Healthcare M&A update: Q2 2018

Sector spotlight: Dentistry

The $134.4+ billion dentistry market is forecast to grow at an annualized rate of 3.4 percent over the next five years, driven by favorable demographics (aging population), increased private health insurance coverage, improving per capita disposable income and the rising awareness of oral hygiene as an important part of overall health treatment.

The high level of market fragmentation and the industry’s lack of exposure to economic up-and-down cycles has garnered significant attention from both private equity and strategic acquirers who recognize the tremendous opportunity that exists to scale the business model. Drivers for dentistry practice consolidation include:

  • Highly fragmented market: In 2018, IBISWorld estimates that there are 187,437 dental offices in the United States due to dentists needing to operate their facilities in close proximity to their patients’ homes. According to various dental consultants, only about 12,000, or 8 percent, of U.S. dental practices are private equity owned, leaving room for further consolidation. In fact, the American Dental Association has found that solo practices are disappearing at a rate of 7 percent per year.
  • Rise of dental practice management companies: Many dental clinics have opted to join larger corporate entities, which has enabled them to focus on caring for patients while offloading many of the administrative elements of running a small practice.
  • Evolving patient dynamics: Dental patients are becoming increasingly concerned with immediate access, convenience, simple pricing, transparency and efficiency. Solo dental practices are not able to compete with the more organized and professional atmosphere offered by dental practice management companies.
  • White space acquisitions: By acquiring practices in adjacent geographic locations, practices are better able to serve their primary patient populations while leveraging existing management resources.
  • Schooling costs: The rising cost of dental education has further spurred the trend toward group practice management. As dental students are graduating with increasing amounts of debt, many graduates are opting toward dental management companies as opposed to investing significant capital to start their own practice.
  • Personal liquidity: Significant interest from private equity investors has led to attractive valuation multiples for dental practices, providing an exit strategy for retiring dentists who are often replaced by younger dentists who are less interested in running the business side of the practice.

Source: S&P Capital IQ; IBISWorld; The Wealthy Dentist; Inflection 360; Dentistry IQ; Baker Tilly Capital insights (July 2018)

 

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