Deal Mechanic: Synova Capital & DBG

In April, UK-based Synova Capital sold dental support services business dbg to The Carlyle Group and Palamon Capital Partners for an undisclosed sum. It was an impressive first exit for the lower mid-market firm: after just three years of ownership, it generated a 5.8x return on its original investment and a 77 percent IRR. 

Back in 2009, Synova had identified the dental services market as attractive, not only because of its size – the UK market is worth around £6 billion a year, according to market research firm IBISWorld – but also as a result of new regulations coming into force. “We could see that there were changes coming down the line,” explains David Menton, managing partner at Synova. “The government was putting in place annual inspections of dental practices through the Care Quality Commission, and we knew there would be winners in the outsourcing space.”

As it conducted its research into the market, the firm came across what was then called The Dental Buying Group and contacted the owner. The discussions led to a deal in 2010 that enabled the original founder to exit the business and retire, with John Rochford, the chief executive at the time, leading a management buyout.

Back then, dbg was providing a number of mainly subscription-based services to the dental sector, centred around engineering services (equipment repairs) and selling products and materials to customers. This was a 20-year-old business with an annual EBITDA of £1 million, a strong reputation and high levels of repeat business (95 percent of customers renewed their membership to dbg’s services annually) – but it wasn’t set up to take advantage of its growth potential.

Fast forward three years, and dbg is now making annual EBITDA of £3 million. It has also expanded into new areas, such as providing services to medical GPs, online training and other web-based services. Membership numbers have doubled: it now counts more than 10,000 practices as members. And it’s eyeing further expansion in areas such as veterinary practices. podiatrists and chiropodists, as well as expanding its existing services.

 Here are the key changes under Synova’s ownership that made this possible: