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Affordable Care acquired by Harvest Partners

June 17, 2021
Harvest Partners will acquire Affordable Care, a Raleigh, N.C.-based operator of dental practices, from Berkshire Partners in a deal that indicates the investor sees high potential growth in the DSO market.

PE Hub announced on June 16, 2021, that private equity firm Harvest Partners has agreed to acquire Affordable Care. Currently, Affordable Care services over 350 dental practices in 41 states. Presently, in the Harvest portfolio is Dental Care Alliance, which today supports an additional 330 dental practices in the nation. Obviously, Harvest Partners has experience in the dental support organization (DSO) industry.

Although the deal has not officially closed, the price value is estimated at $2.7 billion. Berkshire Partners relinquished majority stake after growing the DSO company by more than threefold since their acquisition in 2015. The largest addition to Affordable Care was DDS Dentures + Implant Solutions in March 2019.

The enterprise value (EV) to EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio apparently comes in at just under 17 times. Companies on the S&P 500 have averaged 11 to 14 times multiples in recent years. Clearly, by paying a premium price, Harvest Partners sees great potential in the DSO market.

Consolidations and private equity rollovers in the DSO industry have recently been rapid fire. On May 14, 2021, KKR’s Heartland Dental announced acquisition of American Dental Partners, Inc., which maintains 278 dental practices in 21 states.

Aspen Dental Management Inc. (ADMI) in the portfolios jointly of Ares Management, Leonard Green & Partners, and American Securities LLC, announced in December 2020 the acquisition of ClearChoice Management Services. ClearChoice operates dental implant centers in multiple states in more than 60 locations; the larger ADMI stands at some  850 clinics in 42 states.

The private equity firm of Charlesbank acquired MB2 Dental in February 2021, from Sentinel Capital Partners. MB2 operates 275 dental practices in 24 states.

New Mountain Capital acquired Benevis (aka Kool Smiles Dental) in October 2020, during the process of a federal chapter 11 bankruptcy proceeding. Kool Smiles Dental (or their rebranded affiliates) operates in 15 states with more than 120 locations.

Also in New Mountain’s portfolio is Western Dental & Orthodontics and their affiliate brands, which maintains more than 320 dental offices in California, Arizona, Nevada, Alabama, and Texas (Brident Dental). New Mountain Capital today controls the largest block of DSOs operating in the dental Medicaid sector and has the largest national footprint between their various brands serving the Medicaid demographic.

Undoubtedly, the impact of the private equity industry on the dental industry is profound. That influence is on an expanding growth curve. The industry seems happy to pay a generous multiple of a dental practice’s EBITDA, which operates in the private sector. Dental clinics which focus on serving the Medicaid population seemingly retain reduced market valuations.

Michael W. Davis, DDS, maintains a general dentistry practice in Santa Fe, New Mexico. He chairs his district dental society peer review committee and is involved in state dental association issues. He is also active with consultation and expert witness work for a variety of attorneys. Dr. Davis may be reached at [email protected] or on his website, smilesofsantafe.com.