Financial buyers in healthcare services are interested in segments with unyielding demand and little medical risk. No wonder, then, that dental groups have become a major target for these investors, and we’ve got the data to prove it. .
Dental group acquisitions remain a solid investment. Since 2014, acquisitions have risen steadily. Through August 1, 2017, 19 dental deals have been announced, a 6% increase compared with 2016’s total of 18 deals. This eight-month total is alread 72% higher than 2015’s total (11), and up 138% from 2014’s total (8).
Private equity firms are almost entirely responsible for the ongoing consolidation. In 2017, 53% of buyers were private equity firms, and 42% were PE-backed dental groups. In 2016, 27% of buyers were PE firms, and 56% were PE-backed dental groups. Not only are PE firms acquiring initial platforms for future expansion, they are also funding add-on acquisitions through their portfolio companies to expand into new areas or strengthen current footprints.
Marquee Dental, a portfolio company of Chicago Pacific Founders, accounted for eight deals in 2016 and has since gone quiet. This year, no single company has been overly active. The only notable mentions, with two deals apiece, are Smile Brands Inc., a portfolio company of Gryphon Investors, and Western Dental Services, a portfolio of New Mountain Capital.
Private equity interest is sure to continue, if not escalate, in the next few years. According to the Centers for Medicare and Medicaid Services, CMS programs have accounted for about 36% of all U.S. health expenditures since 2010, but only about 10% of dental expenditures. The remainder of dental expenditures are funded through out-of-pocket payments or private insurance, a quality that is considered a goldmine for investors.