Market consolidation in cosmetic dentistry - a pretty picture?

We live in an era where now, more than ever before, people are investing huge amounts of their time and money in their own personal image. The advent of social media and the huge popularity of reality TV is behind this phenomenon. The ‘influencer’ industry is lucrative and also a new, highly persuasive form of advertising that not only impacts the young, social media savvy generation, but a much wider age demographic.

In particular, oral health is at the forefront of this self-improvement drive led by influencers and reality TV stars. This is evidenced by the huge success of dental start-ups like HiSmile, which in the space of two years generated a turnover of $10 million. The demand for these products and services is huge, in fact the global cosmetic dentistry market is expected to be worth £22.5 billion by 2024.

But what impact has this had in economic terms beyond changing spending patterns? One example is the consolidation of fragmented industries, such as private dental practices and pharmacies, driven by private equity investment. Health and beauty conscious consumers are investing more in their oral health; a survey by Barclays found that on average patients spent around £1,121 on cosmetic dental procedures. In tandem with this, private equity investors have been drawn to opportunities to implement a ‘buy-and-build’ strategy by acquiring increasing numbers of small companies and consolidating them into larger groups.

This type of deal-making in the private equity sector has surged in the UK, Europe and the US in recent years. The ‘buy-and-build’ strategy allows investors to acquire small practices, cut costs and bolt-on these businesses to others, quickly growing a presence in the marketplace.

These fragmented markets are ripe for consolidation. It is estimated that only 12% of dental practices in the UK are in corporate ownership. Investors see opportunities to achieve scale economies, access talent and vertically integrate businesses into their own supply chain. However, integrating multiple small companies is not without its challenges, not least the integration of different IT systems and the task of engaging with numerous management teams who will likely be unversed in the sale process. A guiding hand is needed in what can be a rewarding but technical process.

Across the UK, many have been taking advantage of this drive for consolidation within the dental market. The private equity firm Carlyle signed a deal worth £450 million to create what will be the UK’s biggest dental group, and last November Christie & Co brokered the sale of Caledonian Dental Care which is Scotland’s largest dental practice. Down south, CapVest and Graphite who are ‘mid-market’ private equity firms, are in the process of battling for a deal worth £100 million regarding Southern Dental which has 74 dental practices in the south.

This all goes to show that despite the market being fragmented, this consolidation drive is only speeding up and there remains tantalising potential.

This can be attributed to the fact that consumer spending has clearly been impacted by new-age advertising. The demographic, however, is much wider than one might originally imagine – yes, the younger ‘social media generation’ are to a great extent influenced by online media. However, according to a 2018 survey from the British Orthodontic Society (BOS), 80 per cent of orthodontists reported an increase in adult treatment and there were cases of older patients also seeking aesthetic driven treatments. This demonstrates that it is not only the young who are influenced by what they see on TV and on their phones, but also generations who may not be considered the typical target of this kind of advertising.

What does this all mean for dental practices? Well, demand for cosmetic treatments is likely to increase in the coming years across a wide age demographic – these are profitable times for dental practices offering these services and for private equity firms looking to capitalise on what continues to be a lucrative market.

This article was originally published in Scottish Dental Magazine.

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