TORONTO – The investment arm of Ontario’s OMERS pension fund will take a majority stake in the Great Expressions chain of U.S. dental centres, giving it a platform for growth in a sector it’s been trying to enter for years.
The Ontario Municipal Employees Retirement System’s purchase of an 80 per cent stake in Great Expressions is being made from affiliates of private equity firm Audax Group.
Current management of the dental centre company will own the rest.
Financial terms of the deal, announced Friday, were not revealed.
Founded in 1982 and headquartered in Bloomfield Hills, Mich., Great Expressions operates 152 dental offices in seven states across the U.S. Midwest, South and Northeast states.
The dental practice management, or DPM, company has more than 1,800 clinical and support staff and provides a variety of dental services, from orthodontics and fillings to dental surgeries and cosmetic services.
DPM companies currently hold only about three per cent of the market of the $100 billion dental industry in the U.S. – meaning there’s a lot of room to grow, said Michael Graham, head of U.S. private equity for OMERS.
The pension fund had “spent a significant amount of time” attempting to make acquisitions in the U.S. dental care space as it watched the sector grow at about six per cent each year since 1990.
“We’ve made our pick and we’ll grow our platform accordingly,” he added.
Great Expressions has grown dramatically through acquisitions in the past few years and DPM companies have been taking market share from independent dentists steadily over the past decade.
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Graham said OMERS will use the company as a platform to make other acquisitions in the area, which he expects to offer an attractive and stable revenue stream in coming years.
“(There’s) a high level of predictability without much risk because your payer mix – being insurance companies and individuals – is much more predictable than government as a payer, in the U.S. especially.”
OMERS already invests in several health care companies, including LifeLabs Medical Labratory Services and Maxxam Analytics. The sector provides safe returns over the long term and is becoming even more attractive as the population ages and more people require services.
Earlier this year OMERS purchased CBI Health Group, a company with 3,300 employees across Canada that provide rehabilitation services and community health care.
But Graham said that the dental space is even more attractive and predictable than other health care industries, such as surgery clinics or hospitals because it is less exposed to government programs like medicare and medicaid. Those government programs have recently been the targets of government cutbacks, leaving companies in the sector wondering when rates will go up.
Rich Beckman, CEO of Great Expressions, said the company is “excited to partner with a team who has experience in health care services and a long-term approach to investing.”
“Great Expressions intends firstly to grow in its core markets of Florida, Georgia and Michigan, and then to seek attractive growth opportunities in its other markets. We believe OMERS Private Equity’s knowledge of the DPM industry and commitment to our strategy will enhance our expansion.”
Great Expectations operates in Connecticut, Florida, Georgia, Massachusetts, Michigan, Ohio and Virginia,
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OMERS Private Equity manages investments of the Ontario pension fund and has more than $5.5 billion of investments under management in North America and Europe.
OMERS is one of Canada’s largest pension funds with more than $55 billion in assets and more than 400,000 members who are active and retired municipal employees in Ontario.
Many pension plans are investing in areas outside the stock and bond markets, which have been volatile in recent years, generating inconsistent returns and often big losses.
Infrastructure such as airports, toll highways, real estate and utilities have provided solid returns for Canadian pension funds.
Technology companies have also been a good investment.
There were reports this week that the investment wing of the Canada Pension Plan is involved in a group including tech heavyweight Microsoft that’s planning to take a shot at buying troubled Internet portal and search engine company Yahoo.
The Canada Pension Plan Investment Board is considering partnering with Microsoft (NASDAQ:MSFT) and private equity fund Silver Lake Partners to take a run at Yahoo, sources told the Wall Street Journal.
On Friday, a new study by RBC Dexia said that Canadian pension plans took a severe hit from turbulent world equity markets during the third quarter.
The pension data and services company said the Canadian pension plan assets that it tracks dropped 5.5 per cent in the three-month period ended Sept. 30.
So far this year the pension funds have lost 3.2 per cent of their value, RBC Dexia said. However, variation from quarter to quarter doesn’t impact payouts for current retirees as pension funds are long-term investors with billions of dollars.
The hardest hit asset types within Canadian pension portfolios were Canadian equities.
The main index at the Toronto Stock Exchange was down 12 per cent in the quarter, the lowest quarterly result since the 2008 financial crisis, RBC Dexia said.
-With files from John Valorzi
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