A fragmented industry
Corporate dentistry remains a very small percentage of the overall market; even in the most mature territories such as Spain and the UK, less than 25% of dental clinics are under corporate ownership and in some territories such as Germany, France, Holland, the percentage is less than 5%.
Regulation has played its part, with many of the less consolidated markets only just starting to liberalise rules around corporate entities owning clinics, and private equity has been quick to take advantage of the changed rules. The next challenge for these markets is for the clinicians to become used to the idea of working for a business rather than for themselves. In more mature territories, it has taken time for the clinical community to relax its suspicions of corporate ownership, and the same will be true as regulation relaxes elsewhere. Advent, BC Partners, Jacobs, GSquare, Investcorp, EQT, Nordic and Castik are just some of the private equity houses that are supportive of the long term outlook for the industry and have invested in platforms across Europe over the last two years.
In Germany, the largest single dental market in Europe, shifting regulatory direction has meant turbulent times for investors. Several years ago a relaxation of rules around a previously tightly controlled market meant investors jumped at the chance to invest early in the sector. However, legislation introduced recently contains a set of rules which ensures the investment vehicles previously employed are no longer available. The opportunity is still there, but investors will have to be creative and patient in order to build a corporate dentistry business of scale.
In France, the dentistry market is one the most fragmented in Europe with over 90% of French dental clinics independently owned and a high proportion of this figure practice from a single chair clinic. Regulatory constraints have been slightly relaxed in recent years, but is still restrictive thus limiting the interest from private investors.
The dentist is your customer
First movers in the consolidation wave generally believed that tight control over a clinic from the centre was the best way to drive value in dentistry chains. However, second generation platforms have realised that the key link is not between dentists and patients, but between dentists and their head offices. They understand that:
- It takes time to recruit high quality dentists and employees, and that keeping clinicians happy is the quickest route to building a successful business
- One of the most valuable ways to secure competitive advantage in dentistry is positive word of mouth – a stable and happy clinician base not only provides an excellent referral network for future client acquisitions, but from a delivery of care point of view, less churn equals better performance
The corporates that spend their time ensuring they give the highest level of support to their clinics and let their dentists be dentists, are seeing their reputations flourish whilst financial performance continues to strengthen.
Helping a ‘cottage’ industry grow
Focusing on clinician and employee satisfaction does not mean that corporate platforms cannot bring their business expertise to the industry.
Dentistry has a long way to go to catch up with other sectors in its ability to understand its patient base and use evidence-based decision-making to drive financial and operational performance. Sophistication in treatment pricing, marketing, and data analytics will vary by country (and indeed by corporate), but it’s clear that private equity can add significant value to immature industries.
As a general rule, the more fragmented the industry, the less sophisticated it is, and there is a huge opportunity for corporates to leverage their business acumen to drive performance and deliver superior patient care.
Conclusion – an increasingly discerning investor base
What should operators and investors do to capitalise on the current opportunities available to ensure long-term, sustainable growth can be achieved?
As the dentistry market slowly professionalises, and investors work to understand the value drivers, there is an emerging consensus on the two key catalysts for success:
- Acquiring high quality clinics whose dentists have a desire to benefit from corporate ownership is important for stability, and a huge amount of work goes into minimising risk as a clinic transitions from individual dentist ownership to corporate ownership
- More and more corporates are treating patients like a consumer and the focus is on ensuring they have the best possible experience through the entire patient journey. This is impacting the way in which the corporate encourages the clinic to operate, which ultimately drives superior patient satisfaction, happier dentists and higher standards in the industry