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Smile Brands Goes Big in Midwest Buy

Smile Brands Inc. isn’t done growing. 

The Irvine-based dental support organization, or DSO, announced last week it made its largest acquisition, bringing Midwest Dental and the Mondovi, Wisc.-based company’s 230 dental offices into the fold.

The combined company, with 650 affiliate dental offices, is expected to generate $1 billion in annual revenue this year, up from Smile Brands’ revenue of $700 million in 2019.

“Dentistry is a huge category and there is a lot of opportunity,” Chief Executive Steve Bilt told the Business Journal. “We’ve been at it a long time and feel we understand the space and know when something has the potential to fit well with us. With Midwest Dental, we know the management team, the quality of their people, and felt we had a good sense of how to bring the businesses together.”

The acquisition, made on undisclosed financial terms, more than doubles Smile Brands’ geographic footprint, and expands the company’s presence from 18 to 30 states.

The combined company has over 8,000 employees including 2,200 dentists and hygienists, it said.

It also forms one of the largest DSOs in the country; large competitors include Heartland Dental, Irvine’s Pacific Dental Services and Aspen Dental.

DSOs build and manage office practices for dentists, taking care of just about everything except the actual dentistry.

Midwest Dental was among the country’s 10 largest DSOs prior to the sale to Smile Brands.

Roll Up Experience

Bilt launched Smile Brands in 1998 as Bright Now Dental Inc. and grew the company through acquisitions of Monarch Dental Corp. and its 152 offices, and Castle Dental Centers Inc., which had 74 offices.

Bilt and co-founder Brad Schmidt left the firm for about two years in 2014. They formed another dental support organization, OneSmile LLC, and repurchased Smile Brands in 2016 with their private equity partner Gryphon Investors.

“Our sponsors and lenders have been through that journey with us before,” Bilt said regarding growth through M&A activity. “They were supportive of us to do that on a big scale.”

“We believe that the pace of consolidation in the dental industry will quicken as a result of the pandemic, and Smile Brands is ideally positioned to support an increasing number of high-quality dental providers based on its unique history of successfully completing large corporate combinations,” Luke Schroeder, partner at Gryphon Investors, said in a statement.

Ups and Downs

Smile Brands’ acquisition of Midwest Dental comes at a time when the dental industry has been largely devastated due to the pandemic.

Dental offices shuttered across the country in March due to state-mandated lockdowns.

Smile Brands saw its revenue drop 90% in the course of about a week, Bilt told the Business Journal last month.

Smile Brands furloughed about 2,500 of its 5,000 employees, including large numbers at its Irvine headquarters, early in the pandemic.

After putting in place extensive safety procedures and reexamining nearly every aspect of the business, Smile Brands soon began to reopen offices, brought back employees, and returned to growth—and started considering acquisitions again.

“We had been through the process of retooling the business, and we felt good about how we were doing, and we felt some of those lessons we learned would apply nicely to the business,” Bilt said of the Midwest buy.

Smile Brands, for example has invested in infrastructure such as call center capabilities, revenue cycle management and robotic processing that will benefit Midwest Dental, Bilt said.

National Footprint

Smile Brands’ recent acquisition is a reunion of sorts.

Midwest Dental spun out of Monarch Dental about six months before Smile Brands acquired the business in 2003.

“I’ve followed the business since then, and I always thought it was a shame we missed it,” Bilt said.

Midwest Dental has “a good presence in the upper Midwest and East. If you look at a map, you couldn’t get a more perfect fit. It lays in perfectly in terms of scale for us to be a truly national company.”

Smile Brands’ expanded footprint will give it the ability to grow even further, Bilt said.

“Our business is very locally intensive. We have a strong set of local management teams that help us identify opportunities. We wouldn’t go into a market greenfield per se because there’s no depth of management,” Bilt said. “We like to grow in places where we have a presence.”

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