EDG sale predicted for Q1, 2024
Multiple sources tell HBI that Nordic Capital-owned multinational European Dental Group (EDG) will be back on the market in Q1 ’24. HBI also hears Mehilainen could be back in the shop window soon too.
Click here to read more about EDG, here to see a list of the largest European dental groups by revenue and here to read our cross-national report on the sector in HBI Intelligence.
An investment source tells HBI: “With EDG, Nordic brought it to the market but couldn’t get the deal done. In my opinion this was because of valuation issues and interest rates. I suspect when the buy-side valuation started to come down, it just decided to stop the process and clean up the portfolio a little bit. It’s looking to come back to the market in Q1 ’24.”
A Dutch consultant tells HBI the rumour “sits with the amount of requests I’m getting for consultation”.
He says: “I have been doing more consultations on the Dutch market and EDG could be the reason. There’s a 100% correlation with requests and something coming up for sale. Last time it was Colosseum buying Dentconnect [both are dental groups].
“Nordic were never in it for the long run in my view, which is the case for a lot of dental owners with the Jacobs Family [who own Colosseum] a kind of exception.”
An investment banker source tells HBI: “It would not surprise me. Everybody is hopeful for next year to be a better one and EDG is overdue an exit.”
HBI brought you the exclusive news in May that Nordic had pulled the deal from sale. The main reason given was high interest rates, which has also pushed dentistry groups to focus less on M&A and consolidation and more on organic growth and operational excellence.
There was a suggestion at the time that the Dutch operations, the largest portion of the EDG empire, were perhaps not as strong as other areas. We reported this week that despite appearances, the Dutch dental market is reaching saturation.
Our investor source says: “EDG has a good footprint in Germany and a good runway there, a good presence in the UK. In some markets there is still a lot of consolidation to be done. EDG is well positioned to capture more, but not in its home market.”
With market pressure easing, EDG was expected to ramp up its clinic acquisitions as “it’s part of the group’s business story” with an eye to eventually sell. Nordic has owned EDG since 2018.
What changed?
In August, EDG sold off its dental labs businesses to Oakley Capital, explaining: “The strategic decision allows EDG to solely focus its resources on continuing the rapid development of its leading oral care clinic networks.” We are told there are two possible PR-to-English translations of this.
The first, according to our Dutch consultant source, is that EDG was slimming the asset down for sale. HBI often reports on groups fattening the calf before sale, but it could be possible EDG did the opposite to make it an easier pill to swallow in a more difficult economic environment.
However, our investment source is not convinced: “It’s just that they’re separate businesses. Is there cost sharing? No. Capability sharing? Not really. One is a supplier and one is a provider. Groups have been trying to integrate value chains, but it doesn’t seem to generate value really – and if it did then why did EDG spin off its labs?
“It hasn’t worked out because you cannot force dentists to use your labs as they’re mostly self-employed and are very picky in terms of the techniques they use. There will be a lot of work on the lab side in terms of rollup, but it won’t be an integrated play with dental services in my view, it will likely be pure lab consolidation.”
Interest rates are also somewhat tamer with our Dutch consultant source explaining: “The high interest rates of the last 12 months have stopped many transactions and IPO opportunities. Now that the European Central Bank is predicting interest rates will stabilise or go down, new opportunities are arising.”
The investment source agrees: “There are lots of assets coming to market. There’s a consensus interest rates are at or near the top of their growth and will probably stay at the same levels next year, but will ultimately come down by Q4 next year. But what high interest has done is a lot of funds aren’t getting the prices they expect and would have hoped for a year ago. They’re holding on and focusing on operational excellence. But when interest rates come down there will be deal flow.”
There are, however, reasons to be pessimistic on a macroeconomic level: “The US and China might be talking peace this week, but we could just be one little macro event away from consumers saving more and a big recession. Maybe the Middle East or China-Taiwan. We’re not in the world of five years ago where boy bands were still good and interest rates were still low!
“Within investing circles, healthcare is still active. There are deals to be made and conversations to be had because healthcare is more resilient. People still need to go to the dentist. But the bad news is people were buying assets and rolling up and hoping for a multiples arbitrage – but I think even for a quality dental asset like EDG there’s only a willingness to pay 12-13x rather than 14-16x.”
Price
The investment source says EDG’s EBITDA is likely around €100m, although it could be as high as €120m. From this, a lowball valuation of the full EDG asset could be around €1.2bn, although its not clear how much it sold its labs for so this is a far from concrete estimate.
The investment source says: “On €1.2bn Nordic doubles its money, which is good, but it’s not like Oasis when Bridgepoint sold it for something like 4.5x profit [in 2016]. The time of crazy money is over. But you can get good returns, if you buy smart.”
Meanwhile the Dutch consultant says EDG will want at least 10x EBITDA to make profit: “To my knowledge some of EDG’s recent acquisitions had an EBITDA multiple of 10x or above, so if you want a return you need at least that. Anything lower and it will lose money.”
HBI has reached out to contacts close to EDG and majority owners Nordic for comment.
Other M&A is on the horizon
If this isn’t enough M&A for you, HBI also hears Finland-based healthcare group Mehilainen is back up for sale with names like Advent and Bridgepoint floated as potential buyers: “With Mehilainen you will probably see those familiar names. I don’t think someone unfamiliar with health care would come into this market where you really need knowledge about it when your cost of debts are successively more than two years ago. You need exposure to dentistry, whether on the labs or services side. When the risk is higher you want to stick to what you know.”
CVC has owned a sizeable stake in the group since 2018. It has previously tried to sell, but the deal stalled in November 2022 reportedly due to unfavourable Finnish trading conditions.
HBI has reached out to Mehilainen for comment.
Elsewhere there appears to be still no word on German nursing home group Alloheim, also held by Nordic. There was an attempt to sell it in 2021 and our sources say they have heard nothing recent.
We would welcome your thoughts on this story. Email your views to Joe Quiruga or call 0207 183 3779.
