The CMA’s recent launch of a market study into the dental services sector will soon put the spotlight on the business models of many Private Equity (PE) firms. The CMA is likely to find business strategies and corporate structures that, while not inherently anticompetitive, may not always function in favor of consumers.
The challenge for the CMA, however, is that if it intervenes and the remedies fall short, it will fail to change the market dynamics; conversely, if it intervenes too aggressively, the primary impact may be felt by consumers rather than the corporations.
This article explains how PE firms operate within the dental services market and why the CMA will soon find itself facing a significant conundrum.
The PE-Dental Clinic Relationship
PE firms target dental clinics because they offer steady cash flows, healthy margins, and a patient base that requires regular care regardless of macroeconomic conditions. Who doesn’t need a cleaning from time to time?
The model is simple. The PE firm does not intend to operate the clinics indefinitely; the objective is an exit within three to seven years. Firms acquire small family practices from retiring dentists at low “multiples” (e.g., 5x profit) and aggregate them into a larger group. They then sell the consolidated group to a subsequent PE firm or the public market at a higher “multiple” (e.g., 12x profit). For example, mydentist was sold to Bridgepoint in 2025 at a 10x valuation.
The relationship between PE firms and their acquired clinics is built on a specific financial model known as a Leveraged Buyout (in other words, with debt, a lot of it), often utilizing a “Management Service Organization” (MSO) structure. From both a financial and antitrust perspective, the critical factors are how debt is assigned, how profits are extracted, and why clinics frequently appear loss-making on paper while the PE firm realizes high returns.
The MSO Model: Capital Extraction
In many jurisdictions, including the UK, non-dentists are restricted from “practicing dentistry” or owning clinical entities directly. PE firms bypass these restrictions using the MSO model:
- Clinical Subsidiary: The dentists and nursing staff are employed by a “Professional Corporation” or clinical subsidiary. This entity technically owns the patient relationships.
- The MSO: The PE firm establishes a separate MSO. The clinical entity is required to sign a long-term contract to pay the MSO “management fees” for HR, IT, marketing, and equipment.
- Fee Structure: These management fees are set at the highest commercially viable level. This shifts cash from the clinic (where it is categorized as clinical profit) to the MSO (where the PE firm can distribute it to investors).
Consequently, the clinic retains the debt while the profits accrue to the PE firm. This structure is legal and not inherently anticompetitive; however, should the business cease to be profitable, the clinic, along with its workforce and patients, bears the greatest risk.
The “Debt Saddle” and Tax Shield Strategy
When a PE firm acquires a dental group, it rarely utilizes its own capital for the entire purchase, typically employing 70%–90% debt. Crucially, this debt is not held by the PE firm itself; it is “pushed down” onto the balance sheet of the dental group (the “Portfolio Company”).
By burdening the dental group with substantial interest payments, the group’s taxable profit is effectively neutralized. In the UK, interest payments on business loans are often tax-deductible. Therefore, a clinic generating £1M in operating profit might pay £1.1M in interest to a lender (frequently an entity related to the PE firm), resulting in a £100k loss reported to HMRC and £0 in Corporation Tax liability.
“Adjusted EBITDA” vs. Statutory Loss
Financial reports for entities such as Bupa/Oasis or mydentist often reflect millions in statutory losses. However, PE firms prioritize Adjusted EBITDA:
- Adjustments: They “add back” interest, tax, depreciation, and non-recurring restructuring costs.
- Valuation: A company may report a £20M annual loss in official filings while maintaining an Adjusted EBITDA of £50M. The PE firm views this £50M as the actual cash available to service the debt used to acquire the company.
This is not a hypothetical scenario; annual reports of major UK dental groups show that most incurred statutory losses despite increasing revenue and Adjusted EBITDA.
| Entity | Adjusted EBITDA | Operating Profit/Loss | Loss for the Year |
| mydentist (Turnstone) | £86.4m | £0.4m | (£51.0m) |
| Portman Healthcare | £92.8m | (£39.1m) | (£99.6m) |
| Rodericks Dental | £16.9m | £2.3m | £22.3m (*) |
Rodericks’ profit was largely driven by income from subsidiaries
CMA Considerations
The CMA’s investigation is likely to identify PE’s strategies to increase service pricing (they admitted in the financial records), a shift toward more profitable cosmetic procedures, and the closure of less profitable clinics.
The risk is that if the CMA imposes price caps or other hefty remedies that disrupt this financial model, the “exit” strategy shifts from a high-profit sale to a distressed disposal or pre-pack administration.
In a typical PE roll-up, debt is secured against assets: clinics, patient lists, and equipment. If a PE firm divests a clinic, the buyer must either clear the debt associated with that clinic or assume the debt obligations. If price caps reduce revenue by 15% while interest payments remain fixed, a clinic’s “Enterprise Value” may drop below its debt level, a state of being “underwater.”
Can they just sell and walk away?
Yes, but not easily. If the CMA makes the business model unattractive, PE firms have three main moves:
- Secondary Buyout (The “Hot Potato”): They try to sell the whole group to another PE firm that is more “distressed-debt” focused, hoping the new buyer can find more aggressive cost-savings to offset the price caps.
- Divestiture (The “Trim”): They sell off the “weakest” clinics (the ones with high debt but low private-income potential) to independent dentists. However, if the debt on those clinics is too high, no independent dentist will buy them, leading to site closures.
- “Handing Back the Keys”: If the debt is “non-recourse” to the parent PE firm (meaning the PE firm isn’t personally liable), they can simply let the dental group go into administration. The banks then take over the clinics, fire the management, and sell the pieces to recover their loans.
The CMA’s Dilemma
This is exactly why the CMA is in a difficult position.
If the CMA is too aggressive with price caps, they could trigger a wave of bankruptcies in PE-backed dental groups (which now own ~20% of the market).
Thousands of patients could lose their local dentist overnight not because there aren’t enough patients, but because the financial engineering (the debt) collapsed under the new price rules.
This is why the CMA will probably prefer “Transparency Remedies” (forcing dentists to publish prices) over “Hard Price Caps.” They want to lower prices without accidentally bankrupting the infrastructure of the UK dental market.
The high leverage (debt) levels in PE-backed dental groups create a ‘floor’ for how low prices can go. If the CMA forces prices below the cost of debt-servicing, the sector faces a systemic risk of distressed exits, where clinics are sold off or closed because their financial structures, not their clinical operations, are no longer viable.
This is the perfect example of how your legal strategy needs to align with the financial reality.