MediEstates Pharmacy - ASK DEAN: What factors affect the multiples which determine the value of a dental practice?
ASK DEAN: What factors affect the multiples which determine the value of a dental practice?

What factors affect the multiples which determine the value of a dental practice?

When it comes to the valuation of a dental practice it’s no longer about using the traditional method of percentage of turnover. Today, most practice valuations are carried out using the EBITDA method - Earnings Before Interest Tax Depreciation and Amortisation - a metric used to more accurately evaluate a company’s ongoing operating performance. Once the EBITDA figure has been calculated, it is then multiplied by a number that is determined by the business, the market and the economic climate to eventually result in an accurate practice value.

Those currently looking to purchase a dental practice fall into two distinct categories - the individual owner/occupier and the group/corporate multi-site owner. Individual practices are currently valued using a multiple of EBITDA or a multiple of the net adjusted profit. For larger groups of three or more practices, a higher valuation multiple of EBITDA is used. Generally, the lower the perceived risk and the more sustainable the profit is, the higher the profit multiplier for groups can be.

Calculating the value of a practice is not a straightforward process and a number of variables and considerations need to be taken into account. With so much at stake, it’s worth looking at the various considerations that impact the multiples used in the valuation procedure.

Location and demographics
Practice location is one of the most significant factors when it comes to obtaining accurate valuations. London remains a ‘hotspot’, where demand for practices often exceeds supply and competition for those practices that do come to market is intense. Valuation multiples can also be higher in other popular areas such as the Home Counties and the Midlands.

Urban areas - major cities and towns - versus rural and remote locations all affect UDA rates, salaries, rental costs, general overheads, the number of patients and crucially, the recruitment of the dental team. It goes without saying that a practice in a poor location, unable to attract and retain key members of staff, finds it extremely challenging to either fulfil NHS contracts or drive private revenue and therefore we would expect to attract lower multiples for such a sale. That being said, for the right principal, this type of business can offer extremely good value for money. For NHS and mixed practices UDA values vary across the country.

The property itself
It’s important also to look at the commercial property itself, whether it is freehold or leasehold, as well as the number of surgeries and the demographics of the surrounding area. Awareness of average earnings and the disposable income of the local population and any future commercial and residential developments nearby gives prospective buyers a realistic idea of the future potential of the practice. By looking at local figures of sale and lease prices for properties, along with the average value per square foot for the area, it is possible to analyse the average value for the bricks and mortar of the practice.

Consideration also needs to be given to the costs of the business, including staff, establishment costs, and the clinical costs which can usually be a practice’s highest expense. One way to reduce costs and therefore increase the EBITDA, is to think how best to run most efficiently. For example, implementing automated systems and processes to handle certain aspects of the business can have a positive impact on the productivity and profitability of the business.

Help is at hand
Every dental practice is unique, so when it comes to the complexities of selling or buying a practice it makes sense to enlist the help of a team of dedicated dental practice brokers to achieve the right valuation and manage the practice transition. MediEstates, the UK’s largest specialist dental practice broker, is marketing over 140 dental practices at any one time and our specialist dental property experts are here to help deliver a smooth transfer and successful deal.
Posted by: Dean Barker on

This agreement is in relation to MediEstates Limited introduction to a prospective sale of a business as a going concern. By registering through this agreement I agree to all terms set out below:

  1. To treat all information supplied by or on behalf of the Vendor in connection with the sale of the Business as confidential. Confidential information relates to: -the actual Vendors identity and all confidential information in respect of the Business; including but not limited to: any ideas, business methods, prices, accounts, finance, marketing, research, development, manpower plans, processes, market opportunities, intentions, design rights, product information, customer lists or details, employee's details, trade secrets, computer systems and software, and other matters connected with the products or services manufactured, marketed, provided or obtained by the Vendor, and information concerning the Vendor's relationships with actual or potential clients or customers and the needs and requirements of such clients' or customers' operations.
  2. Duties of Prospective Purchaser are:
    1. To take such reasonable security measures to protect the Confidential Information as it takes to protect its own confidential information.
    2. All communications are to be through MediEstates unless agreed.
    3. That they shall not, without the prior written consent of the Vendor, permit any of the Confidential Information to be disclosed, other than in confidence to its legal or professional advisers, to be copied or reproduced; to be commercially exploited in any way; to be used for any purpose other than in connection with the prospective purchase of the Business; and to pass outside the control of the Prospective Purchaser.
    4. The Prospective Purchaser must not jeopardise or re-direct the sale under any circumstances.
    5. That they will not contact any 3rd parties related to the business for which information has been provided, i.e. solicitor's, employees, accountants, clients.
    6. That they will not under any circumstances contact the Local Area Team or CCG regarding any business sale, by any means of media unless written permission has been granted by the current Vendor.
    7. To carry out own Due Diligence once any business purchase moves to forward, and accepts that MediEstates Ltd only supplies information provided by the vendor and is not responsible for its accuracy or completeness.
    8. To lodge a deposit held in a client account to secure a business sale and cease its marketing, which is refunded on completion.
    9. To not use any social media at all regarding business details.
  3. If you require finance to purchase your business, or need other financial services, MediEstates on your approval will refer you to an FA to assist you. MediEstates may be paid a fee for this service.
Your shortlist contents will be included in this contact submission