Buckley Capital Urges Dentalcorp to Consider Sale Amidst Market Undervaluation
Miami Beach, Fla., May 29, 2024 — Buckley Capital Management, LLC, a long-term investor owning roughly 1.4% of Dentalcorp Holdings Ltd. (TSX: DNTL), issued an open letter to the company’s board and management advocating for the immediate initiation of a strategic review. The letter highlights concerns that Dentalcorp’s stock remains substantially undervalued in public markets and stresses that a potential sale could unlock greater shareholder value.
Strategic Review: Unlocking Shareholder Value
Buckley Capital recognizes Dentalcorp’s operational success over the past 18 months but expresses concern that this progress has not translated into corresponding market valuation. The firm believes that due to ongoing market conditions, Dentalcorp’s shares are unlikely to achieve fair valuation without exploring alternative strategies, including the possibility of selling the company.
The previous strategic review undertaken from late 2022 to mid-2023 reportedly faltered due to the restrictive credit environment and banking instability seen during the March 2023 crisis. However, with significantly improved financing conditions, Buckley Capital asserts that Dentalcorp is well-positioned to revisit a transaction process that could offer shareholders a premium of $12 to $16 per share, much higher than current market prices.
Market Undervaluation Relative to Performance and Peers
Despite Dentalcorp’s solid financial trajectory—adjusted EBITDA grew from approximately $192 million in 2021 to a projected $285 million in 2024, reflecting a compound annual growth rate of 14%—its stock has markedly underperformed. The company’s valuation multiple has dropped from around 15 times 2021 EBITDA at IPO to just 9 times estimated EBITDA for 2024.
In contrast, comparable dental service organizations (DSOs), both public and private, typically trade at EBITDA multiples ranging from 12 to 17 times. This premium stems from the stable, predictable cash flow these companies generate, alongside their strategic reinvestments into individual practices through acquisitions in a consolidating market.
Highlighting market confidence in the sector, recent investments such as KKR’s involvement with a leading Canadian DSO at 17 times EBITDA underscore the potential for higher valuations for Dentalcorp.
Leverage Concerns and Market Perception
Buckley Capital acknowledges public market apprehension around Dentalcorp’s leverage, which they believe has been a major factor in its undervaluation over the past 18 months. However, multiple comparisons indicate that Dentalcorp actually operates with the lowest leverage among DSOs across Canada and the United States. This misperception has unfairly penalized the stock, especially considering peers carry significantly higher debt levels.
Before interest rate concerns escalated in late 2021, Dentalcorp traded above 15 times EBITDA. The current trading ratio of 9 times EBITDA and 8.5 times free cash flow (FCF) is well below industry norms, where the average EBITDA multiple for peers approximates 15 times and FCF multiples exceed 24 times.
Valuation Below Liquidation Value of Practices
Further evidence of undervaluation comes from Dentalcorp’s own CFO, who recently disclosed at the Bank of America Securities Healthcare Conference that the company’s intrinsic liquidation value—calculated by breaking up and selling its 550 clinics at industry-standard valuations (7.5 times practice-level EBITDA)—would approximate $10 to $10.50 per share. Given that platform value should command a premium above liquidation value, current trading prices suggest a substantial discount.
The CFO also commented on the failed sale attempt during October 2022 to March 2023, attributing it primarily to credit market dysfunction triggered by the collapse of Silicon Valley Bank rather than to valuation issues. With credit markets having since stabilized, Buckley Capital argues that this is an opportune time to pursue strategic alternatives.
Impact of Persistent Undervaluation
The ongoing undervaluation affects Dentalcorp’s operational flexibility, particularly its ability to issue shares for acquisitions and employee incentives. More critically, the pressure of being the only publicly traded DSO without a direct peer group exacerbates valuation challenges, risking long-term harm to shareholder interests.
Buckley Capital urges Dentalcorp’s board to appoint a financial advisor and commence a thorough review, including the prospect of a sale, to realize shareholder value fully.
Commitment to Collaboration
Buckley Capital expresses a willingness to collaborate constructively with Dentalcorp’s board and management in this process and looks forward to continued dialogue aimed at maximizing value for all shareholders.
About Buckley Capital
Based in Miami Beach, Buckley Capital is an investment firm focusing on small and mid-cap value stocks in the North American market.
Supporting Market Valuation Data
Private Market Comparable Transactions
(The following EBITDA multiples indicate valuation ranges in recent DSO private equity deals)
- 123Dentist, Altima Dental & Lapointe Group: 17x
- DECA Dental: 13.3x
- Curaeos: 14x
- Dental 365: 14.1x
- Affordable Dental Care: 17x
- MB2 Dental: 13.4x
- North American Dental Group: 13.2x
- Heartland Dental Group: 14.5x
- Others average around 14.4x EBITDA
Public Market Comparable Companies
(Enterprise Value to EBITDA multiples projected for 2024)
- Dentalcorp Holdings Ltd.: 9.1x
- US Physical Therapy: 18.8x
- Boyd Group Services: 10.8x
- FirstService: 16.2x
- Addus HomeCare: 13.8x
- Amedisys Inc: 13.7x
- Align Technology: 19.9x
- Surgery Partners: 11.4x
- Public peers average approximately 14.9x EBITDA, excluding Dentalcorp
For further investor inquiries, please contact:
Buckley Capital Partners LP
Attention: Zack Buckley
Email: [email protected]
Disclaimer: Financial data sourced from Bloomberg and company disclosures.