Maven Dental Sale

Maven Dental’s parent company, Abano a listed New Zealand company, appears certain to be sold to a Canadian Pension fund, Ontario Teachers’ Pension Fund, in combination with BGH Capital via a bid vehicle created for the purpose “Adams NZ Bidco Limited”.  Abano also includes Lumino Dental of New Zealand.

We note reports that Australian Listed Dental Company, 1300 Smiles Limited, had been in the contest but it seemed to be an unlikely fit.  Earlier reports that Maven had ceased buying dental practices in Australia because they were not proving to be earnings accretive and the much larger number of Maven practices compared to 1300 Smiles tight portfolio suggested a bad fit.  That is unless 1300 Smiles Limited had a hidden bid partner and was only seeking to compete for a modest slice of the offering.  It may be that 1300 Smiles Limited has dodged a bullet.

If Maven was struggling to be profitable it is likely to prove to be a significant challenge for the Canadian buyers.  The Australian reality is that there are many good privately owned and operated dental practices which significantly outperform most corporate practices.  From the available information it does appear that the modestly sized 1300 Smiles Limited is the most efficient of the corporatized dental practice operators in Australia.

It has been an open secret for some time that Abano’s investors were inclined to sell because of challenging conditions which suggests some management difficulties within the group.  Abano is reputedly a keen seller at a reported price of NZD$300 million.  Shareholders and regulatory approval is understood to be likely.  We suspect that the purchase may present a significant challenge for the buyers.

Synstrat Dental Stories is a 335 page book which is a must read for dentists.  It details a series of good and bad practice experiences but names and some details have been changed to preserve identities.  It contains valuable insights for practice owners and intending buyers as to what works best and what doesn’t.  To obtain a copy of this publication, make a tax deductible donation of at least $30 to the Delany Foundation, a charity which brings hope and opportunity into the lives of young people deprived of education in Australia, Papua New Guinea, Kenya and Ghana.  Once you have made your donation, please email confirmation of your donation along with your postal address to mary@synstrat.com.au and a copy will be sent to you.  Donations can be made by mail to:

Delany Foundation, PO Box 429, CASULA MALL NSW   2170

Or via direct debt to the Delany Foundation Ancillary Trust, BSB 062 784 CBA Account Number 4050 5402.  Should you have any difficulties, contact Matthew Mahoney on 0419 202 787 or 02 9600 8184.

Smiles Inclusive Limited

The Directors report to shareholders refers to the failure of the original implementation of the business model requiring wholesale changes within the business.  At 15 November 2019 its shares were trading at 3.8 cents compared to the original IPO price in 2018 of $1 per share and the recent capital raising at five cents per share!  The current Chairman and CEO who replaced founding CEO Mike Timoney and Chairman David Herlihy are currently leading a company facing various legal proceedings including:-

• Employment and contract disputes with the joint venture partners of Totally Smiles Mobile Dentistry (also known as Smiles on Site).
• Legal proceedings by the Group against the former Chief Executive Officer, Mike Timoney, for unlawful payments and transactions.

• The Group is also the subject of a class action by a legal firm seeking compensation on behalf of dissident shareholders, presumably including a number of dentists who accepted share scrip in the company as payment or part payment for dental practices.  This class action is likely to target directors at the time of the alleged transgressions, particularly associated with its prospectus and IPO capital raising and may include stockbrokers and other advisors to the company IPO and stock market listing and their professional indemnity insurers.

Synstrat Accounting is Australia’s most experienced dental practice valuer.  Speak to Graham Middleton or David Collins.

Since lawyers who take on these types of cases usually work on a basis of receiving a necessary portion of the financial settlements are not known for being charitable, it is likely that they have:-

1.    Signed up a significant number of shareholders with large enough initial investments to constitute a significant financial loss.

2.    Have also done sufficient analysis and determined that there is a strong probability of victory should it go to a court, and hence, a strong imperative for those that they allege are responsible, or their professional indemnity insurers to agree to a financial settlement.

The fear of a class action may explain why the company’s auditors were not able to sign off the 2019 accounts until after the company’s lodgment date with the Australian Securities Exchange, waiting for the evidence that the recent capital raising would be fully underwritten, and hence, set in concrete.

It is also noted that the company remains in default of its borrowing covenants with the National Australia Bank, but it is currently in a situation of being granted a temporary reprieve by the bank but subject to stringent conditions.  Should the bank not be satisfied at the end of the timed extension then it would be open to the bank as the major creditor of the group to place the company in the hands of liquidating accountants.  In such a scenario there may be nothing left for shareholders after re-sale of practice assets as creditors in the form of the bank, payments to staff for redundancies, etc. and other expenses would be anticipated to eat up all of the asset value.

Overall, it is not a happy position and the current Board and CEO face a huge challenge in trying to turn it around.

If you would like a copy of Synstrat’s publications 50 Rules for success as a dentist and Buying and Selling General & Specialist Dental Practices contact mary@synstrat.com.au indicating mailing address details.  You will also be placed on Synstrat’s dental newsletter email list, if not already there.  Naturally, we will delete the name of any dentist who does not wish to be on that list.

What Synstrat’s Management Pty Ltd said about Smiles Inclusive and their Prospectus

Our newsletter to dentists of March 2018 indicated that its prospectus needed “close scrutiny” as the claims made concerning practice revenue and profit “are outside the normal patterns of any significant group of (dental) practices”.  It was not apparent that the 52 practices used in modelling would be the same 52 practices to be acquired as the prospectus suggested that some might not settle and be replaced by other practices!  We noted that:-

“If the contracts of 52 practices are not settled prior to listing and there is not an appropriate management structure in place to deal with issues in each of the practices contracted, not only is the achievement of the pro forma forecast in the prospectus unlikely but it will be challenging to meet that forecast in the following year”.

Ask how Synstrat Group can improve your accounting and financial advice.  Has your accountant or financial advisor explained to you how successful dentists can grow their wealth by concentrating on proven non-controversial means.  To follow up speak to Jenny O’Brien 03 9843 7777 for an appointment with Graham Middleton or other Synstrat staff.  Charges will apply after an initial 30 minute discussion.

Dilution

There was a significant dilution of shareholder equity at the IPO stage since Mike Timoney was allocated 16.7 per cent of shares and other senior management 2,417,000 shares resulting in a total allocation of 20.845 per cent of the capitalization of the company at the outset.

Our advice to dentists was to “avoid investing in Smiles Inclusive Limited”.  Refer to www.synstrat.com.au, Dental Newsletter March 2018.

In a separate dental newsletter of the same month Synstrat pointed out that Smiles Inclusive Limited’s pro forma forecasts stretch credibility in that increases approaching the magnitude of those forecasts simply don’t occur in dentistry across a large number of practices in a single year.

If you think you are paying too much for Life Insurance including Income Protection, etc.  Cameron Darnley is a Synstrat Partner who can assist.  His contact number is 03 9843 7777.

National Dental Care

National Dental Care had to pull back on the planned IPO and ASX listing last year when it discovered that the performance of some of its practices was not as anticipated.  The serious shortcomings revealed in the IPO and listing of Smiles Inclusive Limited makes it certain that a future attempt to achieve an IPO and ASX listing of National Dental Care or other would be

Dental Corporate is going to result in a much more careful risk assessment by advisors, brokers and investors.

 Health Funds

Independent Dental Network (IDN) – Keeping Control of your Practice

IDN provides dentists who wish to retain their freedom from the encroachment of large health funds the tools to market their practice and offer patients an ethical and more beneficial choice of dental insurance, including an ability to switch to a mutual fund which doesn’t interfere with patient choice of dentists by discriminatory rebate setting, and which offers patients superior value for their insurance dollar.  Alternatively, patients can opt out of extras insurance and contribute to a savings plan (with accounts run in a major bank) to pay for planned dental treatment.

The health insurance industry heavily advertises extras (ancillary) cover because that’s where it makes the big profit.  Overall the industry only pays out 78 cents per dollar of extras premium, which in turn covers only 52% of treatment costs.  Dentists are aware, that’s a rip-off.  Every member practice retains its own identity while belonging to IDN, which gives it the marketing tools to promote itself under its own name.

Merv Saultry – Contact merv@independentdentist.com.au

Disclosure – Neither Synstrat Group nor Synstrat’s directors have any financial interest in Independent Dental Network other than the interests of our dental clients.

THE SYNSTRAT GROUP ARE AUSTRALIA’S MOST EXPERIENCED DENTAL PRACTICE BUSINESS ADVISERS, FINANCIAL ADVISERS, ACCOUNTANTS AND VALUERS.  For further information on this subject, please speak to a person mentioned above.  If in doubt, speak to Jenny O’Brien who will steer you to the right person.

Telephone: 03 9843 7777, Email: dental@synstrat.com.au, Internet: www.synstrat.com.au

Best wishes to all dentists,

GRAHAM MIDDLETON