Practice market better, but not perfect
The market in dental practices in Ireland is on the up, according to one of the sector’s key players. However, uncertainties loom and a return to pre-economic crisis levels of activity are not guaranteed
Writer: Stewart McRobert
If you’d like a barometer of dental practice sales, check out the feelgood factor among Ireland’s middle class. That’s the view of Dr Niall Jennings, the country’s only independent dental broker.
As a dentist, Dr Jennings has been involved with the profession for 45 years, and he believes the fallout from 2008’s economic crash crushed middle-class Ireland, which in turn led to practice numbers reducing by around 40-50 per cent.
“In Ireland patients have always been used to spending money on their teeth, and parents too, particularly orthodontics for their children. The crisis saw dental business as a whole shrink markedly,” he said.
“Until two years ago credit was extraordinarily difficult to get for dental practitioners. Banks were wary of lending for property, never mind the goodwill of a dental practice, which in many cases is unsecured lending.
“The restrictions they imposed meant if you wanted to buy a €300,000 practice you’d have to find €100,000 of that yourself, and very few people have that kind of money rattling around in their back pocket.
“However, in the last two years, and more especially in the last year, things have relaxed somewhat. The banks are ready to look at the market again.”
The downturn had an equally negative impact on valuations. Dr Jennings noted that three or four years ago a valuation would be approximately 50 per cent of gross earnings. Now, it’s more likely to be 60 per cent, taking into consideration EBITDAR (earnings before interest, taxes, depreciation, amortisation and rent/rates). “It can go higher if certain conditions exist,” he added. “For example, if the practice is fully equipped with the latest digital technology, whether there’s room to expand, a positive ratio of private/medical card patients, and/or the opportunity to expand services within the practice, and so on.”
One factor helping to increase the turnover of practices is Ireland’s tax system. Retirement relief allows a practitioner to sell his/her business and assets and avoid capital gains tax on revenue gained up to €750,000, under certain criteria.
“You don’t even have to retire to take advantage of the relief,” said Dr Jennings. “You can offload your practice and continue to work through a transition phase that might last one, two or three years.”
That transition is a vital period for the new owner. According to Dr Jennings, Irish dentistry is based hugely on personality and relationships. Few principals sell a practice on a Friday and are gone by the following Monday. Patients are wary of change and often there will be a period of adjustment before a new practice owner is accepted.
“That puts huge pressure on those taking over practices to get the right fit, taking into account staff, the dentists themselves and, especially, patients.”
Brexit and beyond
The ongoing saga of Brexit casts its uncertain shadow over a great deal of Irish commerce, and dentistry is not immune. Following the vote in 2016, a good number of Irish dentists decided to return home from the UK, but, Dr Jennings said, that flow has now abated somewhat. “What I’m finding is a big increase in colleagues coming in from Romania and the Baltic states. They are avoiding the UK, but keen to go to an English-speaking country that is relatively stable, open and welcoming.”
These newcomers are boosting an existing central and east European presence with a significant number of Polish and Hungarian dentists already established in the country. The changes taking place are adding to the state of flux that Niall believes is currently affecting the profession.
On the positive side, he highlighted the successful response to recession and growing economic strength. “That’s brought middle-class Ireland back to a reasonably good level. Dentistry has benefited from that.”
On the negative side is the issue of dental associates, in most cases now being regarded as employees by the Revenue. Or rather, Dr Jennings said, it’s the consternation caused by the lack of clear guidelines from the Revenue.
Dental practices are being approached on a case-by-case basis, which has led to a certain amount of uncertainty within the profession.
“Five years after the ruling, the confusion remains. Recently, Revenue have brought up the concept of VAT being applicable on associates’ fees in certain cases.”
The lack of clarity can make it difficult for an associate to plan their move to take over a practice. This usually involves building up a war chest beforehand. However, that could be difficult if you are being taxed as an employee, rather than a self-employed individual.
Property rental costs have escalated in recent times, often increasing by up to 50-80 per cent. Meanwhile, planning permission is complicated for anyone who wants to build or develop a practice, and patient fees have become more competitive. “Journeying to Northern Ireland is not quite as attractive for patients as it was 10 years ago when fees there were a fair bit lower than the south. These days, people have to work out if it’s worth travelling back and forth to the north for treatment.”
There is a persistent belief the country is failing to produce dentists in sufficient number, while EU regulations mean it is difficult to plug any gaps by recruiting non-EU dentists.
Despite the challenges, Dr Jennings believes Ireland remains a great place to work and the marketplace in practices will continue to rise. “Dentists who fit in with their patient base, are skilled and are prepared to give a commitment to a community will prosper and enjoy being part of a fruitful profession.”
‘There are now more career options open to young dentists’
One of the most active players in the current market is Dental Care Ireland. Established in March 2015, the group has embarked on a rapid programme of acquisition. Its most recent addition in Claregaway, Co Galway brings the total number of practices in the network to 13. It is on track to reach a target of 15 by early 2019. Colm Davitt, founder and chief executive, sees no reason to let up on the company’s ambitions.
“It is our vision to have a national network of established, high- quality practices right across the country, so we are open to considering all locations if the opportunity is right. “All of our practices have a long-standing reputation and loyal patient base in their local area.
We look for dentists who are committed to remaining with the practice for at least the medium term and generally our practices have a minimum of three chairs.
“We work closely with the incumbent dentists to build on the individual traditions of the practice, so a positive fit is key. We see potential in places that may not have the time to market themselves, for example, and where we can introduce a specialist. Our aim is to free dentists from administrative burden, allowing them to focus on clinical dentistry.
“We will certainly continue to be an active purchaser in the Irish marketplace for the foreseeable future.”
He has noted a trend towards larger practices that focus on a particular niche, such as cosmetic treatments. “The sector is still in recovery following a long period of stagnation from the recession, but the outlook is generally positive. The reinstatement of some PRSI benefits is a good indicator, and I’m happy to say Dental Care Ireland is going from strength to strength.
“There are now more career options open to younger dentists, and I hope they will continue to be supported to pursue their ambitions. I also hope we will see continued restoration of publicly funded dental benefits, with a view to improving access for patients to quality dental services.”