Sentinel Likes Math On In-School Dentistry Deal

Target: Mobile Dentists

Sponsor: Sentinel Capital Partners

Price: Undisclosed

Financial Adviser: Seller: Houlihan Lokey Howard & Zukin

Legal Counsel: Sponsor: Kirkland Ellis

Life is all smiles for Sentinel Capital Partners.

In a slow time for private equity fundraising, the New York-based firm closed well above target on a new, oversubscribed fund in mid-July. Now portfolio company ReachOut Healthcare America has acquired its only industry peer, Mobile Dentists, for an undisclosed amount.

Sentinel Capital acquired ReachOut Healthcare in November 2007 with the intention of making bolt-on buys. The company’s top choice? Mobile Dentists, as it’s the only other company in the United States that provides in-school dental services to low-income children. “Everyone saw that one plus one equals three, especially since there was no (geographic) overlap of the businesses,” said Paul Murphy, a partner at Sentinel Capital.

Several months later, management at Mobile Dentists surprised Sentinel Capital by actually proposing the sale. “We got approached (by Mobile Dentists) around the time we were thinking of going to them,” Murphy said. The combined entity operates in 21 states under the management of both ReachOut Healthcare and Mobile Dentists, whose managers retain a minority interest.

Similar to school lunch subsidies, services offered by the company are covered under Medicaid. Turns out, 80 percent of qualifying children do not have access to a dentist. The companies seek to bridge that gap, performing dental operations in schools with their traveling dental fleets.

According to Murphy, ReachOut Healthcare runs little risk of seeing its government-supplied revenue stream cut off, since the state governments that allocate the funding rarely make cuts to children’s health programs. Lenders like the business’s stability, too, Murphy said, noting that the deal garnered “a lot of interest.” Sentinel Capital chose Golub Capital to provide senior debt and Audax Group to provide mezzanine financing.

The firm paid for Mobile Dentists with equity from its third fund, a nearly-deployed $319 million pool raised in 2005. Sentinel Capital has yet to invest from its freshly minted fourth fund, which, at $765 million, surpassed its hard cap by $165 million.

The firm is no stranger to the dental industry. It scored a roughly 5X return on the sale of its holdings in Metro Dentalcare last year and made a 2.2X return on the sale of Castle Dental Centers in 2004.

Other LBO shops delving into the dental industry include Code Hennessy & Simmons, which disclosed an equity investment in Heartland Dental Care in early August, Thoma Cressey Bravo, which purchased Midwest Dental Management in 2007 and Ares Management, which purchased Aspen Dental in 2006.