Dentalcorp Holdings Ltd., Canada’s biggest network of dental practices, raised $950-million in its public market debut Friday morning, making it the largest health care IPO ever on the Toronto Stock Exchange, and the biggest public offering to date this year.
Shares of Dentalcorp were priced at $14 before trading began, and were virtually unchanged by mid-day, hovering near $13.95. While the common shares of the company raised $700-million, the offering also included a $250-million private placement of 10 million shares sold to institutional shareholders.
Dentalcorp’s largest shareholders – before and after the IPO – include the American-French private equity giant L Catterton, Toronto-based Imperial Capital, the pension fund OPTrust and company founder and chief executive officer Graham Rosenberg.
“This is a huge validation for our business model, especially after the difficult time we went through at the start of the COVID-19 pandemic,” Mr. Rosenberg said in an interview with The Globe and Mail.
Dentalcorp was founded in 2011 and has approximately 7,000 employees across the 434 dental practices it owns. A majority of the clinics are in Ontario and Alberta. The company grew steadily over the past decade, sometimes acquiring up to 60 dental practices a year. That process, however, involved taking on huge amounts of debt. As of March 31, 2021, company filings indicate Dentalcorp had approximately $1.7-billion in debt.
Mr. Rosenberg said Dentalcorp plans to use the proceeds of the IPO mainly to recapitalize its business and continue acquiring dental practices. “We will continue to have a modest amount of debt at levels that our shareholders are happy with. Our main objective is to drive double digit growth in terms of locations, revenue and EBITDA [earnings before interest, taxes, depreciation and amortization],” he added.
The IPO will also include a new $1.3-billion credit facility issued by a group of lenders that includes all of the Big Five Canadian banks and Merrill Lynch.
The offering was initially priced at between $16 and $19 a share, but market volatility over the past few weeks, and the $250-million private placement, compelled underwriters to reprice it at $14, according to Mr. Rosenberg.
L Catterton, the biggest pre-IPO shareholder, operates a $25-billion consumer-focused private equity business and stands to receive approximately $865-million from the IPO. Mr. Rosenberg will receive about $113-million. Both will maintain significant voting control over the company because of the dual-class share structure of the deal.
Dentalcorp’s 2020 revenue was affected by the COVID-19 pandemic because most clinics were forced to shut from March to July, 2020. The company’s prospectus indicates it took a revenue hit of $35-million in the first quarter of 2020 and $215-million for all of last year.
The company is currently not profitable, reporting a net loss of $157-million in 2020. Revenue was $666-million, compared with $768-million in 2019. Dentalcorp is sitting on $232-million in cash.
Dentalcorp’s business model is predicated on acquiring existing dental practices and handing out equity to the owners of those independent businesses. The dentists operating under the Dentalcorp banner technically are not employees of the company, remaining independent contractors through a revenue-sharing agreement.
Dentalcorp sees the Canadian dental market as a massive opportunity because about 95 per cent of dental practices in Canada are still independently owned. The company believes it will continue to grow partly because dentists have an incentive to shift away from running their practices independently.
“Dental professionals want to spend more time delivering care to patients, maintain clinical autonomy and relieve the burden of practice administration,” says the company’s prospectus for investors. Mr. Rosenberg says there is a 96-per-cent retention rate among dentists who have joined his corporation.
The offering was lead by CIBC Capital Markets, Jefferies Securities Inc., BMO Capital Markets and TD Securities Inc. RBC Capital Markets and Bank of America Securities acted as secondary book runners, together with Canaccord Genuity Corp. and Scotia Capital Inc.
The underwriters will be paid a cash fee equivalent to 5 per cent of the total proceeds of the raise. They have also obtained an overallotment option of shares that, if exercised in full, could yield Dentalcorp an additional $105-million.
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