Bracing for a sale: Linden’s Smile Doctors heads to market

Smile Doctors, the largest orthodontics-focused DSO in the US, has grown EBITDA by around 5x since the healthcare-focused PE firm backed the business in late 2017.

As large buyout funds loaded with dry powder continue to battle it out for leading healthcare services businesses, another multi-billion-dollar deal opportunity will soon become available. 

Chicago’s Linden Capital Partners is preparing a sale of Smile Doctors, the country’s largest and fastest-growing orthodontics-focused dental services organization, according to multiple people familiar with the firm’s plans. 

William Blair has been hired for sell-side financial advice, the sources said. A process targeting sponsors is poised to launch imminently, they said. 

Linden and Blair declined to comment, while the company did not immediately return a request for comment. 

Smile Doctors, based in Georgetown, Texas, is expected to approach $200 million in 2021 EBITDA, the sources said. Based on a previous PE Hub report, that’s up considerably from its projected $38 million in 2017 EBITDA, which sources cited during the Blair auction that ultimately led to Linden’s investment in November of that year. Sheridan Capital Partners and Thurston Group previously backed the business. 

Smile Doctors has grown successfully through a mix of M&A and organic growth, and massive white space lies ahead, sources said. The platform is likely to benefit from scarcity value, given that, outside of Smile Doctors, most orthodontics-focused groups sit in the $5 million to $25 million EBITDA range, one person noted. At the same time, orthodontics-focused practices are far behind general dentistry from a consolidation perspective, sources said. 

That said, considering the scale Smile Doctors has reached today, there are now “only a handful of guys big enough to take it down,” as one source put it. 

Smile Doctors offers support services related to everything from human resources and accounting to marketing and revenue cycle management – serving affiliated orthodontics practices in more than 20 states. Its network of practices, which provide both traditional braces and clear Invisalign aligners, offer affordable monthly payment plans, easy online scheduling, as well as remote care options with orthodontists, according to its website. 

Smile Doctors joins an abundance of assets trading hands or hitting the market in healthcare services in recent months – be it dental, dermatology, gastroenterology, orthopedics or women’s healthcare. For example, OMERS Private Equity is currently working with Harris Williams to find a buyer for Forefront Dermatology, a skin-treatment platform projecting around $100 million in adjusted 2021 EBITDA. 

Scale physician practice management platforms across different specialties have consistently commanded EBITDA multiples in the upper teens this year. That includes Partners Group’s nearly $800 million deal for Axia Women’s Health and OMERS’ purchase of Audax Group’s Gastro Health at a mid-$900 million value

And, in dental, Harvest Partners in mid-June won the highly anticipated auction for Berkshire Partners’ Affordable Care, the country’s largest dental services organization specializing in tooth replacement services. The pending deal is valued at around $2.7 billion, implying a close to 17x EBITDA multiple, sources told PE Hub

Elsewhere, US Oral Surgery Management, backed by RiverGlade Partners and Thurston Group, is exploring a sale. USOSM, one of the first platforms to grow and consolidate the oral surgery market, is working with Moelis. 

Linden, for its part, knows dental well, with its experience in the category dating to 2005. The firm that year backed Ranir, a private label and contract manufacturer of consumer oral care products, exiting its investment three years later through a sale to Kayak Holdings.

It also previously owned dental supply company Young Innovations, which it sold in November 2017 to Jordon Co. (the same month it bought Smile Doctors) – generating a 3.6x return, PE Hub reported. 

Linden’s current umbrella of relevant portfolio companies include Sage Dental Management, a DSO serving Florida and Georgia; and Spear, a provider of dental learning, practice management and patient engagement solutions.

Linden, which invests exclusively in healthcare, has remained an active buyer and seller in recent months. In recent activity, the firm agreed to acquire RQM+, concluding a robust sale process for a full-service regulatory and quality consulting firm dedicated to the medical device and diagnostics industries, people familiar with the matter told PE Hub last week. The deal, which has not yet closed, commanded a total enterprise value of $385 million, some of the sources said.

In May, limited partner sources told affiliate title Buyouts Insider that Linden has a $2.5 billion target for a fifth flagship buyout offering and a $3 billion hard-cap. If it meets the target, it would be among the largest funds ever raised to focus exclusively on healthcare.