The dental industry is becoming increasingly of interest for investors looking to potentially diversify their portfolios. While not traditionally seen as a headline-grabbing sector, the dental industry in Canada presents a unique opportunity due to its essential recurring services, demographic trends, and consolidation opportunity.
The Size of the Opportunity
Canada’s dental industry is substantial and growing, with a market size of +$19 Billion and 15,000 dental practices spread across the country*. The industry is highly fragmented, with Dental Service Organizations (“DSOs”) representing < 9% of the total market*. The appeal for investors lies not only in the number of practices but in the potential resilience of the sector. Plus, dentistry is unique to the Canadian healthcare system in that it operates on a hybrid private/public payment model.
Moreover, as the industry begins to consolidate, economies of scale and enhanced efficiencies in operations become more achievable. Dental practices that are part of a larger network often benefit from shared services, group purchasing, and centralized administrative functions, allowing them to be more competitive in the marketplace. For private equity firms with Funds in this sector, such as Newlook Capital, this creates a significant opportunity to optimize operations, realize growth, and achieve long-term value.
Why the Dental Industry May Be Attractive to Investors
The steady demand for dental services, the consolidation opportunity, and the resilience of dentistry makes the dental industry a potentially attractive area for investment. Practices are not only growing in number but also in complexity and sophistication, incorporating advanced technologies such as digital dentistry, which improves patient outcomes and operational efficiency (National Library of Medicine).
With proper management and oversight, the dental sector may provide a relatively stable opportunity for long-term growth, making it a worthwhile consideration for investors looking to diversify their portfolios.
The Newlook Capital Dental Fund
The Newlook Capital Dental Fund presents a unique investment opportunity within a historically challenging industry to access. It seeks general dentistry clinics with a proven track record of generating over $1 million in consistent production, four or more operatories, and clinics situated in prime or high-density locations. It prioritizes practices where hygiene services significantly contribute to overall production and where recruitment of staff can be managed with ease. The Newlook Capital Dental Fund currently consists of 32 clinics across Canada with over 75 dentists, over 80,000 patients served, and over $100 Million raised.
The Newlook Capital Dental Fund’s strong deal flow allows them to review five acquisition opportunities per week, ensuring a steady pipeline of potential investments. It has an extensive team that is prepared to purchase more clinics. For the last two years, the Fund has focused on a cluster acquisition strategy, creating regional hubs for operational efficiency and market dominance.
With a solid reputation in the industry, the Newlook Capital Dental Fund maintains excellent relationships with brokers and dental professionals. Over the past two years, 60% of their deals have come through brokers, while the remaining 40% were proprietary, driven by word-of-mouth referrals.
The Newlook Capital Dental Fund emphasizes diversification in its acquisitions, considering factors such as geography, clinic size, number of patients, and the mix of dentists and hygienists. This ensures a balanced portfolio and risk mitigation across different markets. Their track record is impressive, achieving a 90% compound annual growth rate (CAGR) in acquisition-driven revenue and 8% CAGR in organic revenue**. For the past five years, management has focused on a roll-up strategy, consolidating individual practices to build a stronger, more efficient network.
For more information on the Newlook Capital Dental Fund, visit https://newlookcapital.com/dental-fund.
By Elroy Gust
*Dentalook proprietary market research as of March 2023.
**Based on unaudited internal figures. 90% CAGR as of December 31, 2023 since inception. 8% Organic Growth as of December 31, 2023 based on the performance of 19 clinics owned as of December 31, 2021, and assuming those clinics were owned as of January 2019. Past performance does not guarantee future results.