Interim Acquisitions Director takes on the Dentists
The private equity investors of a leading dental group knew they were onto a good thing when the multi-site business was coping better than most in the face of the credit crisis and inevitable recession. The private dental part of the business was protected from the credit crisis. And as far as the NHS element of the business was concerned, practically recession proof. But soon after the investment when the senior management and the backers were set to sail with the acquisition of a small group of 9 dental practices, the winds changed, and things became complicated and costly. Darren Taylor, interim acquisitions director, takes us through his story of how a business once lacking an acquisitions execution became the proud owner of 13 practices worth £10m in just seven months between June 2008 and January 2009
Fast Facts
• UK Dental market estimated at £6.9bn in 2007 (NHS £2.8bn, private £4.1bn). Growth of 11% p.a. in period 2003-07.
• Over 10,000 dental practices within the UK – 35,000 registered dentists.
• Case study’s market share: estimated at 1.5% of total UK dental market. NB: 4 largest UK groups operate less than 5% of all practices combined.
Key attractions for a dentist to sell:
• Realise capital sum
• Get rid of all business administration and management to the corporate group – i.e. staff management issues, accounting and payroll, insurance, personal liability etc
Thrown in the deep end
When Darren came on board, the business was going through a period of significant change that involved a new private equity investor, a new CEO and an office move.
Despite having helped set up a dental business with an active acquisitions model back in 2000, it wasn’t Darren’s healthcare experience that was going to help him make heads or tails of the main acquisition; it was his acquisition skills, retail background & Finance Director experience that would play a bigger part.
“Dental practice groups are to a great extent in the retail business,” Darren explains. “The business has multiple sites and is selling goods and services with a standard retail management hierarchy of area managers, regional managers and so on. But it is obviously still viewed as healthcare. However, unlike retail, where customer loyalty and retention is far harder to sustain, in dentistry customers feel more tied to their dentists than to any one retail shop or brand.”
With a strong sense of patient goodwill already built into the deal, it wasn’t until Darren became involved in the acquisition process and started to ask some questions that the penny dropped as to why the deal wasn’t getting to the next stage. “The former Acquisitions Director was not an accountant and therefore did not appreciate some of the vendor contract implications that would hit the deal when he agreed to buy the group as an LLP along with all the LLP’s history,” recalls Darren.
Darren describes his first weeks in the role as being thrown into the deep end. “Once I got my head around what an LLP structure entailed and the implications, I then had to find out how we were operationally working to deadlines for exchange and completion. That’s when I was able to make the new CEO and investors aware of some serious issues with the structure of the deal. These issues, ranging from tax implications to supplier obligations, were leading to time delays and increased costs.
New standards
“I joined the company in mid-June, we exchanged on the deal in the beginning of July and completed in August,” he says.
As with any interim hire the topic of incentivisation comes up, both for the interim and the management team. In Darren’s case he was bonused to meet specific objectives and was paid in full. “I believe I demonstrated the alignment by early commitment to the goals (taking control of the early acquisition, flexibility to do whatever was needed, go where necessary, working late, etc). I, in turn, motivated the team by getting involved and becoming knowledgeable about the details very quickly, giving my direct reports time and fully explaining what we were doing and why.”
The senior team was happy to challenge the operational people to get clarity on how they ran the business, which helped standardise the acquisition process. “I also helped the business create an acquisitions process that included approval controls where previously there had been few disciplines in place,” says Darren.
To meet those completion deadlines, Darren and the company’s lawyers worked all nighters to get the deal done. They decided to progress with the deal inheriting the LLP’s history. “However, once we accepted this structure” says Darren, “we managed to get the vendors to cancel or change contracts on suppliers given we had already had our own. We also negotiated that the vendors would get the operational liabilities put onto their books and not ours.”
“One of the key issues relating to my specific area was an acquisition strategy which could certainly be improved upon. The company was not targeting a specific geographic area, deal size or segment, or whether NHS, private, specialist or a combination of all three. In conjunction with the new CEO, we decided on some target factors and I put the framework around this for future acquisitions,” he says.
Once a framework was put into place, Darren and the CEO made an effort to have face to face meetings with vendors prior to involving the lawyers to bring down costs. “Because we did the first leg of the deal we were able to hand over the terms and issues to our lawyers, which moved the process along quicker,” says Darren.
Lessons learned
“Both the management and myself took away valuable lessons. I believe that they learnt the importance of bringing in a discipline and process to an organisation, especially when multiple acquisitions are involved.
For my part I gained more detailed knowledge about the acquisition process and was able to demonstrate an ability to move away from the mainstream finance roles of my previous experience.
This dental business gave me another string to my bow. I feel comfortable saying that I can now buy businesses for private equity and venture capital teams.”
« In Profile – with Ross Stuart
Interim Chief Restructuring Officer »