Fragmentation, tailwinds in dental space spurred HGGC’s investment in Dentive

'Somewhere around 70% of the industry is still independent dental practices and we think there's just a lot of opportunity for many years to continue to grow and build an M&A platform in dentistry,' said HGGC's Dugoni.

Later this morning, HGGC expects to announce a majority investment with the founders and dentists retaining significant equity ownership in Dentive, a Provo, Utah-based dental services organization founded in 2019. This is the first outside capital for the company, which provides management services to entrepreneurial, doctor-run general and specialty dental practices, primarily in the western US.

“The doctor ownership model that Dentive has, we’ve had a chance to look at a number of different DSOs and compare and contrast different models, and we think their ownership or equity model is really a compelling model,” Pat Dugoni, principal, HGGC, explained in an exclusive interview with PE Hub.

Under HGGC’s model, a partner dentist or practice that’s acquired by Dentive will roll equity to maintain some ownership of the actual practice. Then they also have the opportunity to invest or roll equity into the broader Dentive platform where HGGC has invested.

“We think that’s a model that really nicely aligns the partner dentists’ interests,” he said. “We’ve come to see that type of ownership and equity model is a really important factor for DSOs to attract and retain the best dentists.”

There are many DSOs out there, but there were a few differentiators that attracted HGGC.

“They’ve built a great community of dentists with a growth mentality who want to grow their practices and who practice at the top of their field, who are really focused on providing the best patient care,” said Dugoni. “Interestingly, with Dentive, so far, all of their acquisitions have come to the platform by referral. We hadn’t seen something like that for a platform of this scale. That to us was really unique and differentiated and was a strong indicator of a kind of doctor satisfaction. And they’ve gotten a really nice flywheel going in that sense.”

Making a dent

In its few years of existence, Dentive has shown the ability to grow both organically and inorganically.

“There is a common theme amongst their partner practices of wanting to grow and deliver high-quality dentistry to more and more patients,” he said. “One of the things we saw with Dentive that they’ve demonstrated well is they’ve grown a lot through acquisitions. They’ve also demonstrated strong organic growth with the practices that they’ve partnered with. To us that meant they are not just out buying lots of practices, they are actually integrating them and then they’re really helping add value to those practices. They’re helping them grow as part of the broader Dentive platform.”

Private equity has been in dentistry for many years, but there is still fierce fragmentation in the industry.

“Somewhere around 70 percent of the industry is still independent dental practices,” Dugoni said. “So that’s over 100,000 independent dental practices. We think there’s just a lot of opportunity for many years to continue to grow and build an M&A platform in dentistry.”

There are many tailwinds in the dental space that HGGC is hoping to take advantage of.
There’s been a lot of activity in recent years, and in the DSO space in particular, with real benefits for dentists.

“Joining a DSO platform can help reduce the administrative burden and take some of the non-dentistry activities off their plate, whether it’s accounting and finance or payroll or IT or marketing and things like that, which just allows more time to do what they love and practice dentistry,” he said. “There can be benefits around procurement, which can help increase profitability.”

Then there’s also benefits for associate dentists as well.

“If you’re coming out of dental school, you probably have a lot of debt, and it can be tough to take out a loan to try to buy or start a private practice. And so, by joining a DSO I think is a really attractive route for associate dentists.”

He added that DSOs can provide continuing education and mentorship for associate dentists.

The Palo Alto-based firm sees a lot of growth continuing through acquisitions.

“Pairing that with organic growth, we think the best DSOs out there are those that can do both,” he said. “So scale a lot through acquisitions, but then at the same time, when they bring your practice on board continue to help that practice grow.”

Dugoni noted that there are a few ways the HGGC will be able to implement growth.

“On the acquisition side we’ll continue to support that strategy and provide the capital to grow. I think one other area where we can help, and this is something we’ve done with a lot of our M&A or buy-and-build platforms, but we have helped them invest in IT systems and infrastructure to scale. Obviously, having good access to data at scale is really critical. So, I think that’s an area where we can help.”