Key points:
Further Consolidation in the CDN dental industry: This morning, 123Dentist and Altima Dental (including Lapointe Group with 35+ dental practices in Quebec) announced a merger to become an entity with 350+ practices (123Dentist 250+ & Altima Dental 100+). This compares to ~500 dental practices for DNTL as of end of Q1/22. Additionally, DNTL has an acquisition pipeline of ~745 dental practices of which ~200 were in advanced stages of negotiation as of Q1/22. We note that dentalcorp has been more aggressive in the consolidation of dental practices vs. 123Dentist and Altima (established 1993). The new business will provide dental care to more than 800k+ patients, with over 2.5MM patient visits annually vs. dentalcorp's 1.7MM active patients (4.5MM patient visits).
Financial details and Financiers: Although the financial details have not been disclosed, the transaction is being financed through equity capital from Peloton Capital Management (123Dentist’s existing financial partner), new investors including KKR and Heartland Dental (leading US DSO owned by KKR) and Sentinel Capital Partners (Altima Dental’s existing financial partner). This transaction results in an indirect participation of one the largest US consolidators in the CDN dental healthcare sector. The transaction is subject to customary closing conditions, including clearance under the CAC (closing est Q3/22). Simply applying relative size metrics to DNTL's EV of $3.2B suggests an EV of ~$2.2B for 123Dentist.
Participation of US consolidator, Heartland Dental: Heartland Dental, established in 1995, is a leading US dental support organization (DSO) with over 1,600 locations in 38 US states. It will provide training to 123Dentist members. Additionally, 123Dentist will be able to leverage Heartland's relationships with leading dental manufacturers and distributors.
Significant room for consolidation in CDN dental industry. The ~$18B CDN dental industry remains fragmented with ~6% consolidation vs. ~25-30% US consolidation so far. DNTL management has previously highlighted an estimated ~500-600 dental practices are acquired every year and ~80% of the acquisitions are between two dentists with DNTL estimating it has ~80% share in the remaining ~20% of acquisitions.
Acquisition multiples for independent practices likely to creep up. We could see the acquisition multiples for independent dental practices increasing, given the potentially greater competition by both dentalcorp and the new entity for independent practices.