Opinion: Sundeep Gandhi

The private dental services market has gained increasing support from private equity investors over the last couple of years, lured by the potential returns on offer.

In April 2010, Oasis Healthcare, which was originally acquired by Duke Street for £125 million in 2007, received a further £30 million to help fund their expansion plans. A month before this, Synova Capital made their first dental sector investment, by supporting the buyout of The Dental Buying Group. The most notable dental deal of 2009 was the £136 million acquisition of Associated Dental Practices (ADP) in December – the second largest provider of NHS dentistry. ADP was acquired from the Administrators of Kaupthing Capital Partners, by a consortium of investors led by Palamon Capital. Two years ago Integrated Dental Holdings (IDH), another leading UK dental provider, was backed by Merrill Lynch.

The PE investors have been very good at acquiring smaller practices and building scale. However, subsequent integration has not always been easy - demonstrated by Hutton Collins investment in James Hull, which required a management reshuffle and Graham Hutton to step in and take control. Time will tell how successful these integration processes will eventually turn out to be and the subsequent investment returns actually achieved.

It is clear however from these investments, that private equity investors still believe that material value can be derived by consolidating the UK’s fragmented dental market. With increasing regulation in the market forcing many small practices to be offered up for sale, the supply and demand dynamics suggest there is more M&A to come.