DDS Lab, the dental lab company backed by Blue Sea Capital and China’s CITIC Capital Partners, is evaluating a sale, according to sources familiar with the situation.
Moelis and Houlihan Lokey are providing financial advice on a sponsor-focused sales process, and marketing materials were recently distributed to potential bidders, the sources said.
Tampa, Florida, DDS is marketing approximately $20 million of 2019 adjusted Ebitda, on approximately $84 million of run-rate revenue, another source said. Its 2016-to-2019 compound annual growth rate is approximately 19 percent, this source said.
While the process remains in its early stages, DDS is likely to command an Ebitda multiple in the low teens, two of the people said. Based upon marketed Ebitda, that suggests a transaction valued at $200 million to $260 million.
It is unclear if sponsor-backed platforms will be serious contenders in the process. However, industry players include Cressey & Co’s Dental Services Group and Welsh, Carson, Anderson & Stowe’s National Dentex. Other large strategics in the space include Modern Dental.
Blue Sea, an El Segundo, California, lower-middle-market PE firm, and CITIC Capital Partners, the private equity arm of Chinese asset management firm CITIC Capital Holdings, acquired DDS in June 2014.
Financial terms weren’t disclosed, but a third source said the company traded at an Ebitda multiple of 11x.
Led by President and CEO Bill Braun, DDS sells prosthetics to dental services organizations in the U.S. Products include crown and bridge cases, dentures, partials, implant restorations, attachments and orthodontic appliances.
With two manufacturing facilities in the U.S. and China, DDS’ offshore operations provide a means to significant cost savings, one of the sources said. At the same time, global tariff concerns and Chinese sourcing issues could deter some investors from participating in the process, two of the sources said.
Given the company is considered a leader in Chinese offshoring of dental prosthetics, Asian funds could be more comfortable investing in the company, one of the sources speculated.
The company has also differentiated itself by targeting dental services organizations as opposed to focusing on getting business from single dentists, another source noted.
DSOs are considered an attractive end-market given the industry’s strong underlying growth, as individual practices continue to consolidate and new DSOs are formed. Other attractive attributes of the company include its high-margins, minimal CapEx, strong free cash flow and recession resistance, another source said.
In related activity, Michigan PE shop O2 Investment Partners invested in Frontier Dental Laboratories earlier this year following an Intrepid Investment Partners-run process.
Frontier is in the business of making high-end prosthetics, removable dental products and implants for the cosmetic dentistry industry. The company ships its products worldwide from its labs in El Dorado and Vancouver.
Blue Sea, among other healthcare investments, also owns Deca Dental, a Dallas, Texas, dental support organization.
Representatives of Moelis declined to comment, while those with Blue Sea, CITIC, Houlihan Lokey and DDS didn’t immediately return requests for comment on Monday.
Action Item: Check out Blue Sea’s latest Form ADV: https://bit.ly/31cwH0D