NASDAL accountant Ajay Patel recently said in a press release.

“Only those with substantial personal capital, private equity-backed dental companies or individuals with the help of ‘Bank of Mum and Dad’ can afford to acquire in many instances,” Patel said. “I have recently seen more and more potential acquirers, although meeting the bank’s serviceability test, fail the remuneration test, i.e. level of take-home pay for the acquirer.”

“Projections in many instances demonstrate the acquirer would earn less after loan servicing cost than they do currently as associates,” he added.

According to the latest quarterly goodwill survey conducted by NASDAL, valuations in the period of April to July saw another rise over the previous quarter to goodwill of 138 per cent of gross fees despite the Brexit and the economic uncertainty it created. While the average of 107 per cent has seen a 51 per cent surge in the last three months, one practice in the West Country in particuliar reported having achieved goodwill in excess of 206 per cent of gross fees.

NHS practices also saw a 3.4 per cent increase on the previous quarter and now attract an average goodwill of 125 per cent of gross fees.

The greatest jump, however, was in the value of deals for private practices, according to the report.

“Whilst it must be stressed that the EU referendum vote happened midway through the quarter, it does appear that the vote had, at worse, no effect or arguably a positive effect on the value of UK dental practices,” summarised specialist dental accountant and partner at UNW Alan Suggett, who compiles the goodwill survey.

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