The Big Deal: A Look at Industry Consolidation and What It Could Mean to You
Allison DiMatteo, BA, MPS
Companies in almost all industries are consolidating these days, and those in dentistry are no exception. From manufacturers acquiring other companies in order to round out their product offerings, to distributors purchasing smaller and/or regionally based businesses to broaden or strengthen their reach, competition and the desire to control more of the market share have led to more than 60 dentistry-related acquisitions in 2005 worldwide.1 Those mentioned here, which have noticeably transpired within the past 6 years, are only a few examples of what’s occurred within the industry.
Changes in the industrial side of dentistry may benefit the practical side in terms of competitive pricing, enhanced service and innovative product/technology introductions. As a result of some of these mergers and acquisitions, you may find that you’re able to more readily identify and purchase the specific products and equipment you need at the price you’re looking for. Or, you may find that service and support—whether technical, clinical or administrative—is more easily accessible.
“Dentistry is a relationship business, and the manufacturers and distributors of dental products are the dentists’ partners,” says Roger Levin, DDS, the CEOof Levin Group. “Dentists should understand these partners in order to make the best decisions for their practices, which are essentially businesses that must produce a quality service for patients in a profitable manner.”
What’s affecting the professional and industrial sides of dentistry is multi-factorial, says Gary Price, chief executive officer of the Dental Trade Alliance. Heightened patient awareness of available dental services, increased demand for cosmetic restorative treatments, and widespread attention to the links between oral and systemic diseases are placing dentistry at the forefront as a market ripe for the delivery of products, equipment and services, he says.
“What you see is an astronomical potential for services that is well beyond what the system can handle when you consider what can be done, as well as the huge growth among the population of people who can’t afford to pay for even regular hygiene care,” Price explains. “This demand contributes to why companies are so interested in having a market share of the dental industry.”
The Rhymes and Reason for Mergers and Acquisitions
In 2000, dental equipment and supply manufacturers shipped a total of $3.11 billion worth of goods, compared to $2.66 billion in 1997.2 In 2003, the US dental consumables market was up to $4.8 billion and expected to increase annually at a rate of between 5% and 7%.3 However, according to Price, growth has been closer to 7% annually, bringing the market currently to over $5 billion.
In the early 1990s, approximately 500 companies in the United States were manufacturing dental equipment and supplies as their primary business, with the majority being small- and medium-sized companies. By the mid- to late 1990s, medical supply companies began to include dental products in their offerings and changed the market from exclusive manufacturers to multi-manufacturers.2
Along these lines, Cantel Medical Corp. acquired Crosstex International, Inc., a leading manufacturer and reseller of infection control/single-use disposable products used principally in the dental market, in August 2005.4 This acquisition was part of Cantel’s strategic plan to expand its infection prevention and control business, as well as its leadership position within the healthcare industry.4
It was in the late 1990s that mergers and acquisitions became more common among medical companies as they endeavored to enhance their product line for greater profits. They also looked to share the research and development costs associated with the introduction of new dental products and supplies.2
According to Levin, larger players in the dental industry acquire smaller companies in an effort to grow quickly and provide revenues and returns to shareholders. Natural growth of a company is hardest and slowest. Acquiring businesses that have synergy in their product lines, customer base, or research and development initiatives affords other companies the opportunity to grow faster and in possibly a cost-controlled manner.
Such synergy was the goal in 2000 when 3M Dental Products Division combined with ESPE Dental AG and began operating globally as 3M ESPE.5 It was anticipated that this alignment would enable both companies—now combined—to grow their businesses through the delivery of a broad array of complementary products and high-quality services.5
In 2001, DENTSPLY International, the world’s largest manufacturer of professional dental products, acquired Degussa Dental, the second-largest dental company worldwide and market leader in Germany and Europe, as well as the only significant non-domestic dental company in the Japanese market.6 The transaction, valued at an estimated $555 million, was expected to broaden DENTSPLY’s consumable and laboratory product lines to include key precious metal dental alloys and CAD/CAM ceramics, expand established leading brand names, and enhance the company’s research and development platform.6
Additionally, when Sybron Dental Specialties acquired Innova LifeSciences in October 2004, the company entered into the rapidly growing market of dental implants, which has vast potential in the US.7 Then, last summer, its Ormco BV subsidiary acquired all of the outstanding stock of Oraltronics Dental Implant Technology GmbH, a privately held German company that manufacturers and sells dental implants.8 In addition to increasing Sybron’s scale in the implant market and providing the company with a strong presence in several key countries in Europe, the acquisition would also allow the addition of the Oraltronics threaded implants to the Innova product line as complementary products.8
Schick Technologies, Inc.—a leader in digital radiography imaging systems and devices for dentistry—and Sirona Dental Systems—a leading manufacturer of high-technology dental equipment, including the CEREC CAD/CAM system—announced plans in September 2005 to merge in a transaction valued at $1.9 billion.9 That merger was expected to create a leading global player in dental technology with strong lines in all ofthe major dental segments, including intra-oral imaging systems, CAD/CAM restoration equipment, treatment centers, and instruments.9
Earlier this year, Discus Dental, Inc., a leading direct manufacturer and marketer of professional and consumer dental products, announced that it signed a definitive agreement to purchase the assets of BriteSmile, Inc.’s Associated Center business and substantially all of BriteSmile’s intellectual property for $35 million, plus the assumption of certain liabilities.10 The acquisition of the approximately 5,000 BriteSmile Associated Centers in more than 75 countries is expected to further consolidate Discus Dental’s position as the premier worldwide solution within the one-hour, light-activated whitening category.10
Economies of Scale
Another reason for the mergers and acquisitions that have taken place among dental product manufacturers and distributors is the need to maximize an economy of scale. Explains Levin, the same sales force that sells 1 product can sell 2 products without the company needing to add sales people.
According to Price, distributors clearly want to claim a larger percentage of the market; acquisitions are a way to expand into markets where they didn’t currently have representation, as well as to grow their share in an area where they already had representation. As a result, the sizes of dealers are changing, but there are still many small and mid-size dealers that are successful, and this is expected to continue, Price says.
For example, Patterson Dental acquired California-based Guggenheim Bros. Dental Supply Company in 2000 in a move to increase its market share in California. At the time, Guggenheim’s operating philosophy was considered to mirror that of Patterson’s value-added, full-service marketing approach.11
Among Patterson’s recent acquisitions is Accu-Bite, Inc., a Michigan-based full-service dental distributor that it acquired in September 2005.12 Ranked as one of the top 10 US dental distributors, Accu-Bite’s sales force is expected to strengthen Patterson’s penetration and competitive position in a variety of key markets around the country, as well as present cross-selling opportunities by expanding the range of products and services available to Accu-Bite customers.12
“Sometimes marketing dollars can be spread or allocated across a larger company, resulting in better cost control and returns on investment,” Levin explains.
In the case of DENTSPLY/Degussa, that acquisition was expected to provide DENTSPLY with significant sales force expansion, as well as opportunities to increase penetration into the Japanese market.6,13 This was a significant step, since it is difficult for Western companies to venture into Japan as a result of heavy product regulations and market strongholds by Japanese companies.13 Degussa was already well-established in Japan.13
Further, the DENTSPLY/Degussa acquisition was intended to enable an increase in scale worldwide, including the three largest dental markets at the time: United States, Europe and Japan.6 Similarly, 3M’s merger with ESPE was expected to enable the combined 3M ESPE business to expand its presence globally.5
Competitive Pricing, Technologies, & Outside Influences
If you’ve not experienced it already, you’ll likely begin to notice changes in the manner in which the products and equipment you need are introduced and sold. Among those changes will be better pricing opportunities, broader support from the now larger companies and a wider variety of high-technology products from which to choose.
“There has actually been increasing price competition for consumables, and this has been very healthy for the profession,” Levin explains. “Additionally, the introduction of many new technological innovations will make practices more efficient and possibly more effective.”
However, notes Price, most changes will be transparent in order to generate and maintain a comfort level amongclinicians regarding tried, tested, and trusted product/equipment brand names. Therefore, despite acquisitions, recognized brands are still available.
Consolidation of different companies from within and also traditionally outside of dentistry, as well as the application of research and development from other fields, will continue to foster the rapid expansion of more expensive technologies that the profession has been witnessing in recent years, Levin says. What’s attracting these otherwise non-dental companies to seek a larger share of the action is the tremendous growth that the dental market—and profession—has experienced in recent years, notes Price.
“Many companies that had dental divisions certainly realized that those business areas were producing larger profits and growth numbers than some of their other divisions,” Price says. “So, this industry has received an awful lot of attention as a very strong and profitable market. Analysts have certainly noticed it.”
In June of last year, Danaher Corporation—a leading manufacturer of professional instrumentation, industrial technologies, and tools and components (including Craftsman, which is marketed by Sears)—acquired Pelton & Crane—a leading provider of dental equipment, for approximately $85 million in cash.14,15 This acquisition was expected to make Pelton & Crane—which manufactures and sells a broad range of treatment units, lights, sterilizers, and cabinetry for dental professionals—a part of Danaher’s Medical Technology platform and strengthen its position in the dental equipment marketplace.14
Integrated & Synergistic Products
Currently, dentists can purchase what they need from several different companies in order to try to get the best price. Or, says Levin, they can take advantage of “one-stop-shopping” for their products and equipment by working with a particular distributor. The latter may become increasingly beneficial in terms of ensuring better equipment integration.
“Software might work better with digital radiography, which might in turn work better with an automated probe, which might subsequently work better with CAD/CAM applications,” Levin explains. “Although currently there might not be manoptions for this type of integration, in the near future there are going to be a number of competitors in these areas.”
Therefore, those companies and distributors that are now selling a broad base of products are finding their success incumbent upon their ability to integrate them. Again, the need for synergy among products has been driving recent mergers and acquisitions.
Evaluate New Offerings
On the positive side of mergers and acquisitions, dentistry will see the introduction of technologies that make clinicians more efficient and enable them to provide higher-quality dentistry, as well as expand the number of services they provide, Levin predicts. Price also notes that there still remain a number of small and midsize companies that have donea significant amount of research and development to improve the products that are available to dental professionals.
Unfortunately, some clinicians may be purchasing technologies because they feel they will automatically make their practices “cutting edge,” but they may never realize a return on their investment.
“Dentistry is moving toward becoming a much more technologically based treatment profession,” observes Levin. “It’s still a relationship driven business, but it’s important for dentists to select the right product for their practice.”
Therefore, regardless of the company from which the product is purchased, Levin advises always first evaluating what the practice’s specific needs are in order to determine if a true return on investment can be realized by integrating it into day-to-day operations. In other words, critically evaluate whether or not the new technology will actually work in the specific practice to indeed make the clinician faster, more efficient, able to provide higher-quality services, and/or able to expand the services he or she provides.
If you’ve wondered what all the moving and shaking among manufacturers and distributors means to you, take heart. Levin asserts that there are still plenty of competitors out there from whom to buy your products and equipment, and in either category, there are still plenty of choices. Despite recent mergers and acquisitions within the dental industry, the global dental market remains fragmented—with the top 10 manufacturers having less than 50% of the market share.3
“Certainly if it [consolidation within the industry] reached a point of diminished competition, that might raise a concern about pricing and quality,” Price says. “We’re not even close to that. There is still significant competition in all of the areas of products and equipment.”
What’s more, Price encourages those in dentistry to view these types of changes as positive and a sign of interest and growth, one that should leave them feelingcomfortable and optimistic about the future of dental practices. In fact, this isn’t “The Golden Age” of dentistry, it’s “The Platinum Age,” he says.
“It is not a scenario of better or worse,” Levin says. “It is a scenario of different.”
The author would like to thank Brittney Jerred—an independent writer for Crème della Crème Copywriting & Communication in upstate New York—for her contributions to this article
1. 2005 Dental Industry Review. www.dentalfax.com.
3. Tsai J. Second Annual Dental Conference Highlights. June 14, 2004. Gabelli & Company, Inc. www.gabelli.com.
5. Smith C, ed. 3M Dental Products Division to Combine with ESPE Dental AG. October 12, 2000. www.e-dental.com.
6. DENTSPLY International Completes the Acquisition of Degussa Dental. October 2, 2001. www.e-dental.com.
7. Sybron buys Innova LifeSciences. Industry News/Biomedical Materials. October 2004. www.performance–materials.net.
8. Sybron Dental Specialties, Inc. Acquires Oraltronics Dental Implant Technology GmbH. June 8, 2005. www.prnewswire.com.
11. Smith C, ed. Patterson Dental Buys Dental Products Distributor. April 4, 2000. www.e-dental.com.
12. Patterson Announces Acquisition of Accu-Bite, Inc. September 7, 2005. www.e-dental.com.
13. York, PA-based dental product maker to buy German company. York Daily Record. May 31, 2001. Retrieved from Newspaper Source database.
14. Danaher Announces Definitive Agreement to Acquire Pelton & Crane. June 20, 2005. www.prnewswire.com.
15. Danaher acquires dental company. The Washington Times. June 21, 2005. Business Section. Retrieved from Regional Business News database.