Palamon extracts dentist from Kaupthing portfolio

It’s smiles all 'round for a consortium including AlpInvest and Morgan Stanley that has acquired Associated Dental Practices from the wreckage of Kaupthing Capital Partners’ portfolio.

A consortium led by Palamon Capital Partners has acquired Associated Dental Practices (ADP) from the administrators of failed Icelandic private equity firm Kaupthing Capital Partners.

London-based Palamon partnered with AlpInvest Partners and Morgan Stanley Alternative Investment Partners – both LPs in Palamon’s latest fund – as well as LDC, the UK mid-market private equity firm owned by banking group Lloyds TSB.

Dentistry: On private equity's wish list

The four groups invested £72 million (€80 million; $120 million) of equity in the deal, which involved a refinancing of ADP with a senior debt package of £37.5 million provided by Lloyds TSB Corporate Markets Acquisition Finance and Royal Bank of Scotland.

Palamon invited co-investors into the deal in order not to commit an “unnecessary” amount of dry powder to one transaction, said Jonathan Heathcote, who led the deal for Palamon, in an interview. He added that equity was over-subscribed from potential co-investors.

Palamon has co-invested with AlpInvest and MS AIP before – both participated in the £168 million acquisition of card payment business Retail Decisions in 2006. This is the first time the pan-European firm has collaborated with LDC.

The deal sees Heathcote, who joined Palamon as a partner in 2008, reunited with the ADP management. Heathcote was involved in the original buyout of the company back in 2002 in his former incarnation at European Acquisition Capital, now known as Milestone Capital. Milestone subsequently generated 2.4x its invested capital when it sold the business to management and Kaupthing in 2007.

With steady revenue from the government’s National Health Service and a highly fragmented marketplace, dentistry in the UK has long been a favourite target of private equity firms. The three largest providers in the UK – ADP, Oasis Healthcare and Integrated Dental Holdings – account for just 3 percent of the market, said Heathcote.

Oasis and IDH are owned by Duke Street and Merrill Lynch Private Equity respectively, having both had multiple private equity backers in the past.

The investment is Palamon’s third this year in healthcare, having invested in Grupo SAR, one of Spain’s largest providers of care to the elderly, in May 2009 and most recently in Polikum, a German operator of Health Clinics.