Does the question of independent Scotland threaten the value of your practice? Martyn Bradshaw offers his opinion.
The funding of dentistry in Scotland already operates independently from England and Wales. The SNP has pledged to continue to fund a Scottish NHS if they achieve their aim of independence following the referendum in September 2014. Opinion on the predicted result of that referendum is polarised but we should consider how the potential of independence affects the funding of dentistry in Scotland and if this is likely to impact on practice values.
Supply and demand
In England and Wales the provision of publicly funded dentistry was effectively capped in 2006 with the introduction of contracts for NHS dentistry. The subsequent effect on the value of a dental business (i.e. goodwill) was dramatic – a limit on the supply of NHS funding drove up the value of those businesses already in receipt of that funding. Although the Department of Health continues to develop the mechanics of the NHS contracts, there remains a finite supply of funding in England and Wales and, as a result, the value of goodwill keeps rising.
So how is this relevant to Scotland? Let’s face it, the greatest drain on public finances in Scotland is and always will be the provision of free healthcare. The SNP has pledged to continue with a publicly funded system. While this is likely to be true of front line medical services it remains to be seen whether dentistry will suffer if an independent government has to reign in spending. It is highly likely that funding for dentistry in an independent Scotland would be capped in the English manner, with the knock-on effect of driving up goodwill values. In fact this may already be happening. Recent years have seen a significant rise in goodwill values across Scotland, with practices commanding similar (although slightly lower) prices than their English and Welsh counterparts. Traditionally, Scottish practices were sold by private agreement but as owners discovered this rarely benefited them, sales are now mostly conducted on the open market.
Thriving in Scotland
Many Scots seem less than enthusiastic about independence and a recent poll (published in The Scotsman on 10 May) shows only 31 per cent of Scots are likely to vote “yes” (“no” vote 59%, undecided 10%). So, if the SNP fails in their bid to achieve an independent Scotland will dental practice values be affected? My opinion is that a move towards limiting the provision of NHS dentistry is on the cards with or without independence. NHS dentistry in the UK, rightly or wrongly isn’t necessarily seen as a front-line medical service and as such future governments will inevitably chip away at funding. This takes us back to the economics of supply and demand and ultimately the increase in goodwill values for those practices already in receipt of NHS funding.
Dentistry in Scotland, like the other professions, has a strong identity. This may in part be because the medical professions in Scotland have always punched above their weight, helped with well established and internationally recognised universities and the royal colleges. It is apparent that the business of dentistry is also thriving in Scotland with a strong market for practice sales and the ancillary business functions that support dentistry, such as marketing and business management disciplines. There appears to be no shortage of buyers – with the demand for practices in some locations outstripping supply. All this points to a sustainable market for dental practices should Scotland become an independent nation.
Investment from Europe
One aspect that drives the practice sales market is bank finance. Does independence threaten this? Currently the availability of finance in Scotland is every bit as good as in England in Wales. The major high street banks have dedicated healthcare divisions in Scotland, notably RBS and the Bank of Scotland, with other banks now entering the healthcare sector. The banking industry is in sufficient turmoil, without considering the impact of an independent Scotland. However, it is inconceivable to think that the major banks will not continue to support Scottish businesses. High on the list of priorities for the government of an independent Scotland would surely be a drive to make funding available for all aspects of commerce, including dentistry.
In fact, in recent years a significant tranche of the funding available for those purchasing a dental practice in the UK (Scotland included) came from Europe. Some €4.2bn of European Investment Bank (EIB) funding for small and medium sized businesses has been approved in the first four months of 2013. Some of this will filter through to those buying a dental practice, as UK banks have access to this funding. Assuming an independent Scotland remains a member of the EC, banks licensed in Scotland would continue to benefit from this supply of money.
Another aspect to consider is how the business of dentistry is treated by UK organisations based in England and how this would be affected by Scottish independence. There is evidence to suggest that some English organisations are reticent to travel to Scotland to conduct business. This may have something to do with geography and travel costs, although it is more likely that English organisations lack the drive, effort and funding that is required to break into the Scottish market. Of the major UK practice sales agents it seems that very few have a Scottish base, or appreciate that Scotland is already a separate market.
Independence aside, demand levels for practices in Scotland, especially in the major cities, central belt and Fife, have increased substantially over the last few years, with the established ‘body corporates’ and individual dentists purchasing multiple practices. This increase in activity has certainly driven up the values of larger practices. Smaller practices, typically being taken by individual dentists wanting to run an owner occupied practice, have also seen an uplift in value. An agreement with your purchaser to remain as an associate is often a way to maintain income levels until eventual retirement and enjoy clinical work without the headache of practice ownership. If you sell to a body corporate an extended ‘tie in’ of up to five years is a given. In any event, early planning is strongly recommended for those seeking to maximise the sale value of their business.
So, do changes to the political and economic future of Scotland, independent or not, point towards dentists selling their businesses now? This is a risk based decision. Many dentists are looking to sell while goodwill values are relatively high, even several years prior to their ‘normal’ retirement age. We can try to predict the likely outcomes but the future of value of goodwill will always be an unknown quantity.
About the author
Martyn Bradshaw is a Director of PFM Dental, a leading practice valuer and sales agent in Scotland. PFM Dental has been valuing and selling dental practices across Scotland, England and Wales since 1990.
Further information about PFM Dental can be viewed at www.pfmdental.co.uk