After a prolonged period of tight credit markets and stalled PE exits, the dental industry’s capital markets are showing signs of life, but the money isn’t flowing everywhere.
Three recent deals — Smile Doctors’ $125 million raise, Lone Peak Dental Group’s $170 million recapitalization and a major ownership restructuring at Paradigm Oral Surgery — point to investors backing strong, operationally sound platforms and moving on from weaker ones.
These two dental CEOs recently spoke with Becker’s about the investment and capital environment in dentistry today, and where it could be going.
Note: Responses were lightly edited for clarity and length.
Question: With the dental industry seeing a few large capital moves, what is driving this wave of activity, and do you expect similar moves to continue over the next few months?
Silvestre Gonzalez. CEO of Forge Specialty Partners (Charleston, S.C.): I think we’re seeing a few things come together at once. First, the financing market is opening back up, so lenders and investors are willing to put money into strong healthcare platforms again. Strong is the key word there. Investors have learned a few lessons over the past couple of years, so they’re being a lot more selective. They’re looking for organizations with good leadership, solid operations, the right technology and a track record of actually delivering results — not just a really nice pitch deck.
We’re also seeing some private equity firms reach the point where they need to return capital to their investors. That’s naturally leading to more recapitalizations, refinancings and ownership transitions.
On the Paradigm transaction, I have a little hesitation calling it a “buyback” because that makes it sound like someone found a pile of cash in the couch cushions and bought the company back. That’s not what happened. BlackRock exited its majority ownership position, and a new investor group led by Warburg Pincus, alongside Goldman Sachs Alternatives and Sixth Street, came in with fresh capital to acquire BlackRock’s stake. The surgeons and management regained majority voting control, while the new investors became partners and funded the next phase of growth. That’s really a recapitalization, not a traditional share buyback.
To me, that’s an important signal. It shows institutional investors are willing to provide growth capital without insisting on majority control — at least when they’re looking at a high-quality, scaled specialty dental platform.
I think we’ll continue to see more of these transactions over the next several months, especially in specialty dentistry. The stronger platforms will continue to attract capital, while the weaker ones may end up spending a little more time with their private equity sponsors than either side originally planned. That, in turn, creates more opportunities for the stronger organizations to grow through acquisitions and continued consolidation.
Ian McNickle. Co-founder and CEO of ICON Dental Partners (Camas, Wash.): It is both interesting and encouraging to see groups securing growth capital via different methods lately. As we all know, there has been a slowdown with exits and investments for a while, but the dam has to break at some point. There are many investor-backed groups that will want to either sell or recapitalize sooner rather than later.
This slowdown has caused most groups to really focus on improving operations with a focus on revenue cycle management and improving cash flow. These improvements should result in balance sheets showing less debt over time, which strengthens a group’s ability to secure additional capital and continue to grow. So yes, I do expect the trend to continue over the coming months, assuming something crazy doesn’t happen with the debt markets or interest rates.
It’s not just investor-backed groups that are raising capital. At ICON, we are privately held and have raised plenty of growth capital from our lending partner, which has allowed us to scale nicely while maintaining a healthy balance sheet. Any group that operates and grows with discipline should be able to make progress in just about any sort of market condition. I’m optimistic that better times are ahead.
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