The parent of a Santa Ana dental services company is looking to break a long drought for initial public offerings in Orange County.
Smile Brands Group Inc., which operates Bright Now Dental Inc. and other companies, filed with the Securities and Exchange Commission late last month to raise up to $144 million in a public offering.
It would be the first major public offering by a local company since late 2007, when Mission Viejo-based nursing home operator Ensign Group Inc. went public and raised $64 million.
TherOx Inc., an Irvine maker of devices to treat oxygen-deprived tissue after a heart attack, filed for an offering in 2008 but withdrew its plans in early 2009.
Smile Brands is looking to list its shares on the New York Stock Exchange under the ticker symbol “SBG.” An offering date and price haven’t yet been set.
The company declined to comment for this story in the run-up to the offering.
Freeman Spogli & Co., a Los Angeles-based private equity firm, owns 73% of Smile Brands. Freeman Spogli bought Smile Brands for about $340 million from San Francisco’s Gryphon Investors in 2005. Gryphon still holds a small stake in the company.
Smile Brands and its owners appear to be seeking to tap into Wall Street goodwill for dental services companies.
American Dental Partners Inc., a Massachusetts-based dental services company that competes with Smile Brands, saw its shares nearly double in 2009 on a market value of $200 million.
A smaller rival, Denver-based Birner Dental Management Services Inc., saw its shares end 2009 up about 45% on a market value of $30 million.
Recent Offerings
A rebounding national market for public offerings has been a mixed bag overall for the few healthcare-related companies that went public last year.
Shares of Team Health Holdings Inc., a Knoxville, Tenn.-based provider of outsourced doctors for emergency rooms, are up about 10% since their mid-December debut.
Talecris Biotherapeutics Holdings Inc., a North Carolina maker of protein-based treatments for people with immune disorders, is up about 3% since its October offering.
Two others have fallen since their debuts.
Medidata Solutions Inc., a New York-based healthcare information technology company, is down 6% since its June debut. Nashville, Tenn.-based drug maker Cumberland Pharmaceuticals Inc.’s down about 18% since its August offering.
Smile Brands provides management services for dentists, including technology, accounting and billing, human resources, insurer contracting and call centers.
It markets dental practices under the Bright Now Dental, Castle Dental and Monarch Dental brands. Smile Brands serves more than 1,100 dentists and hygienists at more than 300 offices, according to its SEC filing.
Centralizing operations allows dentists to focus on patients and boosts profits, according to Smile Brands.
For the 12 months through September, the company had an adjusted profit of $54.8 million, up 24% from a year earlier.
Smile Brands had sales of $454 million for the period, up 2% from a year earlier.
The company said in its filing, it is part of a $102 billion yearly U.S. dental services market, which it called “highly fragmented” and dominated by sole practitioners.
Smile Brands’ filing outlined challenges beyond the usual concerns.
Dental patients are sensitive to prices for services “because many pay for a significant portion of their dental expenses on an out-of-pocket basis,” the company said.
The company quoted statistics from the federal Centers for Medicare and Medicaid Services showing that out-of-pocket spending made up 44% of dental service payments in 2007, versus 14% for other medical services.
Acquisitions
Smile Brands is looking to grow in part by targeting the 30% to 50% of U.S. adults who don’t get regular dental care.
The company has what it calls a “retail-oriented” business model that uses marketing to get patients to its dental offices, some in neighborhood shopping centers.
Smile Brands, which has nearly 1,800 workers, saw a growth spurt during the middle of the decade that was fueled by a pair of deals.
In 2004, it spent $53 million for Castle Dental Centers Inc., a Houston company with 73 offices in California, Texas, Florida and Tennessee. A year earlier, it spent $11 million for Monarch Dental Corp., a once highflying Dallas-based dental practice management operator that fell on hard times.
“The rest of the industry had basically failed,” Chief Executive Steven Bilt said in a 2007 interview, allowing Smile Brands to pick up Monarch at a bargain.
“They were three times our size,” he said. “It was kind of a classic minnow swallowing a whale story.”
Bilt has been chief executive of Smile Brands and its predecessor since 2000, when he succeeded Richard Matros.
Matros now runs Sun Healthcare Group Inc., an Irvine nursing home company, and is a Smile Brands director.
The company’s roots date back to 1998, when Consumer Dental Services Organization was started after Matros started working with private equity firm Gryphon, which invests in midsize companies.
Gryphon and Matros first invested in Consumer Dental Services Organization, a 19-office Northern California operation that specialized in service for union and employer groups. That partnership then bought the 16 Southern California offices of Newport Dental.
Bright Now Dental Inc., Smile Brands’ predecessor, took over management of Megdal Dental Care clinics, another dental chain, in 1998. All now fall under Smile Brands.
