Why valuations matter
Whether you're buying your first practice or adding to a portfolio, understanding how dental practices are valued is fundamental. Get it right and you pay a fair price for a good asset. Get it wrong and you overpay for a business that can't service the debt you took on to buy it.
Dental practice valuations aren't an exact science, but there is a well-established framework that buyers, sellers, and lenders all work from. This guide explains how it works.
The basics: multiples of profit
Most dental practice valuations are based on a multiple of the practice's adjusted net profit. You might hear this referred to as super profit, adjusted EBITDA, or normalised earnings — the terminology varies, but the concept is the same.
The idea is straightforward: take the practice's revenue, subtract all the genuine costs of running it (including a market-rate salary for a principal dentist), and the remainder is the profit that a buyer is paying for. Multiply that figure by an agreed multiple, and you have a valuation.
Example: A practice generates £800,000 in revenue with an adjusted net profit of £200,000. At a multiple of 5x, the practice is valued at £1,000,000.
What counts as "adjusted"
This is where things get interesting — and where buyers need to pay close attention. The adjusted profit figure should reflect the true, repeatable earnings of the practice under new ownership. Common adjustments include:
- Owner's salary — replacing whatever the current owner pays themselves with a market-rate principal salary
- Personal expenses — stripping out any personal costs the owner runs through the business (car, travel, personal insurance)
- One-off costs — removing non-recurring items like a refurbishment, legal dispute, or COVID-related disruption
- Family members on payroll — adjusting for any family who are paid above market rate or don't genuinely work in the practice
- Associate costs — ensuring associate pay is reflected at current market rates, not historic agreements
Sellers naturally want to maximise adjusted profit. Buyers need to scrutinise every adjustment and form their own view of what the practice genuinely earns.
What drives the multiple
Not all practices attract the same multiple. The multiple reflects the quality, stability, and growth potential of the earnings. Factors that push the multiple up include:
- Strong private revenue — private and plan income is generally valued more highly than NHS/HSE income because it's more controllable and often higher margin
- Diversified revenue — practices that aren't dependent on a single associate or a single contract type are less risky
- Good location — high-footfall areas, affluent demographics, or underserved markets command premiums
- Modern premises and equipment — a well-maintained practice needs less immediate capital investment
- Stable patient base — low attrition and a large active patient list signal a healthy practice
- Growth potential — spare capacity, unused surgeries, or scope to add services like orthodontics or implants
Conversely, practices with declining revenue, heavy NHS dependency, ageing equipment, or key-person risk will trade at lower multiples.
Typical multiples in the UK and Ireland
Multiples vary by market and shift over time with buyer demand and lending conditions. As a general guide, dental practices in the UK and Ireland currently trade in a range that reflects the quality spectrum described above.
It's worth noting that headline multiples don't tell the full story. A practice at a lower multiple with genuine, well-evidenced earnings can be a far better acquisition than one at a higher multiple where the adjustments have been aggressively applied. The quality of the underlying profit matters more than the number on the front page.
Be cautious of valuations based on a single exceptional year. Always look at a three-year trend to understand whether earnings are stable, growing, or declining.
Revenue-based vs profit-based valuations
You'll occasionally see practices marketed as a percentage of turnover rather than a multiple of profit. This approach has its place — it's simpler and can be useful as a quick benchmark — but it's a much blunter instrument.
Two practices with the same revenue can have wildly different profit levels depending on their cost structure, associate model, and overheads. A revenue-based valuation ignores all of this. For any serious acquisition, the profit-based approach gives you a much clearer picture of what you're actually buying.
The role of goodwill
In most dental practice transactions, the majority of the purchase price is goodwill — the intangible value of the patient base, reputation, location, and trading history. The tangible assets (equipment, fit-out, stock) typically represent a relatively small portion of the total price.
This is normal for the sector, but it's important to understand what you're paying for. Goodwill is only valuable if the patients stay, the associates stay, and the practice continues to perform. That's why transition planning and retention strategies matter so much in dental M&A.
Getting an independent view
If you're buying a practice, you're typically working from a valuation prepared by the seller's agent. That valuation is designed to achieve the best price for the seller. There's nothing wrong with that, but it means you should always form your own independent view of value.
This doesn't necessarily mean commissioning a full formal valuation (though that can be helpful for larger transactions). At minimum, you should critically review every adjustment, benchmark the multiple against comparable deals, and stress-test the numbers against your own business plan and funding structure.
The question isn't just "what is this practice worth?" but "what is it worth to me, given how I plan to run it and how I'm funding the purchase?"
Valuation in the context of funding
If you're using debt to fund the acquisition — and most buyers are — the valuation doesn't exist in a vacuum. Lenders will apply their own lens, and two metrics in particular will shape how much they're willing to lend and on what terms.
Loan-to-value (LTV) measures how much you're borrowing relative to the value of the asset. The higher the LTV, the more risk the lender is taking on. Most healthcare lenders will have a maximum LTV they're comfortable with, and exceeding it means either finding additional equity or renegotiating the price.
Debt service coverage ratio (DSCR) looks at whether the practice's earnings can comfortably cover the loan repayments. A DSCR of 1.0x means the practice earns just enough to meet its debt obligations — lenders typically want to see headroom above that. If the DSCR is tight, it doesn't matter how attractive the valuation looks on paper; the deal may not be fundable.
In practice, this means a higher valuation isn't always better for the buyer. Overpaying can push your LTV too high or squeeze your DSCR to the point where the deal doesn't stack up. The right price is one where the practice can service the debt, leave you with reasonable cashflow, and still make sense if things don't go perfectly to plan.
We cover this in more detail in our guide to funding considerations for dental practice acquisitions. And if you're earlier in the process, our guide to buying your first dental practice walks through the full journey from start to finish.