Totally Smiles aims to be the Flight Centre of dentistry
The entrepreneurial chief executive of a roll-up of 52 dentistry practices expects the Totally Smiles brand to eventually become the "Flight Centre or Specsavers" of the $10 billion dentistry industry. Parent company Smiles Inclusive is scheduled to list on the ASX in late April after a $35 million raising as chief executive Mike Timoney attempts to elbow his way into a crowded industry grappling with an oversupply of dental graduates. He believes dentistry has changed immeasurably and dentists have no choice but to become more entrepreneurial, better business managers and invest more in technology and marketing. It's no longer enough to just be a competent neighbourhood dentist. Mr Timoney invoked some big names in technology and investment in the preparations for Smiles Inclusive's growth plans. In an "Open Letter to Australian Dentists" outlining his views about innovation and negative "naysayers", he reeled off Jeff Bezos the founder of Amazon as a revolutionary who didn't fear failure, Elon Musk from Tesla thinking outside the square again by setting up tunnelling company "The Boring Company". Mr Timoney also invoked investment legend Warren Buffett from Berkshire Hathaway and his advocacy of joint venture partnerships where management stays in place and there is an injection of capital and back office support. The Totally Smiles business model revolves around the company buying the dental practice and then the vendors reinvesting a "substantial share" of the purchase price into a profit share program for the particular practice. The vendor retains exposure to movements in the capital value of the practice, and the dentist stays on to provide the dental services to patients, with the parent company assuming responsibilities for marketing, technology investment and delivering better efficiencies through being part of a bigger group. There are already ASX-listed dentistry companies including Pacific Smiles and 1300Smiles, which are always on the lookout for potential acquisition opportunities. The prospectus for Smiles Inclusive shows that the general metric applied in calculating the purchase price for the acquisitions has been at a multiple of five times the normalised earnings before interest and tax of the relevant practice for 2016-17. The Australian dental industry in 2017-18 is forecast to generate total revenue of more than $10 billion, with average annual growth over the past five years running at more than 3 per cent. Gross practice revenue for the company is forecast to be $57.6 million in 2017-18, up from $51.9 million a year before. Net profit after tax is forecast to rise to $5.8 million in 2017-18, from $3.9 million a year earlier. Mr Timoney takes a fresh approach to selling the overall Totally Smiles strategy, having recorded a video where he outlines online that a big oversupply of dentists has emerged, and dentists just don't have the time to manage all the complexities of running a practice. "They just don't have the bandwidth," he said. He also reveals that Totally Smiles aims to become the "Flight Centre or Specsavers" of dentistry, expanding its market share and offering value for money. Chairman David Herlihy said the company aimed to provide a combination of capital and income returns to shareholders, and had a target of a payout ratio of between 40 per cent to 60 per cent of net profit after tax, with dividends to start in 2018-19.
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