This month we saw activity in a segment of the dental field that’s largely flown under the radar. Of course, private equity’s love for all things dental is no secret. Rather, it’s among the most hotly pursued areas and the most mature areas of investment in retail health.
But most activity we’re talking about involves dental service organizations, or DSOs, with big players like Abry’s North American Dental Group on everyone’s radar.
Dental labs? Not so much, until recently.
Signs that could be changing emerged in July as Michigan private equity shop O2 Investment Partners invested in Frontier Dental Laboratories following an Intrepid Investment Partners-run process.
Frontier is in the business of making high-end prosthetics, removable dental products and implants for the cosmetic dentistry industry. The company ships its products worldwide from its labs in El Dorado and Vancouver.
Luke Plumpton of O2 Investments told me his firm liked the macro tailwinds behind dentistry broadly speaking, but found the cosmetic lab business appealing for a few reasons.
To start, “the selfie generation is driving a lot of people into cosmetic dental,” Plumpton said. In other words, another source said, “People want their teeth bleached white and straight.”
Frontier peaked my interest, as most existing larger scale dental lab consolidators are entirely focused on general dentistry.
The big North American platforms, to my knowledge, are Welsh, Carson, Anderson & Stowe’s National Dentex and Cressey’s Dental Services Group. In my conversations with deal-makers, I was told there’s increasing discussion around what’s on the horizon for one or both of those.
“Part of the excitement here: the cosmetic industry is a cottage industry,” one source told me. “There are very few players that can do this at scale.”
Of course, these demographic trends have also fueled investment and excitement behind companies like CD&R’s SmileDirectClub and Align Technology, parent of Invisalign.
Thus, while DSOs and cosmetic dentistry are both exploding industries, the cosmetic lab side remains largely uncharted territory by the PE community and is incredibly fragmented, Plumpton said. It’s also a sticky business model, he noted. What Frontier does is so specialized that customers tend to be extremely loyal.
Plumpton added that O2-backed Frontier is aggressively pursuing investment in additional labs across North America, both cosmetic and general.
While most existing customers are independent practices with a partial focus on cosmetics, Frontier is also interested in talking to DSOs that want to put a little more emphasis on cosmetics, he said.
The issue independent lab owners are running into: there’s a lot of demand for their products, yet many can’t manufacture to the high standards typically needed, Plumpton said.
In other words, there’s opportunity. Most cosmetic dentists today are individuals at independent practices that haven’t grown into PE.
I’ve been told there’s renewed interest around the broader dental lab arena, and another PE-platform ought to be announced over the next couple months. What have you heard?
Reach me at firstname.lastname@example.org with your thoughts on the niche dental lab space. Feel free to share other juicy tips, wisdom or just say hello. —Sarah