Five Questions With… Edward Lhee, Partner at Code, Hennessy & Simmons LLC

1. You just bought Heartland Dental Care Inc., an Effingham, Ill.-based dental practice chain. What attracted you to this market?

We’ve been looking at the dental practice management space for several years, and have looked at seven or eight dental practice management businesses. We made proposals on a couple of them, but were unsuccessful. Throughout that period of time we had heard about Heartland Dental and had heard that it was one of the leading practice management businesses in the dental industry. So when the company began an auction process, we got involved and pursued it aggressively.

2. When did the process start, and why did it take so long?

July of 2007. The process started before the financing market crashed, and then the owner decided to postpone the process because of market conditions. That delayed the transaction but it also afforded us the opportunity to pursue the company outside of an auction process.

3. Why is Code, Hennessy & Simmons focusing more on health care?

Health care happens to be a logical place for us. We’ve spent a fair amount of time in the area, looking at a number of service-related businesses, including the dental practice management industry, revenue-cycle management, staffing. So we have some experience in the sector, and given the characteristics of health care—how large it is relative to the overall economy, the growing elderly population—it’s an attractive sector. But it’s also one of a number of different sectors that our firm has been specializing in now for the last couple of years, and that’s part of an overall trend in the market and part of our desire to increase the value we provide to our portfolio companies.

4. What is the deal environment like?

I think it’s similar to what we’re hearing about from other mid-market private equity firms. There’s a lot of deal flow. I think the pace of investments has slowed—the process has elongated and it’s more difficult to close deals, given the financing markets, the disparities between buyer and seller expectations. Having said that, there are plenty of opportunities out there. I think there is a little bit of a resurgence going on right now as owners of businesses contemplate potential tax law changes, so we’re seeing a little bit of a spike in volume from that.

5. The firm celebrates its 20th anniversary this year, and the three founding partners are still there. Is there any talk about a transition?

Nope. I think we’ll have natural transition issues, but at this point there’s no discussion. I think that’s one of the amazing accomplishments of the founding partners—growing a private equity firm while maintaining continuity in the investment professional staff.