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A major Australian dental company has revealed it had looked into a possible takeover of struggling operator Smiles Inclusive (ASX: SIL), which has been pumping capital raising-sourced funds into a turnaround strategy and staying afloat.
Earlier this month the ASX raised questions about a rapid rise in net cash outflows at SIL, whose shares are now trading at four cents each compared to the five-cent price used to raise $3.3 million late last year with heavy support from underwriters.
Gold Coast-based SIL has been in the thick of a survival saga for almost 18 months involving board oustings, legal conflicts and huge discrepancies in loss amounts between unaudited and audited results to the market.
Now another Queensland company that is in significantly better shape, Townsville-based 1300 Smiles (ASX: ONT) has revealed SIL was previously in its sights.
"Shareholders will also be aware that another listed dental services organisation here in Australia suffered some terrible troubles in the past year," 1300 Smiles managing director Dr Daryl Holmes OBE said in a letter to shareholders yesterday, as a clear reference to Smiles Inclusive.
"We considered acquiring that entire company but decided the risks were too great.
"In December we acquired two healthy and solid dental practices from that company, and we are continuing the process of integrating those practices into the 1300SMILES system."
He said 1300 Smiles was a well performing company in the sector, and would "participate" as consolidation in the industry occurs.
The group had also sought to buy Abano Healthcare Group's (NZX: ABA) Maven Dental Group and its 116-strong portfolio of practices, but was beaten to the punch by Adams NZ Bidco.
"Shareholders would be aware that our efforts to acquire the Australian business called Maven Dental Group from New Zealand-listed Abano Healthcare Group Ltd did not succeed. In the end, a competing bidder made an offer for the entirety of Abano, including its much more extensive operations in New Zealand," says Holmes.
"We chose not to make a competing bid on this basis and, while we regret the outcome, I can assure shareholders that the re-organisation of our industry is very much ongoing."
1300 Smiles also sold one of its locations in the first half, as well as another in January this year, while previous acquisitions are showing encouraging signs.
"The practices we acquired in FY19, being Springfield Lakes, Maroochydore and Strathpine Central, have been integrated and performed well since transitioning to 1300SMILES Ltd ownership and have been delivering good patient outcomes," says Holmes.
"Looking ahead, I would expect that our continuing drive to deliver profitable expansion will from time to time create circumstances in which it is simply good business to sell a given practice. As I have mentioned many times, our focus is always on delivering the best results achievable.
"We neither acquire nor retain practices merely to inflate the number of sites we operate. Instead we focus on delivering the best returns to shareholders over the long term."
Holmes' comments followed a healthy results announcement for the first half, with EBITDA up 31.6 per cent at $9.375 million and revenues up 7 per cent at $32.1 million.
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