Intelligence: Results

Ortodontic Center, a closely-held Brazilian dental care franchisor, has been approached by a new private equity funds and is engaged in talks with some of them, said co-founder and CEO Fernando Massi.

The Parana-based company has been analyzing various proposals submitted by financial buyers, the executive said: “We are open to hear investors as long as they do not aim for a full acquisition. “he pointed out, adding that Ortodontic Center’s four shareholders, including himself, do not want to exit the business.

Ortodontic Center has been negotiating with bidders directly and may mandate an external advisor, but only if talks reach an advanced level, the CEO said.

The company has been receiving advice for around a year and a half from the Brazilian branch of the global entrepreneurial organization Endeavor, regarding how to implement corporate governance practices and better structure a business plan, Massi said.

A potential capital injection could help the company speed up its growth, mainly in this city of Sao Paulo, where it inaugurated its first clinic earlier this year, he said.

Even though competition can be tough in Sao Paulo, due to the large number of players already operating there, the city still faces pent-up demand for affordable dental care services, Massi pointed out. As a means of strengthening its footprint in Sao Paulo, Ortodontic Center will primarily focus its growth in the eastern region of the city, known in Portuguese as “Zona Leste”, which has the highest number on inhabitants and a large lower-income population, he noted.

Ortodontic Center reported revenues of BRL 113m (USD 38m) in 2014 and expects this figure to increase to BRL 150m by year-end due to the opening of new units, the CEO said.

The company boasts 176 franchisee clinics and four corporate-owned units, Massi said. While it operates in every region of the country, most of its clinics are based in Southern and Southeastern Brazil, he added.

Sector’s M&A Activity

According to Ana Vecchi, founding partner at the business consultancy firm Vecchi Ancona, the Brazilian dental care franchise industry still holds great growth opportunities. Such favorable conditions are sustained mainly by the rise of Brazilians’ overall income over the past decade, as well as the lack of dental care services provided by the public sector, which ends up forcing people to resort to paid dental treatment instead.

These factors, alongside the sector’s high fragmentation, have aroused the interest of financial investors willing to take an active role in the industry’s potential consolidation, Vecchi noted. ”Several funds and PE investors come to consume with us after approaching a target in order to double check information or hear our opinion about the performance of a specific company”, she noted.

Dental care franchisors originally established in the city of Sao Paulo, and which have a strong footprint in the region, are the ones that usually attract interest among financial investors, the consultant highlighted, explaining that there is a market perception that it is easier for a São Paulo-based player to replicate its business model in other regions rather than the other way around.

This news service has recently reported on several possible transactions in the Brazilian dental care franchise industry. Earlier this month, Rede OrtoEstetica CEO Manoel Alvino revealed that the family-owned business is engaged in advanced talks regarding a potential merger of equals with peer Ortoplan. In January, Odontoclinic charmain Alvaro Schocair noted that the company, which is owned by the investment firm Bravia Capital, was in discussions with a few potential targets to boost its portfolio and increase its footprint in Sao Paulo. In June 2014, Sorridents president Carla Sarni said that the self-proclaimed largest chain of dental clinics in the country was entertaining talks with a few financial investors.

Ortodontic Center was established in 2002.