Dentalcorp Holdings Ltd. DNTL-TCanada’s largest consolidator of dental clinics, is considering selling itself just a year and a half after setting a record for an initial public offering of a health care company.
Dentalcorp announced Monday its board had launched a strategic review to assess its options to “unlock shareholder value.”
The company raised $700-million in an IPO on the Toronto Stock Exchange in May of 2021. At the time it was the biggest IPO for a life-sciences company on the TSX, although it was overtaken a year later by eyecare-product maker Bausch + Lomb Corp.
Dentalcorp’s stock made its debut at $14 a share and climbed as high as $18.36, but has since been in free fall, hitting as low as $5.65 last week. The shares rallied 32 percent on Monday’s news to reach $8 at the day’s close.
Chief executive officer Graham Rosenberg said in a news release that the company’s strategic review was triggered in part by outside interest.
“Our management team is fully aligned with the board’s decision to explore options to maximize shareholder value, including in response to unsolicited expressions of interest that have been received,” Mr. Rosenberg said.
The company said in the news release that it would give no assurances that a transaction would occur and it would provide no updates until the process was over. It has hired Jefferies LLC, TD Securities Inc. and CIBC World Markets Inc. as its financial advisers.
Dentalcorp spokesperson Michelle Robichaud declined to comment. The company did not say what other options it is considering.
Founded in 2011, Dentalcorp has assembled a network of 538 clinics across the country by buying established practices from dentists at valuations above historical norms. Dentists who sell to Dentalcorp are paid in a mix of cash and stock, and are required to remain as employees for a set number of years.
The company aims to standardize technology and control costs through bulk ordering of supplies and centralizing back-room functions, such as human resources.
Although the company owns only 3.6 per cent of Canada’s dental practices, it has had a large impact on the profession as the biggest corporate player and has donated millions of dollars to sponsor events and name rooms at dental schools across the country.
Dentalcorp used the proceeds of last year’s IPO to pay down some of the debt it had built up through its acquisitions to that point. As of its third quarter, reported Nov. 9, the company had $1-billion of senior debt, half of which had a fixed interest rate of 6.6 percent and the other half a floating rate.
The company says it has less leverage than other North American dental consolidators, which are privately held. Dentalcorp recorded $312-million in revenue in its most recent quarter and a net loss of $14.7-million.
The largest investor in Dentalcorp is L Catterton, a US-based private-equity firm with stakes in brands that include Peloton and Birkenstock. L Catterton owns about 40 percent of Dentalcorp’s shares, which gives it about 27.5 percent of total voting rights. Mr. Rosenberg, Dentalcorp’s CEO, owns about 5 percent of the company’s shares and holds about 35 percent of total voting rights, according to company filings.
Desjardin analyst Gary Ho said in a research note that management, with the support of L Catterton, could take the company private at its current value.
He also said Dentalcorp could be a takeover target for its main rival, 123Dentist Inc. Burnaby, BC-based 123Dentist merged with another dental consolidator, Altima Dental, in July with the backing of private-equity firms Peloton Capital Management, KKR & Co. Inc. and Sentinel Capital Partners, and US giant Heartland Dental.
If 123Dentist were to acquire Dentalcorp, the combined company’s network of nearly 900 clinics would dwarf those of any other dental chains, which have at most a few dozen locations.