Perspectives

The Netherlands

Like the UK, the Dutch market is attracting interest from a broad range of investors including local, UK and larger European private equity groups. As a key dental hub, the Netherlands hosts the headquarters of two of the key pan-European corporates: Curaeos and European Dental Group.

The Dutch market is valued at c. €3.3 billion and remains highly fragmented, with a little over 10% of the approximately 7,000 dental practices owned by corporates. We expect the market to continue consolidating driven by demand-led factors from a population that is awake to the importance of oral health. From a funding perspective, the market is largely insurance-based with basic Dutch health insurance covering certain routine treatments. Demand for dental services is strong with nearly 80% of the population visiting a dentist at least once a year and the future looks healthy. 60-70% of Dutch children have “perfect” teeth according to Indent, a dental industry association in Benelux, demonstrating how highly valued dental hygiene is to the Dutch.

While market prospects are rosy, the Netherlands also suffers from dentist supply issues similar to the UK. The Netherlands has one of the lowest numbers of dental graduates per 100,000 inhabitants in Europe, at 1.34. The current shortage is seen as the result of an overreaction to high training output in the 1980s and subsequent closure of many dental colleges. With a large proportion of Dutch dentists currently nearing retirement, the smaller number of junior dentists progressing through the ranks is leading to resourcing shortages not being fully addressed by foreign dental recruitment. The situation is not helped by recent laws requiring dentists to pass a Dutch language exam. How the industry addresses the growing shortfall will dictate whether a resource brake is placed on growth.

Despite this, financial sponsors have clearly identified the Dutch market as an attractive one for investment. Notable recent transactions include G Square’s investment in CDC Tandzorg in 2015, EQT’s acquisition of Curaeos in 2017, Nordic Capital’s acquisition of dental clinic chains in Netherlands, Switzerland and Germany creating European Dental Group in 2018, and Livingbridge’s 2019 investment in Fresh Tandartsen.

Italy

The Italian dental market has attracted its fair share of investor attention too and is valued at approximately €11 billion, roughly on par with France despite its population being 10% smaller. Taxpayer funded dentistry is available, but availability and quality are generally regarded as poor, therefore the market is predominantly privately funded with 95% of all practices catering to this. The market is also characterised by a large specialist sub-sector with many practices providing surgical, periodontal and implantology that together account for 12.5% of the overall number of practices.

Recent M&A activity has seen Aksia Group invest in Primo Group in 2019 (acquired from French financial sponsor Archimed), the Belgian investor Verlinvest acquired the Rome-based Bludental Clinique group in 2018, whilst in 2017 Jacobs acquired Odontosalute through its European platform Colosseum Dental. In addition, in June 2017, BC Partners acquired a majority stake in DentalPro from Summit Partners with a view to further consolidating the Italian dental market and expanding the business internationally. DentalPro is well represented in shopping centres across Italy, in line with the greater consumer focus of the market versus Northern European countries. At the time of the DentalPro transaction, the Italian market was estimated to consist of 40,000 dental practices with only 8% consolidated by corporates highlighting the opportunity in the market. DentalPro is the largest player in Italy having grown to over 160 dental centres (also thanks to the acquisition in 2016 of the second largest Italian player Giovanni Bona Cliniche Dentali) across 13 Italian regions and also made international acquisitions in 2018.

Spain

The Spanish dental market is valued at approximately €8 billion, but characterised by many small practices. Research suggests roughly 39% of dental practices generated less than €0.3 million of revenue in 2017, while only 2% generated more than €2 million, highlighting the fragmented nature of the market.

Public health services generally only provide preventative treatments and emergency care; the Spanish rely heavily on private dentistry albeit partly funded by private insurance. The provision of dental services is highly regionalised with approximately 30% of dentists located in the regions around the Madrid and Barcelona. This presents a possible opportunity for investors given the significant underserved population beyond the main cities and pent up demand from an increasingly wealthy and dental savvy patient base.

In recognition of the opportunity, Advent International acquired a majority stake in Vitaldent in 2019. As the operator of over 300 owned and franchised clinics in Spain, Vitaldent is one of the largest European dental chains. On acquisition, Gonzalo Santos, at Advent International in Spain, signaled an intent to support and strengthen the business’ position through a buy-and-build strategy. In contrast, another financial sponsor-owned business, Vivanta, acquired by Portobello Capital in 2017, embarked on a sale process in February 2019. The sale was subsequently delayed, in March 2019, with rumours of prospective bidder discontent around the speed of buy and build and lack of integration of the group. In late 2019, KKR was reported to have acquired a majority stake in Dentix, a business it first invested in during 2016 with a view to backing a growth strategy.

Germany

Germany is widely regarded as the dental capital of Europe as the market is valued at nearly €28 billion and has over 72,000 practicing dentists according to an Atlas Dental study. Small practices dominate with research suggesting 87% of practices have only two owners. Germany has a dual system of private and statutory health insurance that means that on average around 70% of dental costs are covered under insurance. This ensures that the population consumes a relatively high level of dental services and this is growing at mid-single-digit levels.

From a supply side, Germany does not appear to have the same issues as other mature European markets. The number of dentists per 1,000 inhabitants is 0.87, notably higher than Spain, Italy and the UK. However, despite the number of dentists increasing, the number of dental practices has declined since 2010 according to market research. The decline suggests consolidation and rationalisation of dental services, perhaps putting Germany at the more mature end of the European market. Additionally, data suggests that the number of dentists owning their own practices has reduced since 2007 whilst the number of employed dentists has increased at a CAGR of 8.8%, further supporting the theory that the market has consolidated.

PAI Partners, with its €5bn fund, acquired Zahneins from Summit Partners in November 2019. PAI plans to support Zahneins in the development of its dental network, which at acquisition had 35 locations in Germany and 1,200 employees. In similar fashion, GIMV recently started a German dentistry roll-up with the creation of GPNZ. Nordic Capital’s European Dental Group also has a strong presence in the German market, most notably through its dental clinics chain Zahn Station and the dental laboratory operator Flemming Dental. The entrance of PAI and GIMV and other investors (e.g. Altor, Castik and Avedon) into the market supports the thesis that the dental market still has plenty of headroom for growth and consolidation. However, these developments are under increasing public scrutiny and recently a new law (the Schedule Service and Supply Act) was introduced placing certain (overall manageable) restrictions on the degree of possible local consolidation of dentists under a platform (i.e. ultimately a hospital as vehicle) that is dependent upon the supply of dentists in a given district. While the standard limit is set at 10%, in areas with perceived oversupply (typically metropolitan areas) it is lowered to 5% and as high as 20% in districts with undersupply (typically rural areas).