• Hollyport had sought dental support organization (DSO) investment for some time
• Sponsor co-led roughly USD 250m CV for Silver Oak-backed company alongside Blackrock
• CV accompanied by debt refinancing; provides capital for growth strategy

Secondaries investor Hollyport Capital is focused on the legacy private equity market. On the GP-led side, this means finding opportunities to invest in high-quality assets sitting in older funds that are seeking liquidity as they approach the end of their initial 10-year term.

One such opportunity arose last year when the UK-headquartered firm found out Silver Oak Services Partners was working on a continuation vehicle (CV) to support Smile Partners, a dental support organization (DSO) it has held since 2017.  Hollyport had been tracking the sector for a while and passed on other potential CVs for DSO companies as it waited for the chance to back one of the market’s higher performers.

Smile Partners ticked all the right boxes. “If you look at the business metrics and KPIs, they are top quartile or close in most cases, including doctor retention and margins,” said Mike Catts, a New York-based partner at Hollyport.

Hollyport’s interest ultimately led to it co-anchoring the CV, alongside BlackRock [NYSE:BLK], in a deal announced last month. Silver Oak, which had acquired the company via its Fund III – a USD 335m, 2016 vintage vehicle – re-invested, while other investors rolled over, including some of Smile Partners’ doctor partners.

“The continuation fund provided a liquidity option to the existing investors in the Silver Oak fund, as well as the doctor partners,” explained Catts. “One unique aspect here is that the underlying doctors held equity in the business.”

Recapitalization 

The CV raised around USD 250m, according to a source familiar with the situation.

Silver Oak had been seeking a liquidity event for Smile Partners for several years, as Mergermarket has previously reported. In the first half of 2024, it was working on a possible sale of the business, for the third time in recent years, after previous efforts in 2021 and 2022.

After talks with interested parties did not materialize into a sale, the sponsor opted to switch lanes in favor of the CV route last summer, as Mergermarket reported at the time. Jefferies was hired to run a process. This came at a time when CVs were gaining popularity among sponsors in the medical services sector as a wide bid/ask spread weighed on exit multiples in the sector. Silver Oak declined to comment for this article.

Ultimately, Catts believes the CV proved a win-win for all parties. It allowed Silver Oak to generate the liquidity it had sought for its LPs, while also giving Smile Partners a new equity and debt stack – the deal was accompanied by a refinancing of the company’s debt – and providing capital to support its future growth.

At the same time, it gave secondary buyers the opportunity to buy in at an attractive price point.

“We saw an opportunity to buy into a high-quality business at a point in the M&A cycle where multiples had been compressed relative to prior years,” said Catts.

Tailwinds

Hollyport’s investment in the CV is split between multiple funds, according to the source familiar. The sponsor’s eighth secondaries fund, along with an overage vehicle, closed at more than USD 2.2bn in 2022. It is currently raising Fund IX, as well as a GP-led dedicated vehicle, according to regulatory filings.

Hollyport, which has offices in London and New York, was established in 2006, and has assets under management of over USD 5bn. It looks for opportunities to buy good assets in sectors with tailwinds and strong potential for growth.

“This investment is a good example, where we felt the business could grow significantly through its roll-up strategy over our holding period,” said Catts.

Smile Partners, which was founded in 1982, has completed over 75 affiliations, expanded to four new states, and partnered with over 80 doctor owners, since Silver Oak’s 2017 investment, according to the deal announcement.

Catts believes this growth strategy has some way to run, with the sector providing fertile terrain for more M&A.

“The broader DSO space is highly fragmented, with about a third controlled by DSOs and two-thirds by individual doctors,” he said. “This fragmentation presents significant roll-up opportunities for DSOs with the capital to execute them.”