PE-backed Dental Health Options braces for a sale

Dental Health Options, a private equity-backed dental-insurance provider, is working with Cain Brothers to explore a sale, four sources familiar with the matter said.

The Hammond, Kennedy, Whitney-backed company is projected to generate adjusted EBITDA of almost $9 million on close to $64 million of revenue in 2017, two sources said. In comparison, Dental Health Options for 2014 posted EBITDA and revenue around $5 million and $60 million, respectively, one of the sources added.

Dental Health Options says it’s one of the largest providers of dental-benefit programs to employers across Indiana and Kentucky, offering members access to more than 50,000 network dentists in the country. The Evansville, Indiana, company expects to have about 253,000 members in 2017, 7.2 percent up from 236,000 in 2014, one source said.

This source went on to say that management meetings are underway for the company. First-round offers valued north of an 9x multiple of EBITDA were required to make management meetings, the source added. Another source said the deal ought to fetch a multiple of EBITDA north of 10x, adding that “anything with the word dental” commands high interest.

While dental-service organizations have been consolidating, PE investment in the dental-insurance market has been minimal.

In one such deal, Riverside Co in March 2012 bought DentalPlans.com, which offers online tools to help consumers select dental savings plans, as opposed to traditional dental insurance.

The top five providers of dental coverage are Delta Dental Plans Association, MetLife, Aetna, Cigna and Anthem, which one source said account for about two-thirds of market share combined.

The dental-benefit market also differs greatly from the health benefit market.

On the one hand, comparatively few members are involved in the dental insurance market; there’s no barriers to entry; and building a dental network with thousands of dentists does not equate to a huge dollar gain, said one source.

On the other hand, dental coverage is much more predictable from a risk standpoint, and combining more than one group could create strong synergies, this person added. An asset like Dental Health Options provides an opportunity to build a better service model and grab share from larger, less nimble providers, another source said.

HKW, a PE firm with offices in Indianapolis and New York, completed a recap of Dental Health Options’ parent, Health Resources Inc, in December 2015.

Luke Phenicie, lead transaction partner at HKW, did not return requests for comment, while a Cain Brothers representative declined to comment.

Action Item: Reach out to HKW’s Phenicie at +1 317-705-8826

Photo courtesy of webking/iStock/Getty Images