Grab your lifevest, the goodwill bubble’s burst By Jonathan Fine. April 2, 2017.
Last week I read a barnstorming blog about what’s happening at the top of the dental corporate food chain by Sachin Nandha, a venture capitalist from Leicester who wants to build a private equity backed dental fund. I shared it with a few people and they all said it contained something they didn’t know about, so it would be remiss of me not to share it here.
After reading it someone who is very knowledgeable about the sector wrote to me saying, “Did not realise IDH tried to sell (and couldn’t). Nor Southern Dental imploded. What’s their sitrep now?” For myself, I was not aware of the UDA shortfall/claw back issue. There have certainly been lots of rumours. Sachin’s story is that goodwill prices are going to calm down. I agree, and I’ve talked about the inevitability of this before but Sachin reports that it’s already happening because the three largest estates in dentistry aren’t acquiring sites.
He says IDH, the largest dental corporate in Europe (rebranded as mydentist in 2015) isn’t acquiring because it’s in a mess. He says it tried but couldn’t exit, not even through an IPO, and (he reports hearing) it’s now struggling to deliver on its NHS contracts, which might result in large claw backs. He says Southern Dental, the third largest estate, isn’t acquiring because it tried and failed to sell to private equity twice, and the bank’s now stepped in. He also reports, as we already know, that BUPA paid top dollar for the second biggest estate, Oasis, late last year. At £835m, 15 times EBITDA, it can’t have much left in its war chest.
With no big boys left on the hunt it’s no longer a seller’s market and so I have to agree with Sachin’s analysis that this is great news for players with smaller chains who want to grow. He’s right too that half the market will be swallowed up by a few big chains by 2025, and cooperatives will occupy a large part of the other half, as I talked about last week. Sachin’s last couple of points about what this means for you bear repeating. (His phrase “conquering the dental island” posits the UK dental sector as hitherto isolated from market forces and full of untapped resources, akin to Easter Island off Chile. Interestingly, the inhabitants of Easter Island mismanaged their resources so badly that it became almost unlivable. They caused deforestation by building and transporting those famous huge stone statues in the belief that these would save them. They should have built boats and left but instead they built more statues. By the time Europeans arrived in 1722 barley anyone was left from a population of 15,000. A nice illustration of where poor strategy can get you…)
Anyway, here’s the two points:
“…if you are a dentist in your late 40s or 50s, and don’t have the passion nor energy to deal with this process, where the dental island is conquered by the chains backed by institutional money, it may be the best time to exit! Cash in, and carry on earning well as an associate. If you already own a chain of 5 to 20 sites, and have a desire to keep growing, then its [sic] time to stop buying and professionalise first. Invest in a management team, IT, staff, and premises…”
If either of those are you, we can help. It’s our area of expertise. And if you’d like to build a group from scratch — where the real opportunity is — we are now looking for visionary partners to make a plan of attack. Call me for a chat. Exciting times…
JJF | [email protected] | 07860 672727
“When the inhabitants of Easter Island needed boats they built statues”
Jonathan Fine, MD