1300 Smiles Limited (ASX: ONT), led by Managing Director Dr Daryl Holmes, continues on its commitment to expansion-by-acquisition after announcing in late April that it has purchased Dentalplus, a long-established multi-dentist practice in northern Brisbane.
The Dentalplus acquisition is the latest in a long list of dental practice purchases dating back to before the company listed in March 2005, and continues Dr Holmes' considered and methodical approach to growing the 1300 Smiles business.
The company can be roughly described as implementing a roll-up strategy which is a technique that involves the acquisition of a number of small companies in the same industry. They are then consolidated to glean cost-savings from the merged businesses.
However, as Dr Holmes has made clear a number of times in previous shareholder letters, they are always 'extremely picky' about acquisitions and will go for extended periods with no new acquisitions if targets fail to meet the company's requirements (such as an immediate boost to net profit after tax, and earnings per share).
The Dentalplus business, for example, is the first acquisition since May 2014 when 1300 Smiles purchased the BOH Dental Group in Brisbane. A wait of two years between acquisitions shows that Dr Holmes and his board are indeed patient and will wait for the right opportunity to expand without sacrificing precious shareholder funds just for the sake of growth. This is despite competition for the purchase of dental practices from the likes of Pacific Smiles Group Ltd (ASX: PSQ) which aims to add six to ten new dentist facilities each year.
In addition to acquisitions though, the company is growing organically as it buys dental practices which can accommodate extra dentists at no further capital cost, and as it implements its $1-a-day Dental Care Plan throughout its network.
Despite its strategies to also grow its business organically, there's no doubt that if 1300 Smiles is to grow to being a much bigger business in the years ahead, it's going to have to continue down the path of acquisitions. This is perhaps why, in May of 2015, the founding Managing Director of Greencross Limited (ASX: GXL), Dr Glen Richards, joined the 1300 Smiles board as an independent non-executive director.
Given Dr Richards' track-record of growing Australia's largest veterinary healthcare group from 32 practices to over 120 since it listed in June 2007, the experience in acquisitions he brings to the 1300 Smiles board will be invaluable as the company strives to eventually become a national brand in dentistry that is also independent of the major health funds.
Foolish takeaway
The most recent purchase continues along a path of profitably acquiring dental practices and integrating them into the growing 1300 Smiles business. This is a small company with higher risks than stocks in the top-20, but given the excellent progress that Dr Holmes and his staff have made with the company since listing in 2005, I have no doubts he will continue to build this business over time in a shareholder-friendly manner. This is a stock to hold for the very long term as its strategy plays out in the years and decades ahead.
