A first-mover in a high-growth pocket of dental, US Oral Surgery Management earlier this week emerged as the target of the first secondary PE transaction involving a practice management platform dedicated to the oral surgery market.
Oak Hill Capital Management’s recently completed acquisition of USOSM valued the Irving, Texas-based business between $700 million and $750 million, according to sources familiar with the deal terms.
Commanding a $700 million-plus valuation, the deal translates to a little south of 15x the company’s estimated 2021 EBITDA of about $50 million, the people familiar said.
The deal concluded a Moelis-run sale process that sources characterized as highly competitive. Oak Hill’s investment provides an exit for investors including Sterling Partners-spinout RiverGlade Partners.
USOSM’s management team, led by CEO Rick Hall, will continue to lead the company and retain an ownership interest, as will the group’s oral surgeon partners.
Oral surgery is compelling for a variety of reasons. “This area of oral surgery is red hot,” one source told PE Hub when USOSM was preparing for a sale earlier this year. “There’s a lot of folks looking [at the space].”
The addressable oral surgery market totals about $13 billion, and that market is growing some 4 percent to 7 percent a year, another source said. “The specialty has some relatively unique fundamental drivers – both protection around the foundation and risk side as well as growth opportunities.”
The two main procedures USOSM’s affiliated oral surgeons perform: Wisdom teeth extractions and the placement of dental implants.
On one hand, the patient population for wisdom teeth is knowable and the rate at which individuals have these procedures is predictable. On the other hand, dental implants, although more costly than dentures and bridges, is the most efficacious tooth replacement solution and is increasingly taking share. That’s where the growth is really coming from, one source said, as dental implants are more likely than not placed by an oral surgeon.
Other compelling factors? Oral surgery groups are high-margin businesses, have a heavier cash pay component and less reimbursement risk when compared with traditional DSOs (dental support organizations), sources said. Further, oral surgery – not unlike cosmetic dermatology – is also a play on a broader trend around peoples’ growing desire to look better, fueled by Instagram and social media culture among other things.
Perhaps adding to USOSM’s attractiveness, it is one of few backable specialty platforms in oral surgery, and the largest, partnering with over 140 oral surgeons across 18 states. Given how fragmented the remainder of the market is (with around 7,500 oral surgeons nationwide, one source noted), the likelihood that additional PE-backed platforms get started from scratch is also slim, one source said.
Under Oak Hill, USOSM has the opportunity to grow organically by continuing to drive greater operating efficiencies at the practice level and remove the growing level of administrative burdens to free up doctors. At the same time, the runway for M&A is large and it remains the ‘early days’ of consolidation of this specialty, sources said.
Oak Hill is also a logical buyer of USOSM. Besides prior experience in multisite retail healthcare segments like vet care, the firm’s Micah Meisel, who worked on the transaction alongside Brian Cherry, has direct experience in this category.
Meisel joined Oak Hill as a partner in 2020 from InTandem Capital Partners, where he previously led the firm’s investment in Paradigm Oral Surgery, one of few other PE-backed management services organizations serving oral surgeons. Paradigm was formed in mid-2019 through the fusion of three groups: Nebraska Oral and Facial Surgery, Omaha Oral Surgery and Advanced Oral Surgery.
Outside of USOSM and Paradigm, the only other oral surgery players that have fielded institutional capital to date are Blue Sea Capital’s Beacon Oral Specialists and Sheridan Capital Partners’ Oral Surgery Partners.
In other large dental deals of scale this year, Harvest Partners this summer won the highly anticipated auction for Berkshire Partners’ Affordable Care, the country’s largest dental services organization specializing in tooth replacement services. The deal was valued at around $2.7 billion, or close to 17x its $160 million in EBITDA for the LTM period ended June 2021, PE Hub wrote.
Oak Hill, RiverGlade and Moelis declined to comment.