Back in June, Duke Street had made an offer of 82 pence a share for the dental group, but just one week later
Duke Street then secured the deal by entering into unconditional share purchase agreements, off-market, with Joseph King (ex-deputy chairman of Oasis), Foresight Ventures, Singer & Friedlander, Chelverton and Beringea/ ProVen, all at a price of 94 pence per Oasis share.
Offering nearly 15% more than its initial offer was a clear indication of Duke Street’s intention to secure this deal, and reflective of the strong focus of private equity investors in the corporate dental market in the UK.
“The multiple we are paying for Oasis is not out of sync with what everyone else is paying for corporate dental. We were also able to secure appropriate levels of senior debt and mezzanine from Barclays for this acquisition,” says Corinne Philipps, investment director at Duke Street Capital in London.
“Any healthcare business that is focusing mainly on the private sector will see more stability in terms of multiples,” she says.
“What attracted us to the dental chain market was its growth prospects, both for NHS and private patients, with its high single-digit growth rates and forecasts for similar growth going forward. This kind of growth is very attractive in the current healthcare environment,” says Philipps. “There is also a lot of organic growth being recorded as more patients switch from NHS services to private services such as cosmetic dentistry.”
The UK healthcare sector has experienced some of the most radical changes of any European system over the last 10 years. And in April 2006 a contract-based system for NHS dentists introduced one of the most radical overhauls in UK dentistry in 50 years.
The new regime was developed jointly by the British Dental Association and Department of Health: it introduced real change in the funding and organisation of the service.
Previously, NHS dentists were paid for each treatment they carried out, with 80% of the cost coming from the patient and the rest being claimed by dentists from the NHS. The UK Government argued that a piecework approach to dental care encouraged unnecessary treatment.
So under the new system, rather than paying for any one of 400 different treatments, patients would face only three charges. The lowest price is charged for a dental check-up, the second for any number of tooth fillings and the highest for more complex work.
Nevertheless, this seemingly simplistic approach created an administrative quagmire for small dental clinics made up of one or two dentists. But for the corporates, with their centralised administrative capabilities, the new system of NHS tenders, contracts and endless paperwork was relatively simple to manage.
“The new system has changed the market in favour of dental groups like Oasis: it’s a very good time to be a dental group. Corporates can manage the NHS contract tender process more efficiently as it involves increased levels of administration, whereas smaller practices do not have the time nor inclination for all of the added paperwork. Groups also benefit from economies of scale, allowing them to bid more competitively,” explains Philipps.
“A key driver to growth in the UK healthcare sector has been the Government investing heavily into the NHS, which had previously been starved of cash. I would say the US market is the one leading the UK market, which is about five years behind the Americans. In other European geographies the funding has not been as erratic as it has been in the UK so the deal flow is not so high,” she says.
Oasis is the largest dental corporate operating in the UK, followed by
Last November, Hutton Collins invested along with the founder and chairman, James Hull in James Hull Associates. Hull was looking for a partner to assist with the future growth and acquisition-led expansion of the company. The deal was financed with £38m of bank debt, supplied by Nomura’s leveraged finance team.
“Corporate dental is a very fragmented industry,” says Rafael Torres-Boulet at
“Our strategy is to consolidate and we have made eight acquisitions since the James Hull deal was completed last year. As we increase the platform the idea is to build clusters of surgeries around the country. So far we have been able to finance these acquisitions through raising debt,” he says.
Their focus has been on Wales and the South so far, while the focus is now switching to acquisitions in Scotland and Ireland, he says. The typical enterprise value the group is targeting is between £500,000 to £1m.
Torres-Boulet says the Spanish dental market is more developed than the UK market and Spain could be a key growth market in Europe for similar deals.