Deal in focus: Carlyle's IDH picks up The Dental Directory

Alice Murray
15 May 2014

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Carlyle and Palamon-backed Integrated Dental Holdingтs (IDH) acquisition of dental consumables provider The Dental Directory marks a significant step in IDHтs growth strategy. Alice Murray reports

At the beginning of May, IDH, backed by Carlyle and Palamon Capital Partners, acquired Witham-based dental products and services supplier The Dental Directory.

According to Eric Kump, managing director of Carlyle, who has been lead investor in IDH, the deal came through an existing commercial relationship with the company. "The Dental Directory is a leading supplier in the dental sector and has been providing services to IDH for some time – so we were aware of the business and had a commercial relationship with them. We saw an opportunity to work more closely with the business so developed a more strategic dialogue, which morphed into a transaction conversation."

Carlyle first invested in IDH in January 2011, buying it from Bank of America Merrill Lynch Capital Partners and simultaneously merging it with Palamon-backed Associated Dental Practices, in a deal valuing the enlarged group at an estimated £600m. Carlyle's investment strategy has been to consolidate the UK dental market.

In April last year, Carlyle supported IDH's acquisition of Synova Capital-backed DBG, a provider of dentistry services including training and compliance support. This was an important move for IDH as it represented a major step into having a B2B offering on top of its fully-fledged B2C operations.

To be or not to B2C
Prior to the DBG and The Dental Directory acquisitions, IDH was a pure B2C player, operating 600 dental practices across the UK, providing HR and operational support. The DBG deal saw the group expand into new services for dental practices. The Dental Directory deal marks a significant milestone in Carlyle's investment strategy as the group now has a more complete offering, which stretches right the way through the dentistry value chain.

Because The Dental Directory is a supplier of dental consumables such as orthodontic and oral hygiene products – as well as dental equipment (including installation and maintenance) – IDH has automatically, dramatically increased its purchasing power by bringing it into the entire group, enabling it to pass on savings to end-users. Says Kump: "In the future, the deal gives us the opportunity to take the model one step further; to create a comprehensive practice management solution."

Kump labels IDH's offering as a "virtuous cycle" that "benefits all stakeholders". Indeed, it is clear to see how consolidation of the hugely fragmented UK dental market would create major cost efficiencies through the provision of HR and operation synergies. However, through the add-ons of DGB and The Dental Directory, the enlarged IDH group can offer its dental practices and DBG members, as well as Dental Directory customers, the entire suite of necessary services sharing the benefits of scale. "Dentists spend around eight hours each week on administration. Our offering could do away with all of that extra work," says Kump.

Another important development in IDH's progression was the appointment of Terry Scicluna, who had previously spent nine years with Alliance Boots. Here is where IDH's strategy really comes into full swing: while at Alliance Boots, Scicluna oversaw the company's B2C offering, its B2B offering and its Alphega activities, whereby the company developed a network of independent pharmacies across Europe. According to Kump, the UK's dental market is similar to the pharmaceutical market of 20 years ago; highly fragmented and unsophisticated.

Carlyle intends to carry on its roll-out of IDH, bringing in more independent practices. "There are around 10,000 independent practices in the UK, of which, between 300 and 500 are available for acquisition. This market represents an amazing opportunity; it's worth £6bn and the corporate groups now manage around 1,000 practices, meaning that around 85-90% of the market is still owned by sole proprietors," says Kump.