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Private equity fund Peloton Capital Management is investing $75-million in national chain 123Dentist Inc., the latest financial player to target dentistry as an industry that’s ripe for consolidation.

Peloton, launched last November by veterans of the Ontario Teachers’ Pension Plan and entrepreneur Stephen Smith, is expected to announce its first deal on Thursday, buying a co-control position in a business with 70 dental practices in five provinces. 123Dentist is the country’s second largest chain and is currently owned by its employees, including Vancouver-based chief executive Amin Shivji, a dentist who opened his first office in 1993 and still sees patients one to two days a week.

There are approximately 15,000 dental offices across Canada and 123Dentist is one of several deep-pocketed services offering to partner with dentists, typically helping recent graduates to build their business or older-practice owners to manage succession. 123Dentist’s business model allows dentists to maintain minority ownership in their practice, and those who have signed up to date are typically between the ages of 40 and 45.

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“A successful dentist focuses on patients, and my vision has always been to support that dentist with an excellent business service," Dr. Shivji said. He said 123Dentist considered offers from five private equity firms before settling on Peloton. With the fund’s backing, Dr. Shivji expects to expand 123Dentist by 30 to 40 new offices each year, but he said: “The key is making sure we grow at a pace where we keep the culture, and keep our people happy.”

Peloton co-founders and managing partners Mike Murray and Steve Faraone previously invested in one of the largest U.S. chains, Heartland Dental, while at Teachers. Heartland more than doubled annual sales to US$1.3-billion in the five years that the Teachers’ fund owned the business, expanding to 840 offices from 400. Teachers sold the majority stake in Heartland last year to New York-based Kohlberg Kravis Roberts & Co. LP.

“Compared to the U.S. market, the dental market in Canada is fragmented, and we see 123Dentist as an important option for any dentist, at any stage,” Mr. Faraone said. He said offering dentists continued ownership in their practices was part of Heartland’s successful business model.

The largest domestic player in this sector is Dental Corp. of Canada Holdings Inc., which was founded in 2011 and now has 350 offices. Typically, Dental Corp. owns 100 per cent of a dental practice. Last year, a consortium made up of U.S. private equity fund L Catterton and Toronto-based Imperial Capital Group Ltd. and OPTrust took an equity stake in Toronto-based Dental Corp. to help fund growth.

As part of the Peloton investment, Heartland Dental chief executive Pat Bauer will join the 123Dentist’s board of directors. Investment bank RBC Dominion Securities advised Peloton Capital on the transaction. Mr. Faraone said a banker introduced Peloton to the dental business earlier this year, just as Dr. Shivji kicked off a search for growth capital. 123Dentist will use part of the money from Peloton to refinance the company’s credit lines.

Peloton’s founders are all keen cyclists, and chose their name because a group or peloton of riders is 40 per cent more efficient than someone cycling on their own. The firm has raised $330-million to date for its first fund, and is targeting $500-million. Backers include financial institutions and family offices, with Mr. Smith, the chairman and CEO of mortgage lender First National Financial LP, putting up a minimum of $150-million.

Peloton plans to make $25-million to $75-million initial commitments to mid-sized, profitable companies and its first fund is expected to invest in seven to 10 businesses. The fund recently landed veteran consumer products executive and ardent cyclist Irene Chang Britt as a member of its advisory board. She was previously chief strategy officer at Campbell Soup Co. and also worked at Kraft Foods and Kimberly-Clark. Peloton also recently hired former West Face Capital executive Nora Nestor as its chief financial officer and RBC Dominion Securities veteran Mike Scarola as a Peloton partner. Mr. Scarola represented Canada in the 2004 Athens Olympics in canoeing; he now spends leisure time mountain biking.

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