Other people’s money

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Mark Evans of Dental Corporation
Mark Evans of Dental Corporation

The next wave of corporate dentistry is here, with private equity becoming the new normal when it comes to consolidation. By Andy Kollmorgen

 

Is a new wave of corporate dentistry sweeping over Australia? Up until now the trend has generally been for groups of dentists to come together in order to centralise practice management duties, expand the patient pool, and cut down on overhead costs. The goal was business oriented, but the corporate groups have traditionally been run by actual dentists.

Now the moneymen appear to be moving in—sharp-eyed investors with no connection to the profession. Or is the latest round of corporate buyouts just a new twist on an existing theme?

About 10 per cent of practices in Australia are currently in some kind of corporate set-up, according to Mark Evans, executive chairman of Dental Corporation, which started up in 2007 and now runs 220 practices across three countries. Evans says Dental Corp has raised about $500 million over the past five years from various sources to fund its growing operations.

That means there’s investor money involved and performance benchmarks to meet, but the Dental Corp approach has been to keep the practitioner on board with the standard five-year contract and blend the practice into the corporate body over an extended timeframe. Getting each new practice on board requires a slightly different approach, Evans says, one that takes the unique characteristics of the practice into account.

His company’s commitment to giving the practice owner maximum flexibility is “the most important thing in our business model”. Achieving the proper balance is mutually beneficial. “In effect we share the revenue and profit coming out of the practice, so having the right people in place and being willing to adjust as needed is critical,” Evans says.

Dr Chris Hart of Lifetime Smiles
Dr Chris Hart of Lifetime Smiles

Dr Chris Hart, director of the Brisbane-based Lifetime Smiles Group and a practising dentist, is also a believer in keeping staff on board, but lately he’s come to appreciate the benefits of greater flexibility on the part of the corporate owner. In recent years, Dr Hart has pioneered a model of centralised management that has seen the Lifetime Smiles franchise expand across Queensland, where it currently has about 45,000 patients, and up into the Northern Territories. Dr Hart is evidently a well-schooled and forward-looking practitioner. He graduated from the University of Queensland’s dental program in 1998 and went on to earn a master of philosophy in biomedical science at Cambridge University, and these days his main clinical interests are neuromuscular, aesthetic, reconstructive and implant dentistry with a particular focus on occlusal rehabilitation.

But he has also continued to sharpen his business skills. Lifetime Smiles recently sold off its Brisbane, Mt Isa and Darwin branches to National Dental Care (NDC), upping the group’s stable of dental practices in Australia to about a dozen. NDC’s main investor, Sydney-based Capital Crescent Partners, is no stranger to putting capital to work in the medical arena. Prior to launching NDC, the firm built National Hearing Care up from 40 Australian practices into the second largest privately-owned audiology group in the world, with 240 practices internationally.

It’s safe to say the boardroom at Capital Crescent does not see a lot of dentists, and its buyout terms may seem unduly corporate-minded at first glance. Instead of the usual five-year earn-out arrangement, the NDC contract calls for a 12-month handover period, after which the firm is free to shape a practice to its own ends.

“We prefer the dentists to remain in place after 12 months,” Dr Hart says, “but the investors aren’t afraid of transition. Whatever the case, they’ll work with the selling practitioners to achieve their retirement goals.”

Locking the previous owner in for one year instead of five gives NDC more flexibility to make changes across the chain should it see an opportunity to improve business outcomes, Dr Hart points out, but the firm “will also allow the practitioner to continue working as an employed dentist if they wish to”.

As with Lifetime Smiles, NDC’s objective is to improve efficiencies and cut costs through a centralised data base of patients, a single patient contact centre and centralised training, marketing, payroll, accounting and human resources. For practice owners, the financial deal is straightforward. NDC pays 75 per cent up front and hands over the other 25 per cent a year later as long as the practice maintains the previous year’s result. “The practitioner just continues to run the business as they did, albeit with different legal ownership,” Dr Hart says.

That’s different to the traditional approach, which usually involves a smaller up-front payment and a final settlement dependent on performance over the five-year period. The quicker handover takes some of the pressure off the seller, Dr Hart says, since there’s less time to claw back commissions if the practitioner doesn’t reach the practice targets. In that and other ways, Dr Hart sees the NDC approach as an improvement over the old model from both the selling practitioner’s and corporate owner’s standpoint. But it may not be right for everyone.

“Our offer is tailored somewhat to more mature, multiple chair practices where the selling practitioner wants to step back from the day to day ownership of the practice they’ve worked so hard to build but also ensure a good future for both staff and patients,” Dr Hart says.

The handover period may be abbreviated, but NDC is taking a long-range approach to building the franchise, according to Dr Hart. It will make “heavy investments” to train graduate as well as experienced dentists and “create opportunities for dentists and support staff to move into broader roles within the group, such as training, mentoring, practice management or regional management responsibilities”.

Mark Evans of Dental Corp thinks corporate dentistry will increasingly be the way of the future and that forthcoming generations of dentists will be less focused on running practices.  “It has become a much more expensive exercise than it was 10 or 20 years ago, in large part because today’s practices need to have modern X-ray and imagining equipment along with various other new technologies. In the end it’s a million-dollar prospect to establish a practice, and that’s beyond the means of most practitioners.”

Evans says that Dental Corp spends $3 million a year on staff  training, something that likely wouldn’t be available to dentists at an independent practice. Maybe that’s the point. As with staff under the NDC banner, the dentists get to concentrate on dentistry and let their corporate overseers worry about running the business.

 

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