Odontoprev
Odontoprev is the leading company in the Brazilian Dental Healthcare segment. TMG I PE Fund invested in the company in 1998 and became the controlling shareholder. Odontoprev was at the time the fifth largest player in Brazil, with approximately 90,000 covered lives. By the time TMG exited this investment through an Initial Public Offering (IPO) in 2006, Odontoprev had become the undisputed market leader, with market share equal to the next four largest competitors combined. Over the eight years under TMG´s advising, Odontoprev achieved average annual growth rates in terms of lives, revenue (R$) and EBITDA (R$) of 42%, 40% and 52%, respectively.
Today, Odontoprev is the clear leader of the sector and is traded in the Bovespa Stock Exchange under the ticker ODPV3. The company is present in more than 2,000 cities in Brazil, with more than 25,000 dentists in their network and serving more than 6 million Brazilians and over 5,000 corporate clients. As of the December 2012, Odontoprev´s market capitalization had grown more than 470% since the Initial Public Offering, while the Bovespa Index had grown 48% over the same period.
Opportunity identified and investment executed
During the second half of the 1990´s, the Brazilian dental plan market was characterized by an extreme fragmentation, with more than 700 regional companies. While analyzing the Dental Care segment in Brazil, TMG drew the following conclusions:
- On the consumer side, the Brazilian market showed very low penetration in comparison to more developed markets;
- The market was extremely fragmented and not professional, with many small companies;
- The sector presented very high growth rates as new customers entered the market;
- Low cost to companies and increasing consumer demand made dental care plans a very attractive offering to both groups;
- The sector was seen as a secondary market by big health care operators;
In the dental care segment, contrary to health care plans, the cost of treated population decreases until it stabilizes. For each population, high initial costs are incurred once the dental treatment is started, however, once the patient is well-treated, the cost of each population decreases as secondary treatments focus mostly on maintenance.
As a pioneer in consolidating the industry with a well-structured platform for growth, Odontoprev created a natural barrier to entry for new competitors, who would have to incur into the initial high cost phase to acquire new clients.
Prior to the investment recommendation in 1998, six other companies in the sector were analyzed by the organization that preceded TMG Capital. Out of this process, TMG choose Odontoprev to be the ideal company to serve as a platform for a market consolidation due to its precise internal procedures, highly motivated and experienced management team, and excellent existing portfolio of large national and multinational clients.
Investment Thesis
During the partnership with Odontoprev, TMG´s contribution focused on four main value drivers:
-
Internal Capabilities
TMG´s main efforts were focused on: (i) building out the management team; (ii) enhancing Odontoprev´s in-house IT platform development; (iii) branding, and (iv) focusing on group dental care plans.
-
Increasing Scale and Capturing Synergies
Rapid growth was achieved through a combination of organic growth, four follow-on acquisitions of pre-identified opportunities, and strategic partnerships.
- Increased profitability
- Quality service delivery
Margins improved through both process redesign along the value chain as well as capturing efficiencies gained from economies of scale.
TMG aimed to better relations with stakeholders across the value chain, such as dentists, suppliers and the distribution channel. The goal was to offer the best group dental care plans at competitive prices.
In 2006, Odontoprev went public on the Bolsa de Valores de Sao Paulo, being one of the first companies in the health sector to be listed on the Brazilian stock exchange. In 2007, TMG I PE Fund, recommended by the company that preceded TMG Capital divested its stake through a block sale, achieving a multiple of invested capital of 40x in Reais and an internal rate of return (IRR) of 57% per year. In US Dollars, the investment returned 22x the investor´s capital with an internal rate of return of 46% per year.
Odontoprev became a benchmark company in the Brazilian health sector and an important case study of a company that, through a combination of experience, capital and strategy, transformed its industry. Odontoprev is today extremely well positioned to continue capturing the growth in the Brazilian healthcare sector.
Learn more about the company at Odontoprev.com.br