DENTAL ........................................................................................ 20

Extensive Remaining DSO Fragmentation3 ...

Percentage of Practices Affiliated With PE-Backed DSOs, Ranked by Size

93.6% 2.5% 1.0% 1.2% 1.2% 0.6%

Despite the fact that there are 100+ PE-backed DSOs today, 93%+ of practices remain unconsolidated by PE

Top 5 6-10 11-20 21-50

51-100 Non-PE Backed Practices

...With Growing Dentist Excitement for DSO Affiliation4

Percentage of Dentists Affiliated With a DSO by Age Cohort

21-34 35-49 50-64 65+

16.3%

9.8%

3.4% 2.5%

2015 17.9%

11.3%

4.5%

2017 3.4% 20.4%

13.3%

5.4%

2019 4.0%

1. CDC National Center for Health Statistics. 2. Health Policy Institute and American Dental Association. 3. Harris Williams Analysis. 4. Stax. 23

FEATURED ARTICLE

Vision, Dental, and Veterinary Care

Well before the COVID-19 crisis, many healthcare, consumer, and retail investors recognized the value-creation potential at the intersection of these three essential industries. Now that consumer healthcare has shown its resilience, investor interest has only intensified. Here, senior bankers from the Harris Williams Consumer and Healthcare & Life Sciences Groups discuss opportunities in three specific subsectors in which they have collaborated.

Five Key Criteria

The consumer healthcare sector includes several specialties, from dental and dermatology to physical therapy, urgent care, and vision. As we describe in Consumer Healthcare: Creating Value by Crossing Industries, Harris Williams has identified five major criteria that influence the degree to which sectors exhibit consumer healthcare characteristics:

1. Choice

In consumer healthcare, patients have some degree of choice (as opposed to being referred to a specific specialist).

2. Interaction Model

Businesses modeled on consumer healthcare can engage in recurring patient relationships or in situations where the need is more acute, but convenience and brand awareness must be decision drivers.

3. Location

Most consumer healthcare providers operate in freestanding, highly visible retail environments or via a “store-in-store” model.

4. Branding and Patient Experience

Consumer healthcare businesses emphasize branding, consumer awareness, and customer experience more than pure healthcare providers do.

5. Payor Dynamics

Consumer healthcare businesses tend to have a higher degree of patient/cash pay and commercial insurance, with less government pay than other healthcare businesses. “Our more recent experience confirms that deal volume is growing, and likely will continue to accelerate through 2022,” notes Corey Benjamin, a managing director in the Harris Williams Consumer Group. Here, we highlight the vision, dental, and veterinary subsectors and profile four recent acquisitions that exemplify the continued opportunity for investors in these areas. A Keen Eye on the Vision Segment

The U.S. medical vision sector presents a significant growth opportunity, supported by strong, resilient demand and a fragmented market landscape ripe for consolidation. The total vision sector is estimated to be about a $48 billion market, with medical vision accounting for approximately $10 billion. Medical vision is expanding more rapidly than the broader industry, with 3% to 5% annual growth.1 Growth is primarily being driven by the aging population and increasing prevalence of chronic ocular conditions: Individuals aged 65 or older account for the vast majority of spending on medical vision services.2 By age 75, approximately half of all Americans have cataracts,3 and glaucoma incidence is projected to increase nearly 50% by 2032.4 The segment’s resilience is driven by a number of factors. Patients typically have work done on their eyes when they need it, regardless of the economic cycle. Furthermore, a general shortage of ophthalmologists drives high physician utilization and provides for a stable reimbursement environment, which is underpinned by a growing prevalence of insurance coverage for vision care. Low-acuity surgical ophthalmic procedures, such as cataract surgery, are also well suited for ambulatory surgery centers (ASCs), which larger and more sophisticated operators can establish and configure to be vision specific. Doing so helps optimize physician and patient workflows, improve outcomes, and generate cost efficiencies. It’s also an attractive space for consolidators, says Andy Dixon, a managing director in the Harris Williams Healthcare & Life Sciences Group. “Historically, the ophthalmology specialty was extremely fragmented, with very little private equity investment,” he says. “In the last four to five years, consolidation has meaningfully accelerated, and we expect that trend to continue and even accelerate. While some platforms are building scale within general (anterior) ophthalmology, others are vertically integrating downstream into medical optometry as well as upstream into retina and other sub-specialties to capture referrals.” Dixon notes that while private equity firms have completed more than 30 platform investments in the vision industry since 2014, the sector continues to be fragmented, with a limited number of providers of scale.

Consolidation also provides the opportunity to drive greater provider utilization, says Dixon. As platforms come together, ophthalmologists are in environments where they can be more efficient, focusing more of their time on surgery and other “top-of-license” activities, allowing pre- and post-operative and other types of care to be provided by medical optometrists and other clinicians. Many small physician-owned practices want to become platform add-ons to broaden their networks, expand access to patients and referral networks, modernize their practices, and relinquish administrative duties.

Case in Point: NVISION

NVISION® Eye Centers, a leading provider of ophthalmology services, is an excellent example of the investment opportunity in the vision sector. “Its business has more than fully rebounded from the impacts of COVID-19, and it has the strategy and infrastructure in place to fuel continued rapid growth,” says Cheairs Porter, a managing director in the Harris Williams Healthcare & Life Sciences Group. Harris Williams recently advised NVISION on its sale to the Ontario Teachers’ Pension Plan.

NVISION is a leading vision practice in the western U.S. with 43 locations, including eight ASCs. It employs a hub-and-spoke model to build density in core markets, thereby improving brand equity, efficiencies, and utilization at its ASCs. The company prioritizes secondary metropolitan areas with favorable demographics and competitive dynamics. It has developed a highly successful acquisition model, having integrated 31 clinics and ASCs via acquisition from its launch in 2010 through 2019. With its roots as a refractive practice, NVISION has expanded its services over time into performing cataract surgeries and other medical services and now offers a diverse, medically focused service mix that provides a highly stable revenue base. Its heritage operating in a consumer-driven refractive services market enabled it to develop unique capabilities to engage customers and effectively broaden its base. For example, NVISION can use refractive procedures to fine-tune or “touch up” cataract surgery, which removes the cataract while restoring a person’s vision to 20/20, improving residual nearsightedness, farsightedness, and astigmatism. “NVISION has a much higher success rate than the industry average in completing the surgery effectively the first time, which benefits the patient as well as the business,” adds Dixon. The Increasingly Healthy Dental Segment

Historically noncyclical before COVID-19, the dental sector was one of the consumer healthcare segments hit hardest by the pandemic. However, patient demand rebounded quickly for high quality businesses that proved they can operate safely and effectively in the COVID-19 environment. The dental segment is an approximately $136+ billion market, with a projected annual growth of 6%+ through 2027.5 Investment by institutional capital over more than a decade has led to the creation of larger platforms in the vertical. However, consolidation opportunities remain: Independently owned clinics still account for 10.4% of the sector, creating substantial acquisition-based growth opportunities.6 Multisite dental service organizations (DSOs) bring benefits to patients and staff that independent dental offices are less able to provide. For example, sophisticated DSOs often can invest in more sophisticated patient marketing, as well as engagement and scheduling tools. They are increasingly seen as employers-of-choice for dentists, as they generally offer a better work-life balance, fewer administrative burdens, and greater financial security. Such platforms are also poised to scale, using existing infrastructure to spur growth. Case in Point: Midwest Dental

Midwest Dental, one of the largest DSOs in the country, has more than 230 offices located primarily in the upper Midwest and New England regions, built over more than 40 years. “This is a great example of high-quality businesses drawing investor interest in the multisite dental space,” says James Clark, a managing director in the Harris Williams Healthcare & Life Sciences Group. Harris Williams recently advised Midwest Dental on its sale to Smile Brands, a portfolio company of Gryphon Investors. The combined company is now one of the largest DSOs in the country, representing 650 offices and over 8,000 employees, including 2,200 dentists and hygienists operating in 30 states. “Midwest Dental stands out for its significant scale, density in attractive markets, and long track record of growth,” notes Dixon. “Its recurring, hygiene-driven model and focus on building long-term patient relationships has driven a high patient retention rate and loyalty.” Dixon says add-on acquisitions are a core focus and competency, with a proven partnership model for dentists. At its founding and during early stages of growth, the company operated in smaller communities, affiliating with practices to provide support and ultimately an exit strategy for founding dentists. Over time, Midwest Dental expanded to larger markets, where it continues to focus its strategy today. Midwest Dental has a collaborative approach and true partnership with dentists, making it the dentist-preferred partner among DSOs, says Clark. “The company has made strategic investments in infrastructure and practice management culture to lay the groundwork for future growth. Its sophisticated marketing is highly successful at attracting new patients, helping Midwest Dental to grow at an above-market rate.”