Smile Brands Switches PE Hands for Third Time, Welsh To Buy Stakes from Gryphon and CTRS

Private Equity really likes Smile Brands, which last week announced a sale to Welsh Carson Anderson & Stowe.

The deal, once it closes, will mark the third time a buyout shop has owned Smile Brands, which provides dental support services, facilities and equipment to dentists.

Last week, Welsh Carson said it was buying a majority stake in Smile Brands from Freeman Spogli & Co. Financial terms weren’t announced. Freeman Spogli bought Smile Brands from Gryphon Investors in 2005 for about $340 million. Gryphon, a San Francisco-based PE firm, acquired the company in 1998, when it was known as Bright Now! Dental.

PE firms like dental companies because they don’t have the reimbursement risks that other health care companies do, one banker says. “[Dental is] an area that is easier for PE firms to get their arms around,” the source says.

Welsh Carson is expected to close the Smile Brands buy in December.

Freeman, a PE firm with offices in New York and Los Angeles, is going to retain a minority stake in Smile Brands. But Welsh Carson is buying the holdings held by Gryphon Investors and the California State Teachers’ Retirement System (CalSTRS), according to a source.

Freeman Spogli owns 73.3% of Smile Brands, according to an April regulatory filing. CalSTRS had a 9.8% stake and Gryphon Investors owned 6.5% of the company. A.S.F. Co-Investment Partners also has a 6.5% holding.

It’s not clear if Welsh is buying A.S.F.’s stake. In 2009, Smile Brands produced $456.5 million in revenue. Income from operations was about $41.1 million.

The acquisition price of Smile Brands is undisclosed, but the company went for a “big price,” the banker source says. Smile Brands had adjusted EBITDA of $56.7 million in 2009, according to a regulatory filing. “I would be surprised if they sold for north of 10x,” the banker says.

The sale to Welsh comes after Smile Brands, of Irvine, Calif.,  pulled its IPO earlier this year. The company had filed to raise $126 million. In May, Smile Brands withdrew the offering citing “general market conditions.” The company operates under the brands Bright Now! and Castle Dental.

Smile Brands is the latest dental company sold to a PE firm.  Leonard Green, earlier this year, acquired Aspen Dental for roughly $500 million. Friedman Fleischer & Lowe is also selling portfolio companies NDCR and DPMS, which provide non-clinical support services to dental groups. DPMS operates under the Kool Smiles brand. American Securities is in the lead to buy the two companies from Friedman Fleischer for about $700 million, Bloomberg said.