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EQUITY RESEARCH
September 22, 2022 Flash Research
DENTALCORP HOLDINGS LTD.
2022 Eastern Institutional Investor Conference Takeaways
Key Points
We hosted dentalcorp CFO Nate Tchaplia and President Guy Amini for a
fireside chat yesterday as part of the 2022 CIBC Eastern Institutional Investor Conference. The conversation included the impact of rising rates on M&A, COVID’s ongoing impact on patient volumes and the impact of the 123Dentist and Altima Merger. Some of the key takeaways from our
conversation are highlighted below.
Acquisition Plans: DNTL noted no change to its expectations that M&A
activity would normalize in the second half of the year, after mid-market deals in H1 accelerated spending. DNTL also noted that rising interest rates would have a limiting impact on the amount that associate dentists would be able to borrow in their efforts to acquire practices, putting DNTL in a more advantageous position. Associate dentists remain DNTL’s primary competition from a practice acquisition standpoint, and their limited ability to borrow may put downward pressure on acquisition multiples.
Patient Volumes: New patient levels have returned to pre-COVID levels as pandemic restrictions have eased and patients are more comfortable
returning to the dentist. The business continues to see elevated levels of
cancellation that are leading to choppiness in the return to full patient
volumes, but DNTL’s patient engagement software is helping to fill some of those last minute cancellations. The removal of fallow time restrictions in Ontario - DNTL’s largest province by patient visits – is still expected to be a tailwind to same practice sales growth.
Thoughts On Altima/123Dentist Merger: In commentary on the merger of
the 2nd and 3rd largest Canadian DSOs, DNTL noted that the merger was
bringing together a number of independent corporate cultures and that the integration of the businesses may present a pocket of incremental
opportunity. DNTL also spoke to KKR’s interest in the Canadian markets and the high-teens multiple at which the merger was completed as both being supportive of DNTL’s belief in the opportunity. Following the merger, DNTL still expects associate dentists to remain the primary competition for practice acquisitions.
Keeping An Eye On The U.S. Market: Management briefly touched on its
interest in the U.S. market, noting that it was 10x larger than the Canadian market, that it was confident that the DNTL M&A playbook would be effective south of the border, and that it would not be difficult to get to similar cash-pay dynamics in the U.S as they have in Canada. That said, management was clear that any interest in the U.S. market would not distract from the core opportunity of Canadian practice acquisitions.