When Size Is Everything, The Dentist - March 2001

March 1, 2001

WHEN SIZE IS EVERYTHING

What size do you think this is? It is not often when interviewing someone from the dental world, or any other world for that matter, that you are greeted by a question. Of course Paul Saper is talking about the size of the dental private sector and his estimate of around £750 million was not a lot higher than mine.

Paul, a director at LCS International Consulting Limited, has an infectious fascination with the dental market and is not reticent to share his thoughts.

He believes that the market is changing with the development of corporate dentistry responding to what he perceives as the changing needs of the consumers - change resulting from younger patients entering the market place, more conscious than their parents of the need to look after themselves and the role dentistry has in meeting their overall health-care needs.

He does not see the bulk of current GDS dentistry as able to respond to these changing demands. Corporates in contrast are well placed to cross-sell dentistry with other health-care products and services.

Gone also are the days of the passive consumer. Increasingly, questions are being asked about dental care and its links to other conditions. Above all, consumers expect value for money, access to a full range of services and a good quality product.

Paul is also aware of the unique and enviable position that dentists are in compared to other health care professions, with patients encouraged to regularly attend the dental practice.

Paul believes that corporates are entering the second stage in their development. The first was raising what he calls seed-corn money and testing out different business models. The second has on occasions been a more serious and complex affair, sometimes predicated on significant strengthening of management teams and/or merging of different management groups.

In essence this new money has been raised either through private placement or through flotation on the Alternative Investment Market (AIM) - as in the case of Oasis last year. The investors in the main are venture capital trusts and the private equity funds of large institutions.

Parallel with this development, and underlining the growing maturity of the sector, major companies such as Boots plc have entered the fray, and in very short time - funded from their own internal resources - built up a presence in the High Street. Another new entrant is the recently floated Health Clinics plc, run by Bharat Patel, former Finance Director of Tesco Group plc.

This company has set out its stall at the quality end of the market in line with developments to date of its very successful Eye Clinics' business.

An insight into the investment approval systems of these corporates is enlightening. No money changes hands unless bankers and investors are satisfied with the business model. Be in no doubt, what the corporate bodies and investors believe they have spotted is a very real opportunity in the market.

Paul envisages corporates not just changing their financing needs but also the direction in which they are heading. The model of simply purchasing a lot of dental practices, adding the names to a phone list and making only minor changes to working practices, has in most instances been quietly discarded.

This has been replaced by inter alia greater emphasis on branding and many practices being repositioned in niche markets - exemplified by Dencare's recent movement into franchised implant centres. In Paul's view, change even extends to those dentists thinking about entering a relationship with a corporate (and visa versa).

Paul expects them to examine more closely together not just the financial return but the "whole relationship between the dentist and management team, including what investment, accreditation and help with such matters as the provision of clinical audit and training."

Paul sees further development of the 'consumer management groups'. Again how corporates handle these ought to be critical to dentists contemplating their future. Best operators will have as well not only dental E health these ought to be critical to dentists contemplating their future.

Best operators will have as well not only dental E health strategies (particularly E-Care) but also have plans to respond to all the negative issues inevitably arising from under-investment in annual maintenance capex and education in the dental laboratory sector.

It may well be that the Government is intending later this year to amend current laws on dental corporate bodies. Paul would argue however that the market has already moved on.

In practical terms the bar to entry has been raised. Whereas, previously the biggest challenge for corporates has been the ability to attract, build and retain a loyal professional team, they can now expect to be increasingly in a position to demonstrate to dentists that they are providing something dentists cannot provide themselves.