Extreme discounts to value, love buying $1 for .50 cents.Calling in the impact “positive” in a research note, Desjardins Securities Gary Ho said: “We had previously highlighted a possible takeout scenario to bridge the valuation disconnect between DNTL and its peers.
Who are the potential buyers? (1) Management (owns approximately 7 per cent of shares outstanding), with the support of private equity (PE) firm L Catterton (owns 40 per cent). This would make sense given DNTL IPO’d the business at $14 per share vs the stock’s closing price on Friday (November 18) at $6. Management also bought back 73,600 shares at $10.95/share in August. (2) 123Dentist/Altima, the second largest player in the space after its merger in July (3.1-per-cent market share combined). 123Dentist is supported by key PE firms including KKR, Peloton Capital Management, Sentinel Capital Partners and Heartland Dental (the largest DSO in the US with more than 1,600 practices in 38 states). Even with a merger with DNTL (3.6 per cent), the top three would control only 67 per cent of the Canadian market — there are no competition issues, in our view. (3) Other PE players/pension funds. In early 2022, the Ontario Teachers’ Pension Plan (OTPP) sold its majority interest in Heartland to KKR. In addition, OPTrust ($25-billion-plus in net assets, administers the OPSEU Pension Plan) is a current shareholder of DNTL, with board representation. Dentistry has historically drawn significant PE interest given its recession-resistant attributes, capital-light business model, and stable growth with recurring revenue and strong cash flows.”