An international dentistry group with EBITDA of €35m, which was about to start an auction process to sell to private equity, probably for an enterprise value of over €200m, has been engulfed in a scandal so bad that its very existence is in question (see our sepearate news story).

This appears to be a far worse scandal than those faced by care home group Casa Reha in Germany and by care group Ambea in Sweden. There are several reasons for this. Firstly, this is a B2C business where brand is everything. Secondly, around two thirds of its outlets were franchisees who will run for the hills.

The collapse also tells us much about the wild west world of dentistry chains in southern Europe. Such groups compete aggressively as retailers to win business and employ salesmen to capture customers. They also depend upon consumer finance for positive cashflow which then enables further expansion. One source decribed the model as “not unlike a pyramid scheme”. It is not hard to see the flaws in such a model. And indeed Vitaldent is not the only such chain to have problems. Oh meu dentista! – a ten outlet chain in Portugal went to the wall last year after its salesforce were shown to be gaming the credit scores of would-be customers.

Note that four of the regional dentistry professional bodies have just initiated legal action against Dentix, the other major chain over misleading advertising. Spanish media articles tie this drectly into Vitaldent.

Whilst we might see a tougher line taken on sales and marketing, we are unlikely to see an end to the corporatisation of the dentistry. There are too many large chains, sometimes owned by insurers, for there to be a retreat now.

And what does all this mean for the wider healthcare services business. Simple – caveat emptor. Quality and ethics are central to any healthcare services business. Get these wrong and companies can be destroyed overnight.