Dentists Who Invest Podcast

What's Happening In The Dental Practice Market? with Luke Moore and Phil Kolodynski [CPD Available]

• Dr. James Martin • Season 4 • Episode 433

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Want a clear read on where dental practice sales are heading in 2026? We pull the market apart with hard data and lived deal flow: why lenders are back competing, how deposit requirements and margins over base have shifted, and what that means for first‑time buyers who were frozen out when stress tests sat at 9 percent. The short version: activity is strong, but the edge now comes from clean operations, bankable income, and smarter deal structures rather than chasing the highest multiple.

We unpack the corporate reset and the rise of microconsolidators. Many large groups paused to protect EBITDA and trim head office cost under inflation pressure and softer private demand. In their wake, tier‑three and tier‑four buyers with lighter structures and cheaper debt have moved fast, often winning not on price but on certainty: more cash on completion, fewer strings, and realistic transition expectations. If you’re selling, we show how net proceeds after CGT, risk, and deferred hurdles can make a slightly lower headline number the better outcome.

On the valuation front, NHS and mixed practices are regaining heat with recruitment stabilising in major cities and UDA tweaks improving deliverability. Private remains attractive, but associate percentages, lab costs, and marketing spend demand tighter control. We dive into the emerging shift in associate remuneration—transparent lab splits, sliding scales tied to value, and fair cost sharing—to protect margins without endless patient fee hikes. We also flag a key policy watch: potential curbs on non‑competes that could change how goodwill is protected, pushing owners to build moats through brand, patient plans, and clinician engagement.

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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Dr James:

We are really getting into group 2026 now and that's why I thought it would be a really good idea to touch this with Luke Moore and Phil Kolodynski, both of Dental Elite. We're here today to talk about the Dental Practice Market, what's currently panning on and what we can expect going forward in the future in 2026. And beyond, it's gonna be lots of factoids and cool little bits of info dropped in this podcast. Looking forward to this episode as ever. As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax-ficient as possible, as well as understanding investing. All this content counts as verifiable CPD, and you can download your certificates there and then upon completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Phil and Luke, good to welcome you both back on the podcast. I say you both, but this is Phil's first time, of course, so looking forward to that. I think we're uh popping a cherry today, aren't we, Phil? As we were saying, off camera, so to speak, whenever it comes to podcasting. Pardon the terminology, but anyway, let's talk about what we're supposed to talk about, which is practice sales. So we were also talking just off-camera, and I know this podcast is a little bit of a crystal ball episode, like what we can expect, what we uh can look forward to, and things we need to be aware of, and everything along those lines. Maybe it's good to start with what's currently going on and what's changed, I suppose, look since the last time that you and I touched base, which I believe was like two, three months ago now.

Luke:

Yeah, it's not that. Well, I guess obviously the on the start unusually with a plug, which we normally believe to the end, but I uh we'll start with a plug because I think we teased in our in the last episode that we did about the interim goodwill report that was uh shortly to be released, um, which covered all the transactions that Denzel acted on in the first six months of the last fiscal year. Now we did formally release that at the beginning of January, so obviously we're recording this um on what the third week in January. So if people want to download that, if they go to our website, they can get a full breakdown regionally and by practice composition um of exactly kind of what's going on in our view and how that compares to the last year. But I think kind of broadly speaking, um, sort of in an overall perspective, I think it's fair to say that the market is still busy. Um obviously we're still benefiting from interest rates being slightly lower than what they were a couple of years ago. Um and I think overall in the group space, now in the group space, that tends to be practices with eBit DAR probably north of about 200k. You know, I would say private and mixed practices still king. Um conversely, I think if you go to the independent market, which tends to be the slightly smaller market, um, you tend to find NHS practices are slightly more popular than they are with some of the groups because people like the income security that's going on. Also, banks sometimes find it a bit easier to lend where there's an NHS contract as opposed to private goodwill, which might be hinged on a principle. Um, so yeah, I think at the moment, you obviously there's still some geographical disparity where you've got areas of the country where it's harder to recruit, you tend to find there is a bit of then similarity um with those kinds of practices being a slightly tougher sell. Um, but that would probably be what my synopsis of what's going on in the market. But Phil might give you a bit more granular detail than that.

Dr James:

Yeah, that's I just want to jump into what you're about to say, Phil, as well. Interest rates have recently dropped, so that's gonna well, at least in theory, that should help.

Phil:

Yeah, 100%. I mean, the the difficulty is if we go back 18 months ago where interest rates were really high, there was a lot of independence that simply it wasn't worth them buying enterprise. When you added in the loan, once they went to their their bank managers or their finance brokers and they said, Look, can you do a stress test on this business for me? Um, and when the interest rates were 5%, and let's say you had a 2% um interest rate on top of that for the bank, and then the bank was stress testing, they were stress testing these opportunities at 9%. Meant that a lot of practices were just unviable for an individual out there looking to acquire. Now that base rate has dropped, and what you have got now is a really competitive market in terms of lenders which have come to the market over the last six months, is you've got these lenders fighting over deals, and where you were pretty much a dominated market by one major healthcare lender probably six months ago, is now you have five different lenders who are all looking to get that that funding. And what that's meant is that the vast majority of deals now are being agreed on the basis of 10% deposit. And we are seeing that banks are lending sub 2%. What that what that means is it's really competitive. It means that for the vast majority of practices, they're affordable as long as they're being well run, which is key. You know, activity at the moment, and where you get strong activity and strong competition, is through a well-ran business of which has scope for somebody to grow. But the biggest change has been to that independent market, which still forms roughly 70% of our activity to first-time buyers, is that interest rate change, is that funding element of where it's viable now and it's cheaper, and people don't have to put in as much cash, which means that they can invest in the business or the business interests. It means that that activity is just skyrocketed.

Luke:

Yeah, I mean, just so just to pick on a bit of terminology for you today. He said interest rates at sub 2%. What we mean by that is that's interest rate margin at sub 2%. So you're not going to be able to buy a practice and borrow that on a 1.8% you know interest rate. It will be 1.8% plus base rate at kind of whatever it is at that given point in time. Um which I guess segues nicely into probably what I was going to talk about with regard to interest rates. Now, that obviously we're in a tight a climate at the moment where there's so much geopolitical uncertainty. I almost feel burdened to say that it's the 21st of January because it might have changed by the 22nd of January. But obviously, this morning we had the latest inflation figures released, which were 0.1 of a percent higher than what we anticipated they they were going to be. And I think um what that then obviously moves into is then how that affects what the Bank of England panel decide to do with interest rates. I think there was an aspiration or a hope with inflation going down more than predicted in November that actually we would have a slightly faster interest rate cut. Um, and that in turn, you know, we would see maybe another quarter of a percent reduction in base rate in when the panel next meet. I think that's now perceived to be a little bit more unlikely because of the figures this morning, and also because at the time of recording, you know, there's the threat of US tariffs, you know, which are then going to impact into the UK if we're to win even a 10% or 25% tariff, depending on the the area that you're looking at, you know, that will then have a knock-on effect in the UK climate, which should then push inflation, which will then mean interest rate reductions will be probably slower than what they maybe otherwise would have been if we've recorded this last week.

Dr James:

Um so given that they might go up, right?

Luke:

Yeah, yeah, potentially, yeah. If we get into a really inflationary environment, then perceptively, yeah, then you could see interest rates go back the other way. Um, I guess as with crystal ball gazing, perceptually, that's probably not what I think we're gonna see happen. I think we've got to remember that in the domestic climate, you know, we've still got an economy which is borderline shrinking, borderline in recession. And indeed, this is kind of the threat that a lot of people see is that actually if we do have US tariffs, we may be pushed into recession. Um, so the idea that I think interest rates are gonna go up over this next year is probably a bit for the birds because actually they need to make sure that the trade-off of this um is that actually we still get a domestic economy um that's delivering, and we're not gonna be able to do that in a really high interest rate environment. Obviously, they've got a lot of levers they can and should pull, um, but I think that that that's unlikely. So I think as a buyer, you can probably buy with reasonable certainty that if you're you know, if base rate for argument's sake is 3.75%, that you're probably not gonna be in a situation in two years' time where you're gonna be paying 4.2 or 5% or 4.5%, um, because that's probably not the way the wind is blowing at the moment. But then, you know, obviously COVID, no one saw that coming. So things can happen, but on on the on at the moment, you know, without say for the black swan event, we're probably fairly settled with interest rates, and that's still the overall downward trajectory, and you would hope that over the course of this year um is nearer to that kind of three percent marker.

Dr James:

Yeah, nice, because that's the just and the government that's one of the that's the one of the biggest levers the government can pull, of course. It's in I always find it helpful to think of inflation as abundance of cash, right? So if interest rates go down, everybody learns more, right? Which is good for the economy, but bad for inflation, because there's more cash, right? And then vice versa. So that was the way that someone explained it to me once that I found very helpful. Inflation is basically the over excess inflation is the overabundance of cash, but it's good to have some inflation. Anyway, Phil, anything to add to what we're saying? Sorry, sorry. Huh?

Luke:

Sorry, look one of the ways they do that is the tax move. They want to remove money from the system, aside from your political persuasion. If you increase taxes, you remove money from the system, which then can have a downward pressure on inflation.

Dr James:

Yeah, that is. There's actually I remember watching a Ray Dalio video once, and he says there's four ways. And yeah, one of them was tax, one of them was the government reducing its debt load, uh, the other one was interest rates. There's another one in there as well. But yeah, it's it's all fascinating stuff. Shout out that Ray Dalio video, actually. It's very, very uh interesting, I suppose. Pardon the pun. Anyway, back to you, Phil. Anything to add to what we're saying? UK Dennists. Dentists who invest now has an official platform where you can learn about finance and obtain UK compliant, verifiable CVD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal. And for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month for this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Phil:

No, I I I guess if we look at one thing that amazes everybody, and I think people take a view on corporate dentistry, and almost, you know, everybody you know thinks that the corporates need to be really active and involved to further fuel the market. And to some to some case, that is that is what we need. You know, we do need corporates, we do need corporates to buy in, but we don't need corporates buying to this to the level or the same extent as what they previously were buying at. Look, you know, what we want for the market to continue to flourish is for patients to have choice, and we want entrepreneurial dentists to buy dental practices to fuel patient choice and to fuel market competition, which is what we need. Um, so what's going on with the corporates at this moment of time? Look, our corporate activity over the last 12 months has probably been slightly down on previous years, and we've been going for 15 years now. And and what's that attributed to? Um realistically, there's a lot of corporates out there who are managing their own state and managing eBIT data. So when we have inflationary pressures, every business um analyzes their cost base. And when everything's going well, and when the economy's going well, and when everybody's seeing year-on-year growth of 10, 15, 20 percent, is is although cost is managed, it's not managed under the same scrutiny as when revenue starts to flatten or the growth isn't as high, right? When it's high, everybody's happy. They look at it, yes, we'll buy X, we'll add a new person. Look, let's build the team. But as that growth starts to flatten and as costs increase through suppliers, is there's two ways that you go as a corporate. You either try to buy your way out of trouble and you go and go on a mad spree and buy as many dentist practices as possible and try and buy yourself out of that trouble. Or what you do is you look internally and say, well, actually, our e bit our margin is shrinking. Do we want to take on the additional risk and resource and integration of new sites? Or do we actually want to take stock of our current estate and look to manage our eBit data, manage our big hot head office function, which has spiraled out uh five or seven percent of their overall revenue? And do we start with managing internally first before then we go on it on an acquisition trail, which will have to come at some point? So the key is that you know, for some of the groups that are currently not in the market, in the future they will need to come and acquire, um, either themselves or through a sale of themselves to a new prior equity group, of which then we'll need to buy to have a return. So that will happen. At the moment, activity is is down, and that's due to a reduction of the number of corporates currently with within the market and a more selective approach on new acquisition. So corporates are doing deals, some are more aggressive than others, and what I would say is have their um foot to the floor is in terms of their acquisition strategy, which we've seen over the last two years, and they continue to do that because they are getting success in what has been a market that's slightly softening competition, allowing them to pick up more deals. But the players that are in the market that have taken a step back, undoubtedly they will be back in the next six months, five months and eighteen months. It's just a question of time, and then we will see whether their entrance into the market slightly improves valuations on a on a group multiple, which is a social-led profit, or if the market has, I guess, slightly retracted from the heydays to a mean data multiple of anywhere between 7.2 and let's say 7.8, as opposed to the heyday where people were purchasing single practices at eight times or above. One point that I would say is multiple isn't everything. Over the past three years, a lot of practices have seen exponential growth. So although the multiple may have slightly, slightly dropped, is actually these businesses are worth more because they've had that element of growth over the last couple of years, they've been able to manage their site effectively, and actually their rebit diary has gone from what may have been 22% to 24, 25%, but they've had the growth of revenue on top. Um, so from a corporate perspective, we do anticipate they'll be back. There's still corporates within the market, they represent probably. I don't know, I'm misquoting Luke Rogue for the goodwill guide, but I'd imagine it's about 10% of all transactions.

Luke:

Uh it's now to 18%.

Phil:

18%. Um, and I think that 18% is largely down to a couple of aggressive acquirers. And the fact that over the last six months, because this is the interim goodwill report, so of course, this only captures six months of completions, and there's more completions at the end of a financial year um than latterly, is we did as a as a as an agent a lot of big corporate transactions last year. I think we were responsible, um, and I haven't got the stats, but but in terms of numbers, we certainly acted on a on a on a lot of big high gross in private practices, which are king of the market to corporates that start at the top.

Luke:

Yeah, I guess the the the thing to look at is there's is what what is the reason for buying? Why why do groups buy? So when you've got a group that's funded by private equity, then the private equity, if they put, for arguments say 500 million in, they often they would expect a return on that 500 million. And and it's about how that 500 million is created. Um, and some of it is created by aggregation. So they bet on the fact that if they, for arguments say, buy something at seven times or eight times, that when it's part of the group, um you say they can set it up for 12 times. Now it's not a true 12 times because, as Phil mentioned, they lose some of that multiple in some of their acquisition costs or in some of their head office costs through the nature of running running that business. Now, you know, three, four years ago, it was easy because what was happening was is that we were in a private dentistry market that was booming. Um, so if they bought something at seven times, quite quickly that multiple, particularly if the principal was retained, often was softened down to six, six and a half times just in the exponential growth in the practice itself, which made the numbers look really good. And they were also banking on the fact that then when they sold, there was lots of people, people liked dentistry, and that they could quite easily achieve their sort of 12 to 13 times. Now, the reality is that both of those have got a bit tougher. You know, so one the last big group that exited exited at a much lower multiple than what they had, what we hoped they would get. I mean, I'm talking about the My Dentist sale last year. So all of a sudden you can't budget you're going to get 12 or 13 times an exit because you may not get that. That might well be a pipe dream. So you've got a problem may you have to buy more conservatively or you have to create more value. And then I guess the other side of things is that creating value is now a little bit harder because you've got now a situation where, you know, I don't like this phrase, the cost of living crisis, but where you've got a situation where people's mortgage rates have gone up because they've come out of fixed mortgages. We've been in an inflationary environment, and that's that's accordingly, they don't have the spare pounds to go out and spend on private dentistry in the same way that they did two years ago. So the idea of adding 50 to 100 grand to your gross every year, you know, that's something that happened two years ago, but is a lot tougher now without the right marketing spend. So you've got to be a lot more cognizant that you're getting that return on investment on your marketing spend. So what that meant is that a lot of the big groups, as Phil mentioned, have had to concentrate on their existing estates because they've had to look at and also prove to their private equity guys how they're going to give them a return on investment. So what that's meant is we've seen that kind of tier four group, and these are the people we say own anywhere between sort of three to sort of sort of 20 or practice, including tier three and tier four, um, who've almost come up through the ranks because during that period of time they can be now get slightly cheaper debt because base rates have gone down. They've probably paid down a lot of their debt because they didn't borrow money during a time when interest rates were high. Um, and also because they are often more nimble in terms of their management structures and in terms of their marketing structures, they're going out there and they're able to offer sometimes more competitively in terms of price, but moreover, more competitively in terms of deal structure. And that's sometimes where people lose sight of what the Goodwill report says. Because actually, from it's frustrating from our side, but some of the deals, actually, the multiples are a little bit depressed because the reason why is they had a higher offer at a higher price, but what you've seen is some of the tier four guys coming. And say, look, I'm not going to make you sign here that says that you've got to grow this practice by 5% every year for three years. What I'll do is I'll give you 200 grand less or 300 grand less or whatever it may be, but I'll give you all of that on completion, and then I'll just give you a little bit at the end of year one just to confirm you definitely stayed through that transition period, which, as me as my principal dentist, but let's be honest, if you run a profitable practice, it's probably reasonably well set up going into retirement. I'm saying, well, hang on a minute, that sounds like a much better deal. Because even though I'm not getting quite as much, I probably don't need the extra 200 grand. And actually, it means in year two I can jump on a plane and I can sit on a beach and I don't really need to think about how the practice is delivering back home. Now, from our perspective, it's frustrating. Depress is the goodwill reports. From their perspective, arguably, much better deal structure. And probably I would say we didn't see these deals three years ago, if you'd agree.

Phil:

Yeah, I agree. And I think multiple and I guess purchase price, you've got to look at purchase price. Look, if somebody is offering you 2.2 million, but it's on a 70% up front and 30% deferred over three or four years, or you've got two million. Look, once you take into account CGT that you're paying on that extra 200k, once you take into account the fact that you're missing out on near enough 600k of revenue, which you can pay pay down debts, you can invest at 5, 7, 8%, depending on your investment portfolio. Actually, once you factor in all of that into the equation, actually the differential isn't too much. Like Luke says, the difference in multiple doesn't look great from a report perspective. But equally, a deal should should be assessed on the merit of the overall terms of that deal, the type of buyer, what your plans are for the future. And what and indeed what we are seeing now is deal values of 1.5 million up to 3 million. You know, the likelihood is that it's going to be a microconsolidator as opposed to a corporate. Once you get past the 3 billion pound mark and deal with deal terms value, that's when it becomes really tricky for these microconsolidators to really get excited about the opportunity. And whilst they may look at the opportunity, is what they will assess is okay, what value can I add to this opportunity? Microconsolidators are more likely to want to see additional value add than, let's say, your bigger corporate groups who really just don't want to miss out on a big slice of EBIT data. So what we are seeing is the corporates focusing on them larger e-bit data transactions where there is still growth, but in which they're turning the dial on their group and they don't want to miss out on these big opportunities. That mid-tier, more likely to be a microconsolidator, maybe not the highest multiple, but really fantastic deal terms in which actually, when you factor in, as I said, paying off debt, once you factor in the difference between CGT and where you can invest that money, actually the differential isn't too great.

Luke:

Yeah, which I guess segues into nicely in terms of what we think will happen this year. Um, and I guess from our perspective, from our core business, is that I think we're seeing going to see less really big opportunities come to market because a lot of those people have sold over the last two years when they have nervousness over changes to capital gains tax. I think we've gone through that period of uncertainty around CGC. There's always going to be a little bit, but probably not to the same same level that we had. And what I think you'll find is that when a lot of the bigger groups come to market that come back to market, sorry, they're going to struggle to make their entrance because actually their private equity guys are still going to be saying, well, we want to deal on a 70-30 basis, we want to hedge that risk, we want to be absolutely belt on braces that we're going to get a return. And we've seen a little bit of that. We've got a site in London at the moment where actually, you know, they you know we've got a group that really, really wanted our fantastic site, big chunky slab of EBITDA. And then we said, Oh, yeah, but we've got an offer and we're, you know, whatever it's 100 grand away from asking price, and that's you know borderline north of seven and a bit times. Um, and that and it was almost you could almost feel like the echo in the room where it was like, oh, well, we kind of bought that kind of price, we might be able to buy it for six and a half. And it's like so they've so they're struggling to make those acquisitions because actually one of the more nimble micro operators are really going to tighten it up and they're not tightening it up on price. And if the private actually won't let them loosen on terms, the only way they can win deals is potentially to win it on price. Um, and if their margin is only 200 grand, it's not enough to float people's boat. So it's I I don't I'm not predicting this, so I don't necessarily think we'll see it this year, but it does beg the question about whether in the medium to long term, if they need to grow, whether we will see prices creep back up again, because they'll the only way they'll be able to win it will be on price.

Dr James:

Yeah, it makes sense. And you know, one one thing it could be interesting, uh uh which which which we touched on earlier and which will facilitate the rest of this conversation. You guys have your terminology for who qualifies as a corporate and a mini-group, and you you mentioned it just a second ago. Uh, Phil, if we could just expand on that and give the audience a clear idea of what each of these categories are, that would be really interesting, I feel, how you guys look at it basically.

Phil:

Yeah, so you do the tiers and the report, so you're probably best two and three. That was that was well teflon there, Phil.

Luke:

I like that. Um so yeah, so we we basically break bars down into five categories. So we have at the top, we call them the big five, our tier one, um, which is you know your my dentists, kind of your boopers, your rhododicks of this world. Um, we then have tier two, which is anyone who um who is who isn't one of the big five but has more than 20 practices. Uh, tier three is people who are with between 11 and 20 practices. Um, and that reason why we have that tier is because these people sometimes backed by private equity, but also someone also often debt financed. So you almost get a bit of a mix in tier three um as they go through the growing pains. Um, and then you have tier four, which is people who are in between three and ten practices, which are almost exclusively, unless they're in the very embryotic stage of their journey, debt financed. Um, and then you have people who are between one and three practices who we would refer to as an independent purchaser.

Dr James:

Nice. You know what we should do? We should take that report and we should put it in an email as well as this podcast. That could be really fun. But let's let's pick up on that one. Let's pick that one up after this. And yeah, shout out that one uh for everybody listening to the podcast to keep your eyes peeled on Dennis Invest email list because I think that would be really cool. Anyway, let's segue back to what we were saying: future predictions, everything along those lines. Look, you give us some insight as to how you feel things might pan out. Phil, what are your thoughts on that front?

Phil:

Look, I think I think the independent market is going to go go from strength to strength, especially for NHS practices. I think last year we saw some hesitation from um sellers that own NHS practices to come to market. And I think, you know, if you look at the press, if you look at at people's thoughts on the economic climate, on the potential change of CGT, you know, there was a lot of, from a seller's perspective, negativity on are they really going to maximize their asset sales. If we then look on the on the ground to these these owners, especially of NHS dental practices, the the recruitment challenges softened slightly. UDA rates seemed to stabilize, which meant that as an owner, you were more confident in being able to deliver the income in which you're delivering in terms of hitting your UDA target. You probably saw private income increasing, probably had less stress in terms of recruitment. So actually, running that practice became less of a headache than probably what it did the 12 to 18 months prior. Um so one of my predictions is going to be the likelihood is that we're going to get an increased NHS seller's market, and you're going to get a lot of sellers coming to market. That coupled with high interest or low interest rates and high demand from individual dentists. It wouldn't surprise me in key areas such as London, Manchester, Birmingham, Liverpool, you know, areas where recruitment isn't so much of a challenge. We're going to start to see interest exponentially increase for them opportunities. And what I'm talking about is well-invested opportunities of which have growth. But I do think the NHS market for independence will significantly heat up over the course of the next 12 to 18 months. Um, and that being said, I would probably add um mixed practices to that, to that. Um, that's probably my biggest prediction.

Luke:

Yeah, I mean, I think I'm gonna say something maybe unpopular now, which might get me shot, uh, is the fact that when we think about NHS contracts in Dent Street, I mean, on the face of it, they've had little uplifts, they've had these little percentage uplifts. But actually, underneath the surface, there's been two or three tweaks to the NHS contract, which actually make it easier um to hit your NHS UDA target than you maybe otherwise would have done before. Um, and so in real terms, if you look at it, you're being paid the same to do less work, which means in real terms you've had a real terms pay increase, but no one actually talks about that because for obvious for obvious reasons. So I think what you're seeing is practices will be finding it slightly easier um to hit their UDA target because they're now being awarded more UDAs for the work they would have been awarded less UDAs for at some point last year.

Dr James:

You're are you're you're referring to the 2A, 2B, 2C thing, right? Where it's like you get six UDAs for a more end or nine, stuff like that, right?

Luke:

Yeah, yeah. And that was kind of snuck out kind of just on top of Christmas from memory, I think, those those kind of tweaks. Um, so the the latest raft of those tweaks. Um so I think in turn that means that those patches that maybe would have come to market with a bit of a cloud over them because they were struggling to hit their UDA target by a thousand UDAs or something along those lines, and people will go, well, I'm not the pay top price for that because you know they might get a breach notice and they might have their contract cancelled, which has happened once in the time since the 2006 contract was issued, but banks still get very nervous about it. Um, is all of a sudden I think they're going to be hitting their NHS targets, um, and thus accordingly they are going to be better received into market, which again will push pricing on national health practices.

Dr James:

Interesting. Is it fair to say, and maybe this is a complete generalization, there's probably a lot of nuance to it. Is it fair to say mixed practices higher multiple? Okay, I see some nodding heads you with me so far. Okay, so that sounds reasonable, or that is the general theme. Mixed practices generally hire multiple, but private practices when, emphasis on the word when, when they work well, higher margin, like much higher margin, but maybe slightly lower multiple. But basically, if you can get them to work really well, they generally make in that situation, they can make more money. Is that fair to say? Or they can make more.

Luke:

In some respects, you often get big chunky bit dollars more often on private practices, but as a percentage margin, I'd say that's less true. Um, because what you've got to remember is in private practices, more often than not, you're paying the associate 45 to 50% of income before you've paid anything else. And often in private practice, your materials and labs are higher as well. Whereas actually some of the more most profitable practices are those practices um where you've got a higher UDA rate and you're still paying the dentist, say, you know, 30 to 32% of the UDA rate you're in receipt of, with quite often, you know, that kind of magic number, if you like, of somewhere between sort of 16 to 23% as a you know typical average EBITDA, is not unheard of to see an NHS practice at 30-32%. But actually, often that's because the contribution is coming from top slice in the UDA rate. Um, and actually, I would say, and Phil might disagree with me, that probably the the best received practices we take to market, and there are and they are still out there, albeit few in number, and is the practices with about 10,000 of UDAs with absolutely no private wealth whatsoever, because people see that as leverage that oh brilliant, I can buy this and I can create value and I can pay nine times EBITDA for this site because actually, give me a couple of years, I can put 200 grand private on that, and that's you know, I've created myself an opportunity that I've only bought for five or six.

Dr James:

Okay. Interesting, Phil.

Phil:

No, I 100% agree. Look, I think everybody's looking at opportunity more and more. Um, a natural opportunity to leverage on an NHS contract which has been delivered or in some cases not delivered, of which you're confident, but more in turn, opportune values in terms of look, they're not leveraging on their NHS patient base, we can grow this business without having to invest substantially in advertising, which is a cost. Um look, then then businesses are really attractive. Um, and when I when I just just kind of moving this conversation on as in terms of predictions into the future, whilst it's in my head, the the one big prediction that I will have in in the dental market is going to be not a radical change in associate remuneration, but we have seen in our latest Goodwill report is associate remuneration within the private element of the market needs or or I believe will change over the course of the next 12 to 24 months. Um if we look at the inflationary costs, if we look at labs, if we look at material spent going significantly higher than in previous years, and we look at the fact that over the past two or three years, everybody's been telling dentists to continually increase your patient charges, there's only so much that you can pass on to the patient. And I think in a lot of practices that have done annual and and in some cases increased price twice in one year are going to start to get to the point where they simply can't charge more for a crown, they can't charge more for a bridge. So that means that they're gonna have to either attract more patients, which costs, because you're likely gonna have to do that through advertising platforms, which will eat into merging, or there will need to be some kind of shared cost with associates. And now that may be through you know acquiring at a reduced rate to current associates when they leave, which would be the easiest strategy, or that may be through implementing different shared costs in in tune with shared lab costs at 50%. So maybe you're if you're looking to increase an associate's revenue, which is to their benefit, but you're having to spend X on advertising, X on finance, which is all eating into only the principal's margin, I can see more shared costs being being attributed to dentists as revenue grows, or a change in remuneration, i.e., sliding scales, drops of percentages. But quite honestly, you know, perhaps margins are going down, revenue is is is flattening, or the increase isn't as substantial as years before. That for perhaps owners to keep profitability um high or or at a level of which operationally it's it's it's worth continuing, there needs to be some adjustment there.

Luke:

And and we've seen a lot of that already, but backdooring. So what's defined as a shared cost, be it you know the credit card charges, be it actually the treatment coordinators cost, be it we take off the Instagram cost, you know, all being built into the associate statement. So rather than the associate's still looking at go, oh, I'm still getting my 50%. Well, actually, in reality, you're not, you're getting nearer to 37% because you've got all of these costs are coming off the top line before you're giving you 50%.

Phil:

Yeah. And whilst I whilst you know, we we say some practices, you know, and and I've looked at various statistics, practices running at a 20% eBIT down margin, a 22%, 25% eBIT down margin, that's great businesses. They're really profitable for them dentists. There's probably a reason for that. The dentists have probably over time looked to reduce their associate um costs, i.e., their associates on 45% sliding scales, you know, they've they've got a good handle on fixed costs, they're charging out what they should be to their patients, they've got good labs on boards, and they've been a business that's been running for a number of years to get to them to that level. It hasn't happened overnight. But for all of them practices out there, there's still the practices that are running at 15, 16, 17% EBIT down margins, which will need to adapt if they want to stay profitable and if they want to, I guess, survive and and become the valuable assets in which in which they want to be. Um there will need to be some change.

Luke:

So I guess in summary, our predictions for 2026 are big groups will try to come back, but they will try, they will struggle to make inroads into um the market because they would want to buy a lower price. You'll see a return of the popularity of national health practices with more practices hitting their UDA target than they otherwise would have done, and we'll see some changes to private dentist associate remuneration in the media to long term to help private practices sustain their levels of IBIT.

Dr James:

Boom. Thank you so much. One other quick thing to touch on was again something that we mentioned off camera. Look, and maybe this is more a sneak peek or preview, I guess, really, of some content that we might do soon. You mentioned to me, and this is a recent development, I think you said it was maybe just today, this or maybe very recently anyway, um, Labour are toying with the idea of removing restrictive covenants from contracts, which obviously has ramifications for denison principles, right?

Luke:

Yeah. So the Peter Carl, the business secretary, has been out and about talking about um obviously making it easier for employees to move job roles. Um and one of the things that prevents a lot of employees from maybe moving is is that the most obvious employee to them is a competitor. Um and they are bound from doing that for various different restricted covenants. Um and they're talking about changing the law so that actually it is a lot harder to enforce any restricted covenants. Um and that piece of legislation was snuck out alongside the budget late last year. So there's no real detail on it, it's more um, you know, they're sort of if you like testing the landscape a little bit at the moment. As you might imagine, there's quite a bit of kickback from business. But obviously, from a dental practice perspective, you know, if you've got associates who, of course, are self-employed, so that you know we don't know how this will impact self-employed legislation. Um, but if you look at California, um where non-competes are bound out, um, it actually does apply to self-employed people unless there's a cash sum that changed his hands, so they've been paid a remuneration for the ability not having a non-compete, um, then what it could do is it could mean you could have an associate, the five mile radius thing could mean nothing, um, which may mean that actually potentially you've got to look at how you protect your goodwill and how a buyer protects goodwill um in a situation where actually the associate in theory could open the other side of the high street um with no recourse.

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Dr. James Martin

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