Dental Labs Making Impression On Investors

Dental Labs Making Impression On Investors
Dentist is painting a tooth crown in dental laboratory

Dentist is painting a tooth crown in dental laboratory

Getty

Dental labs manufacture or customize crowns, bridges and dentures. At least 25 percent of the market consists of one- and two-man labs, many of which are feeling the squeeze of equipment expenses, leaving the sector ripe for private equity firms to pursue roll-ups, said Ares Manos, founder and CEO of Virginia-based K2 Dental Arts

Last July, O2 Investment Partners acquired Frontier Dental Laboratories, with Frontier scooping up NuArt Dental shortly thereafter. 

Service with a smile 

Luke Plumpton, a partner at O2 Investment, said his firm is taking an approach with Frontier “that honors the entrepreneur,” considering the potential for customer and employee attrition. 

“Many prior lab acquisitions were of retiring owners, whose long-time relationship with dentists and customers was the glue that held the business together,” said Jim Glidewell, founder of dental lab giant Glidewell Laboratories. “Once the owners are gone and the acquiring company starts (letting go of) high-paid senior employees, it is not hard for those senior employees to open new competing labs to maintain their income levels.” 

Glidewell and Plumpton said investors also must be willing to reinvest into marketing and new products for the acquired company to be successful. 

Armed to the teeth 

Declining reimbursement and margin pressures have forced many dental groups to outsource to China, so US-based dental labs with the technology to produce better, faster and more affordable dental lab work are best positioned to thrive, said Roshan Parikh, co-founder of boutique healthcare investment bank Concierge Capital Advisory and Walmart’s head of dentistry. 

K2 Dental uses computer-aided design and computer-aided manufacturing, and has the latest equipment needed to process digital intraoral scanner impressions, a new technology that “is being adopted faster than x-rays,” Manos said. 

Lab labor costs have decreased from 45 percent to roughly 25 percent, according to Glidewell. “Using offshore labs does not save as much as people think— and the complexity of shipping, billing and even customs shutdowns can wreak havoc on even a great business plan.” 

Mid-market cavity 

The four largest dental lab players– Glidewell, Modern Dental Laboratory, Welsh Carson-backed National Dentex Labs and Cressey-owned Dental Services Group – together capture less than 15 percent of the market, which is estimated between USD 6bn and USD 8bn, according to Glidewell. 

After that, the market drops off significantly, leaving plenty of space for a mid-market roll-up strategy, the sources said. 

According to Luke Caruso, president of Illinois-based Ottawa Dental Laboratory, his family-owned company is in the top 1 percent of dental labs with four regional locations and 220 employees. Glidewell, in comparison, has 15 labs and 5,000 employees throughout the US, Mexico, Costa Rica, Colombia and Chile. So even at its relatively small size, Caruso said K2’s bite is much larger than its bark.

Deborah Balshem has specialized in business reporting and editing for more than 20 years and is a regular contributor to the Mergermarket division of Acuris. 

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By Deborah Balshem 

As private equity investors continue to seek the next healthcare services market to consolidate, dental laboratories may be in line for the crown.

The highly fragmented space has not yet undergone major consolidation, unlike its dental group counterparts. However, aging owners, a shortage of talent, increasing digitization and a tightening of the purse strings by dentists are driving more labs to consider M&A, said several industry sources. 

Dentist is painting a tooth crown in dental laboratory

Dentist is painting a tooth crown in dental laboratory

Getty

Dental labs manufacture or customize crowns, bridges and dentures. At least 25 percent of the market consists of one- and two-man labs, many of which are feeling the squeeze of equipment expenses, leaving the sector ripe for private equity firms to pursue roll-ups, said Ares Manos, founder and CEO of Virginia-based K2 Dental Arts

Last July, O2 Investment Partners acquired Frontier Dental Laboratories, with Frontier scooping up NuArt Dental shortly thereafter. 

Service with a smile 

Luke Plumpton, a partner at O2 Investment, said his firm is taking an approach with Frontier “that honors the entrepreneur,” considering the potential for customer and employee attrition. 

“Many prior lab acquisitions were of retiring owners, whose long-time relationship with dentists and customers was the glue that held the business together,” said Jim Glidewell, founder of dental lab giant Glidewell Laboratories. “Once the owners are gone and the acquiring company starts (letting go of) high-paid senior employees, it is not hard for those senior employees to open new competing labs to maintain their income levels.” 

Glidewell and Plumpton said investors also must be willing to reinvest into marketing and new products for the acquired company to be successful. 

Armed to the teeth 

Declining reimbursement and margin pressures have forced many dental groups to outsource to China, so US-based dental labs with the technology to produce better, faster and more affordable dental lab work are best positioned to thrive, said Roshan Parikh, co-founder of boutique healthcare investment bank Concierge Capital Advisory and Walmart’s head of dentistry. 

K2 Dental uses computer-aided design and computer-aided manufacturing, and has the latest equipment needed to process digital intraoral scanner impressions, a new technology that “is being adopted faster than x-rays,” Manos said. 

Lab labor costs have decreased from 45 percent to roughly 25 percent, according to Glidewell. “Using offshore labs does not save as much as people think— and the complexity of shipping, billing and even customs shutdowns can wreak havoc on even a great business plan.” 

Mid-market cavity 

The four largest dental lab players– Glidewell, Modern Dental Laboratory, Welsh Carson-backed National Dentex Labs and Cressey-owned Dental Services Group – together capture less than 15 percent of the market, which is estimated between USD 6bn and USD 8bn, according to Glidewell. 

After that, the market drops off significantly, leaving plenty of space for a mid-market roll-up strategy, the sources said. 

According to Luke Caruso, president of Illinois-based Ottawa Dental Laboratory, his family-owned company is in the top 1 percent of dental labs with four regional locations and 220 employees. Glidewell, in comparison, has 15 labs and 5,000 employees throughout the US, Mexico, Costa Rica, Colombia and Chile. So even at its relatively small size, Caruso said K2’s bite is much larger than its bark.

Deborah Balshem has specialized in business reporting and editing for more than 20 years and is a regular contributor to the Mergermarket division of Acuris. 

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