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Introduction
Between March 5th, 2009, and May 2022, the Bank of England maintained its base rate below 1%, marking a 13-year period of historically low rates. Consequently, many younger buyers have never encountered rates as high as those prevailing today during their adult lives. However, in the broader context of base rate history, the current rate of 5.25% appears more typical than exceptional.
Starting from 2006, with the rollout of the latest NHS contracts alongside significantly low interest rates, there was a notable surge in demand for dental practices. With borrowing costs at a minimum, financing became accessible, fostering profitability for purchaser’s post loan repayments. This heightened demand elevated the EBITDA (profit) multiple used for valuation purposes.
"The dental practice market remains robust, even amid higher interest rates."
In practice, despite the uptick in interest rates, demand for practices has remained resilient. Nevertheless, values have moderated from recent peaks due to borrowing constraints and buyer affordability concerns. In most cases, the EBITDA multiple has only decreased by 0.5 to 1 times, meaning what was once a 7.5 multiple now likely hovers around 7.
While there are forecasts of a slight reduction in the Bank of England base rate in 2024, this is unlikely to swiftly impact values, as they typically respond more gradually.
For prospective sellers, it's important to note that the dental practice market continues to exhibit strength, even in a higher interest rate environment. Buyers are now scrutinizing financials more closely to ensure feasibility, but with a slight softening of the multiple, most practices still offer favourable affordability.
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