A closer look at the Portman and Dentex merger
Featured Products Promotional FeaturesPosted by: Dental Design 18th November 2022
You’ve likely heard that Portman Dental Care and Dentex Health have shared plans to merge their companies. It was quite the announcement as, once combined, these two companies will form the largest dental group focused on private in the UK, and one of the largest dental care platforms in Europe.
Together, Portman and Dentex will operate around 350 practices, 2,000 clinicians and 4,000 employees, and the merger will be supported with equity funding from the Core Equity Holdings. Suddenly, two already large players in the dental market are going to form an even bigger one, so what activity can we expect to see in the market in the coming months?
What to expect if you’re selling
It is thought that this move will be completed by the end of the year, or when approval is granted from the Competition and Markets Authority (CMA) – this may not come until as late as May next year. For now, Portman and Dentex will be operating as separate entities and will be directly competing against one another, as both will need to maintain their run rates. Together, their ultimate goal is to achieve a market capitalisation value of around £3.5 to 4 billion in their new pan-European group. They are some way off of achieving this, but they could achieve the target in the proposed timeframe by continuing to make acquisitions and remaining competitive in the acquisitions market.
So, if you’re looking to sell your practice, rather than believing it is only worthwhile talking to one or the other, it would be prudent to approach all parties as they will still be providing separate offers. However, while it is true that the mergers and acquisitions (M&A) unit will likely be one of the first functions to merge, it is still a valid consideration if you have preference over which organisation you would prefer to sell your business, and to work with that business for the duration of your earn out. Both companies will likely be run as independent entities for up to two years beyond their completion date.
How will this affect the market?
Some are questioning whether the merge of Portman and Dentex will cause the value of private practices to fall out of the market. While there may be a slight dip, it certainly won’t be seismic – if there is a drop in value, it’s likely going to be the result of the increased cost of borrowing and inflation pressures, rather than down to the merger. The rise in interest rates is shaping up to be a much bigger issue for the dental market. Before, you were paying between 2 and 4 percent plus base, which is set remarkably low at the current 1.75 percent. However, it is thought that this base rate may rise to 3 or 3.5 percent over the next 12 months. With this in mind, a 3 percent plus base interest deal could then cost around 6 percent. Bearing in mind even the groups backed by private equity are often borrowing money if the cost of funds become more expensive, then the return on capital employed will drop unless the asset price drops as well.
It’s also worth noting that there are numerous consolidators in the private market who are looking to acquire practices. Two of the bigger names include Envisage Dental and Gensmile Dental, but there are also a number of smaller entities active too. While we may ultimately lose one acquirer with the Portman and Dentex merger, we’ve just gained another one in the form of TriSpan, who are making their English entrance through their acquisition of Enamel Dental. The market is cyclical in nature – we lose one acquirer, but soon gain another. In this instance, the cycle is merely the other way round, whereby we’ve gained one and will lose one. For example, Bupa Dental Care exited the market about eighteen months ago and doesn’t seem to be making noises of a return, but their returning to the market at some point is likely. Integrated Dental Holdings (IDH) are also making a return with the appointment of a new Head of M&A!
A final note
It’s worth reiterating that, as we head into the recession (albeit there is now talk that might be narrowly avoided), healthcare is one of the most resilient sectors – the string of past recessions has proven that much. Solidly private practices, which Portman and Dentex prefer to acquire, have historically proven to be resistant to recession pressures and there’s nothing to suggest that, this time around, things will be any different. In times of a recession, a lot of external money tends to flood into the healthcare sector, as other assets are often deemed too risky, such as the hospitality and commercial property sector.
In these shifting times, the strength of the dental sector is one thing we can continue to depend on.
For more information, visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
Luke Moore
Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
