Dr James, 0s:

Luke, practice valuations. Let's jump straight in, because this podcast was spawned off the back of a conversation that you and I had and some things that you told me that were really interesting. So, if we go, everybody knows about EBITDA and we're going to be covering that again as the podcast goes on let's go back in time and can you tell me, before there was EBITDA, before there was these metrics to calculate valuations on practice, how was that done? Because this was the gem for me. This is the thing that got me really excited and said that we should shoot this podcast today.

Luke, 28s:

Well, yeah, it's probably useful. The answer probably to say that I've been doing this for about 20 years. So kind of the pot of history that I'm going to kind of give you covers basically the last two decades and what's happened over those last two decades. Because when I first came into the sector, everyone talked about dental practice valuations as a percentage of revenue and indeed they were computing them on a percentage of revenue, and that is largely because they were worth considerably less than what they are now. So, typically, when I came into the sector, my presence was worth, say, 30%, 40% of the NHS. Well, there wasn't an NHS contract, but 30% to 40% of the total income, as opposed to the kind of metrics that we see in today's market.

Dr James, 1m 8s:

It just seems like there's so many holes in that.

Luke, 1m 11s:

There's massive loads of holes because, of course, the annual average is what practice would you drive by? Is it? Would you drive by a practice for 200 grand? That's making 100 grand a year? Or would you drive by a practice for 200 grand? That's making 50 grand a year? Now, everyone's going to buy the practice that's making 100 grand, so why on earth would they be worth the same amount of money? Um, yet that's how prices were valued and what was the logic on that?

Dr James, 1m 33s:

was it just for lack of a better system?

Luke, 1m 35s:

it was just like a better system. There's a lack of professionalization in the market and it was just the traditions of kind of that's how they were valued. Now, of course, I guess the thing that's probably worthwhile remembering is that when we're talking 30 to 40 percent of revenue as a multiple of profitability in terms of where we are now, it was a fraction of the kind of multiples people pay. So that's the reason why there was a lot less due diligence and there was a lot less process involved in buying and selling a dental practice, because, proportionally, the amount of people money, the amount of money people paid for them, was considerably less than what they pay for them now. So in some respects, it didn't really matter if you paid 25% or 30%, because you were probably still getting a good deal on today's money.

Dr James, 2m 13s:

Right understood. So, whereas now things are a little bit well, margins are squeezed a lot more nowadays, so people want to inspect that a lot more before they make any decisions.

Luke, 2m 26s:

Yeah, if you consider, now I act for people who bought a practice for 100 grand and they're selling it for like a couple of million quid um, and it's kind of like, well, why have I got all these due diligence? You know, when I bought the, when I bought the dental practice, we went down, sisters, obviously, we shook hands and he just gave me a couple of bits of paper that said how many patients he had. Well, the truth is, if someone's paying you two million pound, the expectation is they get a process which ratifies the value of that asset. When you were paying 100 grand for a business that probably profited somewhere around 200, 250 grand, is that you know you're paying six months money. In practice, it didn't really matter if there was a you know 10 wrong hole somewhere, because in the grand scheme of things, your playback period would still be probably within that year or two, whereas nowadays, if people are buying a practice for argument's sake for seven times, because in the grand scheme of things, your payback period would still be probably within that year or two, whereas nowadays, if people are buying a practice for argument's sake for seven times EBITDA, even on paper, before we consider the tax element, they've got at least seven years payback, but in truth, by the time they've paid the tax and by the time they've invested in maintaining the surgeries, you're looking at 10 to 11 years before you've even got to an equilibrium position for 11 years before you've even got to an equilibrium position, understood.

Dr James, 3m 26s:

So it's partly because the transactions, the valuations, are that much more significant nowadays that people just want to look into things a little bit more before they part ways with that level of money. Right?

Luke, 3m 34s:

yeah, absolutely yeah, so in part the turning point was twofold really um, and it was all um. When I first came into the sector, there was only I think it was 27 or 29, I can't remember um companies that had a limited company, that had a license to practice dentistry and they were some of the obvious names that we all know now, so sort of the idh and a racist dental carers they were who had two of the licenses and who are now obviously bupa um. So what you? What really? And which was a big struggle in the sector, people struggled to borrow money because there was only these 29 licenses of the limited company, which meant that they always had to have unlimited liability, which I'm sure you've covered on a different podcast. Now what happened is back in 2006, 2007, there was a relaxation of the Dentist Act which allowed for more dentists to trade as a limited company, and what it also allowed for is it then allowed for shareholders who weren't registered with the Gdc to come into the sector and own shares um beyond those 27 so 29 licenses. And so all of a sudden, you had loads more people from outside the sector come into the sector with money, which then enabled the. So then you'll see increased valuations um and, as a result, increased the change, the professionalization and the valuation methodology fascinating, okay, cool.

Dr James, 4m 44s:

So that's what shifted in 2007, and then how did things evolve since that point?

Luke, 4m 51s:

yeah, well, as a result of that, there was um, an nhs, um dental practice, or a group of dental practices called aep dental. Now they owned back in back at that point in time some individuals think about 36 dental practices. And as part of this kind of change, they got a load of money and they were backed by an islamic bank called captain and a private equity backer, and they went out and they bought dental practices um for what seemed at the time like an obscene amount of money. So you had you know, I at the time we were we were retained by agp. We were writing to dental practice owners saying do you want to sell your dental practice? And people were getting you know, 115, 120 cent as a reflection of gross revenue, and that was unheard of at that point in time. So what you had is that they suddenly went from you know in, the 30s number of dental practices to up to 120 odd dental practices when they sold, and that happened over a very short space of time. They would have got a lot more dental practices if we didn't, if they weren't blocked by a load of what at the time were PCTs, which you now know as area teams, because at that point in time transfer of NHS contracts had to be granted by the local PCT because we didn't have the partnership route. It kind of wasn't discovered. Now the partnership route is something which is commonly accepted now, but very much every practice before then. We had to go to the PCT and say look, will you allow ADP to buy your dental practices? And most PCTs were like no, no, don't want corporate dentistry, don't want this, don't want that, and they blocked as resistant as possible. Some PCTs were really easy, like Leeds, if I remember rightly. Leeds were a great PCT. They were happy to grant the know, the transfers, but most were not, and so a lot of the market was kind of held up by sort of a political movement by the PCTs at that point in time which prevented a lot of these, those dental practices, changing hands.

Dr James, 6m 35s:

I see. So really things started to move faster in certain areas and then everybody else.

Luke, 6m 43s:

Just it kind of felt like dominoes yes, basically what happened was you had adp with all this kind of money and they were getting blocked, and then you had some really clever lawyers, which is probably right. I should probably reference russ labor and ray goodman, who's both still practicing the sector nowadays, who basically have various different arguments and lobbies, you know, with the pcts at the time and gradually got this partnership route accepted, which which was then utilised by ADP and IDH, or MyDentist, as they're now known, to go out and make acquisitions en masse, and that reopened the market. Now, at that point in time, unfortunately, we did then also go into the crash and so, as I just mentioned, adp were backed by Calftin and Icelandic Bank, and, of course, those of us who were around at that point in time might remember that Iceland were particularly badly hit when we went into the crash and Kautfi's money basically dried up overnight, so ADP couldn't make any more acquisitions, almost just as the tide was turning. That got to sort of get rid of this legal blocker. And then what happened shortly after that, in 2011, because basically ADP at that point basically slammed the brakes on because they didn't have any money. Um, and then IDH bought ADP in 2011, in essence to remove their biggest competitor from the market to allow them to control kind of what you know the pricing was in NHS dental practices. So at that point in time we had this kind of period between 2006 2008 where there's assumptions ramping up of goodwill, um, particularly on the nhs side and I'll come back to private in a second um and then we have this kind of lull where kind of idh was still acquiring that adp did that many real money and but then we also have loads of people who were kind of going well, hang on a minute, if idh are doing this and if adp would have done this if they didn't have problems with Iceland. Then you started to see the emergence of other smaller developing groups the Southern Dental, who people will now potentially know as Coliseum, potentially one of those in that period of time and they started to come up the ranks. And at that point in time that's when we started to see lots of acquisitions and M&A activity within the market. But to go back to referencing that as a percentage of turnover, of course, the reason why ADP in particular was so keen to make acquisitions en masse is at that point in time they were only paying four times EBITDA for the practices Now a lot of the practice owners, because EBITDA wasn't really a thing in the market in 2006, 2007,. It looked like they were getting mega, mega money for their practices but actually in reality, in comparison to today's money, they were only actually getting four times ebitda, which is very cheap. Even if you go outside the dental space there's not many kind of you know businesses you can acquire four times ebitda that have, you know, an nhs contract and that is a fixed income, um, and that's why they were buying them or wanted to buy them so rapidly at such a price.

Dr James, 9m 26s:

Makes sense. So, relative to other industries, these businesses had fixed income. They were only four times EBITDA, which in other industries you would have paid a premium for. So they're getting hoovered up.

Luke, 9m 37s:

Yeah, and I guess that's the other case in point is there was two events that happened in this period Because of course we still refer to it colloquially as the new contract in 2006, which kind of everyone unil, unilaterally, um across the dental space, kind of dislikes the new contract, but of course it's not very new anymore in 2024 um, but that what that contract did is prior to that you had a load of um people who could just open an nhs dental practice. So you know, if you found a high street location and you got all the right permissions and then the pct just gave you money um based on what you delivered, whereas as we went in 2006 they wanted to be more control over budgets. People had to get and were issued with an nhs contract which basically removed new entrants in the market, which created this fixed income, which is why we saw at the same time we saw the relaxation of dentists act, so much interest in the sector because all of a sudden people had a guaranteed income um into their business as long as they did the the amount of NHS activity they were contracted to deliver right, I see. So that's when we started to see EBITDA being introduced as more of a concept yeah, it's a perfect answer because, of course, what that contract also did is it allowed for profitability on NHS dental practices in particular to increase? Because we still have it. In private practices, where, you know, we have fee split arrangements in the main and traditionally that fee split was always 50%. And bear in mind, there was always a dental recruitment issue in some, in some cases, in some harder to recruit areas which we now refer to as dental desert. People were paying 55% of NHS income just to get an NHS dentist to come and work in their practice, whereas when we had the new contract come in, people were being given £27, £28 UDA but they were only paying the dentist £9 to £10 UDA. So what we also saw is an increase in profitability in NHS dental practices because, instead of paying 50% of the UDA value, well, a lot of kind of savvy principals did around that point in time is they negotiated with their associates and paid them on a per UDA rate which you know, eight times out of ten wasn't 50% of what the practice was being paid Very nice, very, very, very nice.

Dr James, 11m 43s:

Of course maybe not so much nowadays.

Luke, 11m 46s:

You have to incentivize those dentists to the nhs nowadays a little more right you know, and it was always a little bit macabre because of course that point in time people didn't know that only all of this information could be a change in the public domain. So you had lots of principals that were going to their associates saying well, you know, the government are only paying me 20 pounds uda, so I can only pay you 10, um. And so they thought that associates were almost to an extent being misled, thinking they were getting 50%, whereas in reality they weren't. And that's what created this kind of profitability, if you like, and a shift in how we think about it, because we don't think about it in NHS terms anymore as a straight, you know pound per UDA as a straight percentage. We think about it as a pound per UDA, and so nhs now isn't paid on a percentage fee split, it's paid on a pound per uda basis there we are.

Dr James, 12m 31s:

Okay, good stuff. So we've seen how things evolved. So we started out at four. Ebitda was considered the going rate, and how did things shift since then into the 2010s, the 2020s, everything along those lines?

Luke, 12m 47s:

so what we saw over that kind of that, if you like that movement from sort of like four, four and a half, you know, to kind of where we sit today is we saw a gradual um increase over the years and and that's where kind of nhs for a long time was the king of the market because of this ability to create ebitda by, in some respects, not paying the associates 50% Now, and that kind of changed over probably and that probably maintained right the way through sort of the early 2010s and it's only really, as we kind of got to sort of 2015-ish 2016, where you started to see that practices were starting to struggle to recruit NHS dentists. At that point in time people were looking at the market saying, well, actually general private practice seems to be, taking off. Obviously, that was around the kind of time where there's some of the big sort of consumer brands in private dentistry, such as Invisalign you know, we're starting to get a little bit of traction and there was this interesting kind of private practice. So then you saw the emergence of some of the bigger private groups. Now don't go on, this happened on four wheels. We obviously had James hull you know who were kind of you know around probably the early adopter of mass acquiring private practice, but then they weren't deemed when, obviously they were then lastly sold to private equity kind of. The rules came off and a lot of their practices were either sold off cheap or they were sold back to the original principles, um, but then we saw this almost escalation over this kind of late sort of 2010 period, from sort of four and a half up to seven and a half, and it's probably fair to say there were leaks and bounds in that um. And then there was started to be a diversification depend depending on geography. So you start to see practices in london and then durham and fragment state. They start to command a heavier multiple than what you might get in, say, areas such as middlesbrough or newcastle, um, but even still, you still still saw lots of people coming into the market and because at this point in time you then started to the emergence of lots of, you know, individual kind of groups below that kind of big corporate sector, so you started to the emergence of people like what we now know as demira and smile, and all of them were being supported quite heavily by sort of debt funding, often by santander at this point in time, because I think santander realized that actually we haven't really had a casualty in the dental space. It was quite a safe-to-them sector, or what the banks referred to as a green light sector. And whilst you've got more competition, this continued to see the bubbling away where the multiples gradually continued to escalate until we've sort of got sort of the late sort of 2010s, where the market started to flip towards private as recruitment became a bigger challenge interesting and I've got a question and this is maybe slightly off time, off piste, but I'm gonna ask this anyway.

Dr James, 15m 16s:

So from my understanding of the gdc regulations, even to this day, in a practice or when you've got a limited company which owns a dental practice, then you have to have at least 50%, I believe, of the owners have to be registered with the GDC right of the company.

Luke, 15m 34s:

That's a common misconception. It's 50% of the directors have to be registered with the GDC. The ownership doesn't make any difference, so I'm not registered with the GDC. I can own 100% of the share capital of a limited company, but the majority of the board have to be registered with the GDC.

Dr James, 15m 49s:

I can own 100% of the share capital of a limited company, but the majority of the board have to be registered with the GDC Right. Because that never made sense to me, because I was like, but how does IDH do it then? Or how do all these other?

Luke, 15m 58s:

guys do it. Yeah, so, yeah. So that's where the misconception is. And when we say the majority, there is a generally accepted principle that 50-50 is okay, because what you have is your husband and wives are often, you know, the wife, or maybe in the husband, isn't registered with the gdc but for tax purposes, and they are both directors and they are both, you know, equal shareholders. Um, as long as 50 percent of the board is registered with the gdc, then that's acceptable I see.

Dr James, 16m 22s:

So, these big guys, these corporates, 50 percent of their board is dentists or clinical.

Luke, 16m 29s:

Registered with the UDC, so that means they can be dental nurses, they can be dental therapists don't necessarily need to be dentists.

Dr James, 16m 36s:

Right, okay, cool. Well, we wouldn't want to comment on specific companies, of course, but you know, and how they've kind of got around it, but that's the parameters that they've had to navigate and they've obviously found a way to do it basically. No, I was always interested in that because I I'd heard that being thrown around, but then I was like what doesn't stack up to me is how you can have corporate then in that case. So yeah, I wasn't quite sure yeah, no, that's that works.

Luke, 17m 0s:

I suppose the one thing that is a slight nuance to that is in terms of the nhs contracts, because a lot of the nhs contracts are held outside of the limited company and whilst you can have someone who's registered with the gdc on the nhs contract, they can't. A dentist has to hold the contract. So in the event that fragments that you have, you know, I would say, a dental nurse and a dentist on the contract if the dentist was to pass, but technically that contract then becomes. There's a latter term which now escapes me, but I'll use a simplistic term illegal. Um, so the dentist can't hold the contract, and normally there's not a lay period, it's only about 14 days, I think from memory where then that contract has to move back into a dentist's hands or it has to be technically terminated?

Dr James, 17m 39s:

there, we are fun fact, okay, great stuff, all right. So we've talked about how EBITDA has shifted with time and you also said something else interesting there. Just one thing I picked up on you said, or at least my interpretation of what you said was you can tell me if this is correct or not? It sounded like geographically nowadays is a big, is a factor in EBITDA. Right, it's like north, south, all of that.

Luke, 18m 0s:

It sounds like that wasn't so much of a thing back then right because I think there was so much land grab at that point in time, is that really didn't necessarily really matter where the practice was, because you had all of the big groups who were all quite keen as some of the savvy purses don't be wrong kind of could see down the road what was coming. The denture improvement wasn't going to be easy forever or it, but you did have a lot of land grab and there wasn't a lot of variation in multiples across different job face.

Dr James, 18m 27s:

I see, okay, cool. And that brings us pretty much up to the current day, unless there's anything else you feel might be pertinent.

Luke, 18m 37s:

Basically, by the time we went into COVID, we had a place where basically private dental practices, in valuation terms, had overtaken NHS because of the issues around recruitment and because a lot of people wanted to be able to soften their multiple by growing the business post-completion. So then as we went into COVID, of course what happened was the NHS dental practices got pretty well looked after. I know there might be an element of debate on that, but in the main they certainly got better looked after than private dental practices did. And so when we came out the back of COVID, what you saw is from an independent market perspective is you saw a massive interest in smaller practices because associates, particularly those with traders, limited companies, got let's go on a suite FA in COVID support all the way through that period of time and they in essence had four months of work but they didn't get paid at all and a lot of people felt that potentially they'd been shafted by their principal dentist. So as we came out of the back of COVID, when we all came back to work on the 24th of June, is that we saw literally, you know we were inundated with people who wanted to buy dental practices, never considered it before and they were buying sort of the smaller dental practices, but also they wanted to buy kind of NHS dental practices in the same breath. And then some of the kind of mid-tier groups at that point in time who have maybe skewed towards buying more private practices then slightly diversified back again or wrote back again and said actually, you know, we want to buy something that's more mixed, so rather say, if this situation was to happen again, then we've got the backbone of a dental plan or the backbone of an nhs contract. That gives us a bit more support I.

Dr James, 20m 9s:

So that's what you're seeing at the moment. You're seeing mixed practices be the ones that are most in demand.

Luke, 20m 16s:

Yeah. So if I was to drop a promo for five seconds, if you were to read our mid-year goodwill report, you will see that the biggest multiples are paid for mixed dental practices, not purely NHS dental practices and not purely private practices Interesting.

Dr James, 20m 29s:

Okay, and that sounds like a fun thing to segue into next. So you, we've got fully private, we've got there's never really fully nhs, there's always like two percent private in there. But let's just consider it like 90 and above something.

Luke, 20m 46s:

But when I talk for the nhs for the purposes of our reporting we mean sub-practices, which is more than 80% nhs, so that allows for that kind of our reporting. We mean sub-finances, which is more than 80% NHS, so that allows for that 20% differential.

Dr James, 20m 55s:

Okay, brilliant. So you've given us a little bit of a dichotomy that we can use there. Excellent, okay, nice. So let's consider mixed to be anything that's 80% and under NHS, right? Yeah, is the way we're going to roll with it and not fully private, right? Less than 80% private and less than 80 private and less than 80 NHS. That kind of middle point is mixed less than 80 private and less than 80 NHS. Oh, okay, okay, oh, I see, right, because at the other end of the scale you've considered the, even the 20% privacies are pretty much 20 20 NHS practices are still pretty much private in your eyes, or that's the rules that you used. Anyway, it's just as long as the system is consistent, okay, so, between 80 80 on one side, 80% NHS and 80% private and the other, there are mixed practices. Let's just drill down into that because this could be fun, right? So the multiples are generally higher in here. That's what the research says. And all those practices. There's always 80 20, right? you know the 80 20 rule, yeah, yeah there's gonna be 80, there's 80, 20, there's 80, 20 of flipping everything right. So you know, even in that little proportion right there, there's still going to be some more, some outlying practices that seem to achieve higher valuations. What do they look like in that mixed category?

Luke, 22m 5s:

um, will you mix the ones that kind of get more? You know are ones when often there's something left on the table. So it's where sometimes you've got a deflated EBITDA because maybe the business isn't doing what it should be doing and that might be because they've got too many staff. It might be that they've got a totally untapped revenue stream. For instance, they're not offering Invisalign or they're not offering implants, or they're a fairing out a load of work which, seemingly to a naive person, why would you fair it out? Why aren't you doing it yourself? Um? So you know, it's where all sometimes it can be a lifestyle business, where we are for argument's sake. You know, you've got a guy who's working two or three days a week, has no interest in taking on associates, um, and has decided that's all he wants to do, whereas actually, you know, the moment someone steps in, they are going to pay. You know they are going to be able to open five days and they're going to grow that business, um, and it's a really easy business to grow and that's where people pay pay premiums because you get competition on those kind of practices right, so people are more savvy to that.

Dr James, 22m 58s:

Now they'll pay a premium for the ones they can grow, which makes sense because the profit is going to be lower, right, and that's why you can grow them. So therefore the multiple is going to be higher, but you still pay less overall.

Luke, 23m 6s:

Presumably maybe yeah, because you could be. Argument is you can dilute your multiple more quickly. So, for example, if you buy a practice that's doing 100 grand a year even and it's turned over a million pound, that's 10. That's really low um on my. I would expect an email, typically for most practices between somewhere between 16 and 25, as a reflection of revenue. So if someone's doing 100 grand a year, even though on a million revenue, you look at it and go why, and if there's an easy answer as to why, then then that's where you see. You know, if I said for a second mixed practice you'd get 7.27 times EBITDA, so in theory that business should be worth 720 grand, then actually you know, quite often would sell the business for 800 or 900, because as a percentage of revenue it looks cheap. And people still think like that, even though that's not the methodology, but also because they know that 100 grand can quite easily become 200 grand if they just sorted out what the problem is underneath it.

Dr James, 24m 0s:

Brilliant, wow, interesting any more? Any more things to look out for? Yeah so.

Luke, 24m 7s:

So the first thing is depending where you want to buy, is that you know if you're buying a practice in north london or harborshire, you are always going to pay a massive premium because there's so much competition and there's so much family money in that sector, whereas those that kind of go. Well, actually, you know, within an hour I can be in Colchester right. Then that's where often you can pick up a much cheaper practice for exactly the same metrics, just purely based on kind of geography. And the biggest thing a lot of people lose money on, which a lot of people are coming more so into, is hygienist occupancy. It's where you've got hygienists who pay guaranteed hourly rates but actually the hygiene book has got 40% white space. And that's something. Particularly if you've got self-employed hygienists, you can flip within a month or three of buying a business and unlock massive EBITDA.

Dr James, 24m 50s:

Wow, I see, Just by doing some marketing presumably.

Luke, 24m 54s:

Marketing, just by changing the HID's enumeration to a percentage fee, so that even if you pay them slightly more per appointment and often people find that sorts out the occupancy itself, because actually suddenly if the hygienist is, it matters to the hygienist that they've got a half an hour white space at 11.30, suddenly they area lot more proactive in terms of getting a patient in the chair or they're jiggling their appointment book around so that you know that maybe they finish at half four as opposed to five, you know, so that they can make the most of their day I've heard people, uh, some of my friends who uh purchased dental practices, uh, quite regularly.

Dr James, 25m 28s:

They've got like four or five under the belt and they say what they look for, one of the hallmarks they look for is paper notes and analog x-rays. Right, because because they just know it just says quite a lot about the practice itself. It's kind of like, yes, that's what the headline says and that's what you know the body of tech says. But reading between the lines, if they've got that there's probably tons of other things they can improve as well. What do you think about philosophy?

Luke, 25m 50s:

you've probably come across that for actually yeah, because the chances are, if they're doing that, they're also not remarketing to their existing patient base, so they're not doing their recalls properly. And then, likewise, you know they're not doing things like promoting. You know it's a line or rims are sort of teeth winding because they've not got it all on a mailing there, so they're mail chipping and stuff like that which is, you know, really really cheap marketing but actually can make a massive difference in terms of patients through the door boom, just curious, what sort of multiples are we looking at for praxis, like the ones that you just described?

Dr James, 26m 20s:

so the the opportunities, the gems that are mixed praxis again, it all depends on kind of geography.

Luke, 26m 26s:

But if you're looking for practice which is significantly underperforming, often that multiple is about one times higher than what the market would be and because people pay premium on top. And so if I said you know a mixed practice was 7.2 times, associate leddy with dar, you might be paying 8.2 times for that business but you would expect that a multiple could be diluted within six months of acquisition I see food for thought.

Dr James, 26m 50s:

That's certainly interesting. What about associate?

Luke, 26m 55s:

well, that's quite a friend. And that's where the opportunities lie for the independents and for some of the smaller groups, because if you were to go and talk to a big corporate, they would only buy based on what's on. You know what's on paper right now. Now they, whilst they may look and go oh yeah, that's really easily done their boards will not let them pay a premium for that practice because, put simply, the numbers aren't there and there's no guarantee to be able to do it, whereas if you're a local practice owner who can go and make those changes personally and. I've seen it so many times. I've got a guy who I'm now selling his eighth dental practice where he's bought practices, turned them and flipped them in two to three years because he will buy the business, he'll pay the extra term in the multiple but then he'll make all the changes in a couple of years and then he's back out shifting them. You know sort of, you know often a million to two million pound profit.

Dr James, 27m 38s:

You know within that very short space of time see, that's so valuable to know, because obviously the majority of people who are listening to this podcast are going to be associates or principals or independent practitioners. Right and uh yeah, to know that the corporates are not even necessarily interested in these, because, well, it represents, I guess you could say, to paraphrase what you just said to them it represents too much of a risk, or maybe too much legwork is one way of saying it yeah, yeah, they might do it and it might not happen.

Luke, 28m 5s:

Now, most of us will go well, yeah, all you've got to do is that, of course it's going to happen but that's not how these private equity boards think well, there you go.

Dr James, 28m 14s:

Uh, they're not going to start the instagram, for example, right, they're just not going to do that, right, it's that's more, uh, where the young guns come in. Oh, it doesn't even necessarily have to be anything to do with the edges, where the independent people are going to come in, right? Yeah, not that it's all about instagram, but you know, that can be one area where people are massively lacking associate led. Someone told me something really interesting about associate led. They said that they said that out of all the dental transactions, the transactions that they've ever brokered, only about 10 of practices are associate led when they're owned by people who are independent, outside of corporates. Obviously they all are. That's a different kettle of fish. What do you think to that?

Luke, 28m 50s:

uh, and of course I don't know the actual metrics, not something we measure internally, but anecdotally I'd even say that sounds high, Wow. It's quite rare that we get approached for an opportunity where they've already turned into a turnkey business. I would say the vast majority. To some extent they restore principal dentists and they're doing at least a day or two a week. To some extent they restore principal dentists and they're doing at least a day or two a week. Um, it's quite rare that we see associated opportunities if they're owned by someone who owns between one and three dental practices because that's what people get hyped about nowadays, because everybody wants passive income, inverted commas, that's what people get excited about, right.

Dr James, 29m 24s:

But to actually make that happen is and get it to work and get the numbers to work is so flipping rare, like literally 10 of the time easier said than done, and it'll be interesting how that changes, of course, going back to kind of what we were.

Luke, 29m 36s:

You know, provision to talk about, about the you know, the history of the world and where we go from. Here is, of course, what's happened over the last few weeks is massive changes to taxation and capital gains. So where? So, whereas before, where you've got people who own a dental practice and even if they're doing a couple of days a week, say, they're making a couple of hundred grand a year out of it and they're looking at it and they're going okay, well, I get running dental because of hassle. Yes, okay, there's a risk because my associate could leave, but I'm still making 200 grand a year. Now, if someone pays me let's make the math easier a second they pay me seven times EB business, which means I'm getting 1.4 million and on that 1.4 million, the first million quid I'm paying 10% on and the other 400 grand I'm paying 20% on. So from that perspective, is that their tax bill is relatively low. So when you kind of balance it all off, you go well, okay, if I continue to own it, I'll pay income tax and actually, in the grand scheme of things, what my seven times EBITDA is basically about 10 years money after tax if I owned it, so is basically about 10 years money after tax if I owned it. Um, so I'll sell. But what we've had over the last you know few weeks is suddenly that cdt on that balance of 400 grand has gone 24 percent. And suddenly you know what will happen over the next 18 months is that 10 percent bit, that first million is going to 14 percent at the beginning of april and then to 18 percent the following year. Um, and what I think we'll see more of is we'll see people go. Well, actually the benefit of me selling versus the benefit of me holding. If I can get the numbers right, I'll hold and I'll try and run the business myself and I'll try and make it a turnkey business or an associate-led business where I don't go in and out very often, and some of that might be that I'll pay a really good manager. Some of it might be that I'll pay a really good manager and some of it might be that they'll give the associates a little bit more to kind of lock them in. So there's the incentive for them to be eyes on the ground, so to speak, and it'll be really interesting how that behavior changes. But I think in 18 months time we will see less dental practices come to market because we will see people hold them in lieu of the fact that actually the, the, the um, from the value analysis, there's more benefit to hold in than there is benefit to benefit to selling um and that might have an impact on goodwill, because what we might see is basically economics a slight supply and demand. If there's not enough stock coming to market, then you would expect that the value of that stock will go up. So that will be interesting. What happens if, conversely, we might see a slight downgrade in the next 18 months because there'll be more people coming to market sooner because they think that they want to sell before the tax changes? I'm not so sure about that because I think, from the amount what we sell these assets for is 40 grand extra tax because they're on, the average dental practice still sells about 1.1 million. So most people put an exchange is worth about 40 grand to them. People take um. Is that whether that will sway people's value? I'm not so sure it will, but I do think kind of afterwards we will see more holding also because, if you know, whilst I don't want to get into politics on this particular platform is that there is a perception that actually this might be a one term Labour government. And if it is one term Labour government is that will cgt go back down again if the tories were to be re-elected? So is it worth holding for those three years to see if actually in two years time I can get out and pay slightly less tax? Anyway?