Sentinel Capital Partners—fresh off raising $765 million for its fourth fund and which recently purchased Mobile Dental Services—considers itself a bit of an expert in the dental services industry.
It had three dental-related deals under its belt, but last November’s purchase of ReachOut Healthcare America was different. ReachOut provides dental care not to paying clients with insurance, but to Medicaid-qualifying children. The company provides much-needed access to the government-supported care by administering in schools. ReachOut is one of two such companies to offer this service. The other one is Mobile Dental Services.
ReachOut and Mobile Dental were founded separately about 10 years ago, and when ReachOut sold a controlling interest to Sentinel, the founders of Mobile Dental took notice. Sentinel took notice of Mobile Dental, too.
Sentinel’s Paul Murphy says that Mobile Dental was first on the list of potential add-on acquisitions.
Earlier this year, the timing was perfect to start talking to bolt-on targets, but before Sentinel could approach Mobile Dental, the company approached Sentinel.
“They told us they wanted a financial partner,” says Murphy, a principal at Sentinel. “Everyone saw that one plus one equals three, especially since there was no (geographic) overlap of the businesses.”
So it’s a very shiny happy deal with no visible, ahem, cavities, so to speak. Even the financing looks squeaky clean. Golub Capital provided senior debt and Audax provided mezzanine finance. A number of lenders expressed interest in the transaction, Murphy says, because dental care is not cyclical, and a service like the one provided by ReachOut Healthcare depends on money from state governments, so (though unlikely) any change in Medicaid would not deliver a full-on blow to the business.
Management from both companies will stay involved, holding a minority stake. The investment came from Sentinel’s third fund, mostly because ReachOut was also in the third fund. Sentinel hasn’t started to deploy its fourth fund yet.