No Images? Click here

 
 

July 2018

Abano - AFR article

 
 

Today’s Australian Financial Review, 26th July 2018, carried a friendly article about Abano indicating that it aims to triple the size of its business over the next decade.  (doesn’t every corporate?).  According to Abano, another 10% of the dentistry market Australia still has low levels of corporate ownership compared with the USA and South Africa where reportedly corporate penetration is over 30%.  That could be interpreted as meaning that pretty well everywhere else has a much lower rate of corporatisation.

Abano/Maven has 228 practices of which 120 are in New Zealand and 108 in Australia. It’s overall revenue in Australia in the 2018 financial year was $153 million which suggests an average per practice of about $1.417 million.  That’s not earth sharttering.   According to the article 1300 Smiles is running 32 surgeries, Pacific Smiles 75 practices and Bupa/Dental Corporation over 140.  Smiles Inclusive which listed recently reportedly had 52 practices but having 61 totally vacant chairs suggest that many of its acquired practices were run down.

Despite all the noise, dental corporates have less than 10% of the market according to the article.

There are a couple of modestly sized unlisted corporates who may list in due course.

Our overall observations

Surviving dental start ups appear to have kept pace with practices moving to corporate ownership over the past 12 years and the balance has probably reached an equilibrium point where any newly acquired corporate practices will be matched by additional surviving dental start ups with the proportion of corporate practices staying at around the current percentage.

As we’ve said elsewhere, starting a dental practice is a courageous path as they generate significant losses in the formative years but despite a high failure rate many do survive.  Corporates have not been successful in starting up practices.  If it were possible for them to sucessfully start practices there would be corporate start ups in every significant shopping centre and shopping strip.  In reality the corporates haven’t figured out how to do start ups and avoid the heavy loss making drain on their profitability which is inevitable in the early stages of operation.  They are therefore limited to buying practices off those dentists prepared to sell to them and that precludes a multitude of practices where an internal sucession plan has been established.

Competing with corporates

The multitude of financials of dental practices which we see indicate that there are lots of well run dental practices which can and do outcompete corporately owned practices; particularly after the vendor dentists have retired from the corporates.

Abano/Maven’s goal to triple the size of its Australian operation over ten years will prove to be challenging.  Unless they can find a way for a dentist to drill multiple patients’ teeth simultaneously, they are stuck in the groove of their existing modus operandi of acquiring practices from older dentists approaching retirement who haven’t got an internal succession plan.

Dental corporates lack the natural advantage of large corporates in industries where bigger and better machines displace workers.  The fact is that dentistry is a labour intensive activity.

The ability of Abano/Maven or other corporates to triple their business in real terms over the next ten years is highly suspect.

Our prediction is that in ten or 20 years’ time corporate penetration in the market will seem to have long since reached its equilibrium and that the vast majority of dental practices will continue to be privately owned and conducted.

Best wishes to all dentists,

Graham Middleton

 

The Synstrat Group are Australia's most experienced Dental practice business advisers, accountants, practice valuers and licensed financial advisers.  The information contained herein is of a general nature and no specific action should be taken without individual advice.  
Speak with Synstrat staff as appropriate

www.synstrat.com.au

Synstrat Management Pty Ltd
PO Box 14, 660 Doncaster Rd,
Doncaster, Victoria 3108

P.  03 9843 7777
F.  03 9843 7799
E. dental@synstrat.com.au 

ABN 57 006 295 325
AFSL 227 169

If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except wh ere the sender specifically states them to be the views of Synstrat. If you do not wish to receive this email in future, please reply to the sender requesting termination of service.

 
Preferences  |  Unsubscribe