May. 29 at 11:39 AM
$DNTCF Buckley Capital urges Dentalcorp board to undertake strategic review process
Buckley Capital Management,which together with its affiliates beneficially owns approximately 1.4% of the shares of Dentalcorp Holdings, issued an open letter to DNTL's board of directors and management urging them to launch a strategic review process to maximize value for all shareholders. The letter read in part, "Dentalcorp has executed well in the 18 months since our initial investment in the Company. However, its stock has languished and dramatically underperformed peers. We are concerned that the public markets will continue to undervalue the Company's shares going forward, causing irreparable harm to the long-term value of the business.
Based on our analysis of private dental roll ups and other public peers with similar financial metrics, we believe the Company could be worth
$12-
$16/share to a private market buyer today, providing shareholders with a significant premium to current prices. In our view the Company's prior strategic review process, which started in late 2022 and ended in mid-2023 without a sale, likely failed due to the March 2023 banking crisis and frozen credit markets, which made it nearly impossible to consummate a deal. Given the financing environment has improved significantly since then, we believe the Company is in a strong position to consummate a transaction in today's market. Therefore, the Board should immediately commence a strategic review process to maximize value for shareholders, including exploring a sale of the Company.
Dentalcorp is significantly undervalued by the public markets relative to the quality and predictability of its future growth. The differences in valuation multiples between the Company and its private and public peers are even more striking given the improved interest rate outlook, the Company's predictable growth profile, and prospects for future margin expansion...Additionally, the Company's shares are currently trading below liquidation value of its practices. In the Bank of America Securities Healthcare Conference just a few weeks ago, the Company's CFO stated that "if we look at the entirety of our practice space of our 550 clinics, break them up and sell them at market value of 7.5x practice level EBITDA, we would be at roughly call it
$10.00 to
$10.50 per share."
We believe there is clearly significant platform value given where the peers trade, so DNTL should trade above that level. The DNTL CFO then went on to explain "as the process unfolded from October 2022-March 2023, there was significant unrest in the credit markets. Silicon Valley Bank went down, and the floor of the credit market fully fell out. As we looked at it from a value perspective, and as the board was evaluating the opportunities before them it was not a value issue, what it truly was, was a credit issue." Given the credit markets are in a significantly better place today than they were during the banking upheaval in March 2023, we believe that the right value would be achieved today by exploring strategic alternatives.
The dramatic undervaluation of the Company impairs its ability to issue shares for financing acquisitions and incentive compensation. More importantly, the longer this dynamic sustains, the more permanent the damage becomes given DNTL is the only publicly traded DSO and thus has no perfect public comparable companies. We strongly encourage the Board to engage a financial advisor immediately to pursue a review of strategic alternatives, including the sale of the Company. We aim to work collaboratively and constructively with the Board and management to maximize shareholder value, and look forward to continued positive dialogue."
