Avista-backed Zest Anchors up for sale

Avista Capital Partners is seeking a buyer for Zest Anchors, the maker of overdenture attachments the sponsor scooped up about four years ago, three sources said.

Moelis and Credit Suisse are providing financial advice on the auction for the Carlsbad, California, company, one of the sources said. The process remains in its early stages, the sources said.

New York’s Avista in July 2013 agreed to buy Zest from middle-market buyout firm Jordan Co. The latter bought its majority stake in Zest in December 2009 from members of the Zuest family and management.

Led by President and CEO Steve Schiess, Zest makes and distributes medical products used in dental implants. Its main product is the “Locator,” an attachment used to permanently attach a patient’s artificial tooth to his or her jaw.

Sources said the company is being marketed off EBITDA in the mid-$50-million range.

That aligns with a Moody’s credit opinion published in late September, in which analysts wrote that Zest, with less than $100 million of revenue, generated “above-average” EBITDA margins of 58 percent over the 12 months ended June 30, 2017.

The analysts expected margins would decline modestly over the next few years as Zest expanded its R&D budget, and as its product mix gave greater weight to cheaper products with lower margins.

Zest in 2016 expanded its product line through its purchase of Danville Materials from Inverness Graham Investments.

Moody’s added that revenue ought to remain south of $100 million over the next couple of years, absent any material acquisitions. Leverage is improving but is expected to remain moderately high, Moody’s wrote. Debt-to-EBITDA ought to approach the mid-4x range over the next 12 to 18 months, the analysts said.

Sources described Zest as having a strong brand with proprietary technology in the niche vertical of the dental-implant market in which it operates.

At the same time, some buyers have already chosen to pass on the deal, sources said, noting concern about the potential expiration of patents coming up. The company’s growth profile in the U.S. and internationally is also unclear, one of the sources said, while another source suggested that Zest could be a better fit for a strategic.

Accounting for these uncertainties, Zest ought to trade for a high-single-digit multiple of EBITDA, one of the sources predicted.

The company competes with large strategics like Densply Sirona, Zimmer Biomet and Danaher.

Still, the broader trends in dental remain favorable, and according to Moody’s, Zest has been growing twice as fast as the dental-implant market. Moody’s pointed to consumers’ increasing focus on aesthetics and dental health, as well as an aging population fueling demand for dentures and implants.

In other recent dental-products deals, Linden Capital Partners exited Young Innovations through a sale to Jordan Co, making more than 3.6x its money, Buyouts reported. The deal commanded an enterprise value just below $800 million, sources have said.

Currently on the block via Goldman Sachs is L Catterton-backed dental-implant provider ClearChoice Holdings, Buyouts reported in September. ClearChoice, which is projected to generate more than $50 million in 2017 EBITDA, is expected to command a big price tag, sources have said.

A Moelis spokesperson declined to comment, while those with Avista, Zest and Credit Suisse did not return requests for comment.

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