Out of the Public Eye

Out of the Public Eye

COMPANIES by Sean Roth | Real Estate Editor

Wall Street expects a certain amount of pizzazz from its companies. Public companies need to grow constantly, in sales and profits, to stay sexy. And a lot of the time, even that's not enough. If your company resides in an industry with a lot of stinkers, the bad news usually will pull down all of the players.

Steven Matzkin, David Nichols and Mitchell Olan are roughly five years divested of that world, and it's hard not to notice their smiles. Literally and figuratively.

The trio is the executive team behind the Sarasota-based dental-practice management company Dental Care Alliance. Nichols, chief financial officer, Olan, chief operating officer, and Matzkin, president and CEO, took their company private after being a public company for about four years, from 1997 to 2001.

Dental Care Alliance is best described as an aggregator of dental practices. The company buys practices from dentists, typically paying half in cash and the dentist holding a note for the other half. A Dental Care Alliance affiliate partnership, usually located close nearby, then comes in and is responsible for managing the practice, its employees and its office assets. The dentist, who becomes an employee of the practice, continues to own his own patient records.

The past 11 years have been tumultuous for Dental Care Alliance. In 1997, Matzkin took the 19-practice company public. At the time, it was generating net income of $146,000. It netted $22.3 million after fees. In 1999, the growing company merged with Gentle Dental Service Corp. to become InterDent Inc., the largest of the several dental-management companies that chose to go public in the late '90s.

Then InterDent started falling. By 2000, the company had turned the previous year's $5.2 million profit into $48.7 million in net losses.

Most observers attribute the failure to the company being too aggressive in acquisitions and not more observant in a change in the equity markets.

A report written by one of InterDent's CEOs H. Wayne Posey, says the company grew to $360 million in total revenue but that debt increased to $180 million. Posey say InterDent needed at least $7 million to pay its bank and other debt, but it only had $6 million remaining. That situation combined with a downturn in the overall healthcare market and reluctance in the financial markets to provide the company with any additional capital. In short, InterDent had no choice but to sell some assets or risk going into bankruptcy.

In 2001, Matzkin, Nichols and Olan, with their own money and the backing of a group of local investors, purchased the eastern division of the heavily debt-ridden InterDent. Dental Care Alliance was reborn with 91 dental practices.

Today, the company owns 75 practices in seven states, from Florida to Michigan, controlled by about 10 affiliated dentists groups. All three executive officers see the smaller portfolio as a good thing.

Part of positioning the past few years has been to make sure the company would have enough cash for a decision this year by its shareholders. This year marks the five-year anniversary of the company going private. According to their agreement, investors who contributed $10 million toward that purchase have the right to cash out or convert their debt into equity.

The second, and more significant piece of the divestiture equation is Dental Care Alliance's return to Matzkin's original business plan, which focused on much slower controlled growth.

"We have not been acquiring as aggressively, and that's by design," Olan says. "Being a public company forced us to grow. We couldn't shed ourselves of even underperforming offices without the company taking a hit. Now we can divest ourselves of a number of offices that didn't fit with us philosophically and geographically.

"There is absolutely no tolerance for going backward," Matzkin says of Wall Street, "even if that's what's best for the company long-term."

Matzkin's biggest complaint about the impact of going public on the company was how little actual performance had on the stock price. Dental Care Alliance exceeded others in the field regularly, yet that didn't always matter. Matzkin also says as CEO of a public company his position had changed from making important decisions to investor relations.

"I was constantly getting calls from fund managers," Matzkin says. "'Your stock is down 10 cents today, why?' I would get something like 30 phone calls asking the same question."

Now back in private hands, Matzkin says the company is free to position itself in the way that makes the best sense for its future, which at the present means focusing less on acquisitions and more on expanding the existing operations.

"We're going to be selective and do the acquisitions that make sense," Olan says. "At the same time we are looking at three to four renovations, expansions and relocations. We are not going to judge our success by dots on a map."

That layering and expansion makes a lot of economic sense, the three executives say, because the same money that would have been spent on acquiring a new practice can be recovered much quicker from an existing operation.

One thing that hasn't changed since before InterDent is the company's focus on staying in the background. While some competitors take the chain-brand name route and give all the dental practices the same name, Matzkin wants his company to be virtually invisible to customers. Its name isn't on the door of the doctor's offices. In some cases, that key space is filled by its affiliated dental groups, but most times the dentist gets top billing.

The main impact of becoming part of Dental Care Alliance, Olan and Nichols say, should be for office efficiency, which translates into a lot of smaller things, such as reduced wait times and quick correct billing.

"That's part of our appeal," Nichols says. "We take away the headaches and let [dentists] focus on working with patients. So if you've got a dental office that's growing, which is obviously one of the things we are looking for, you don't want to mess that up."

So with steady growth in front of it and the InterDent experience behind it, would Dental Care Alliance's executives ever consider the public markets again?

"Not as long as I am CEO," Matzkin says.

DCA AT A GLANCE

Founded: 1991

Incorporated: 1996

Full-time employees: 1,100

In the corporate office: 35

Gross Revenue

2003 $97 million

2004 $105 million

2005 $112 million

2006* $120 million

• Projected

Source: Dental Care Alliance