Healthcare-focused private equity managers are struggling to exit their dental investments, and problems over pay and retention are only making matters worse.
A recent PitchBook analyst note showed that companies across several healthcare segments have seen extended holding periods. However, the trend is more acute in the dental sector. As of Q1 2024, 37 PE-backed dental platforms in the US and Canada have been in managers’ portfolios for more than five years—17 of these for more than seven years.
Longer holding times are a problem for PE managers already struggling to retain partner- and junior-level physicians due to changes in compensation structure that follow a deal.
“The dynamic with physician practice management deals is, when physicians sell to a PE manager, there is a transition of economic models where they go from owners to employees, and now there is a need to incentivize them to stay,” explained Rebecca Springer, PitchBook’s lead healthcare analyst.
“For practice owners, when they first sell to PE, there is a big payout up front, but the trade-off is after that they are salaried and making less annually than they did as owners, at least at first,” Springer added.
Some deals within the sector were entered at high multiples and, over time, exit opportunities became smaller, particularly for larger platforms, creating a backlog of physician practice management platforms that need to be sold and outpacing the number of willing likely buyers.
PE-backed dental platforms that have had long holding periods include Signature Dental Partners, which was acquired by Tyree & D’Angelo Partners in 2017.
Meanwhile Sage Dental was acquired by Linden Capital Partners in 2012.
The latter deal resulted in the Sage being recapitalized, receiving debt from investors including Golub Capital and Babson Capital Management. The company has been actively acquiring other practices. Earlier this year, Sage acquired Children’s Dentistry, a Tampa-based pediatrics office that has rebranded to Sage Dental Kids of New Tampa.
As time goes on PE managers may seek to transfer platforms into continuation vehicles. Smaller investments can still be sold to larger regional and national platforms.
Featured image by Catherine McQueen/Getty Images
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