Connecting the dots

Publication
Article
digital-esthetics.comdlpmagazine.com-2011-08-01
Issue 8

There are numerous moving parts-sometimes literally-involved with creating a high quality dental restoration. Working with technologies, tools and materials that are designed to work together can make that process a little less complex.

There are numerous moving parts-sometimes literally-involved with creating a high quality dental restoration. Working with technologies, tools and materials that are designed to work together can make that process a little less complex.

Sometimes this means using an entire line of products from one company with a systematic workflow. However, as new technologies and novel materials filter through the industry, more and more it seems that labs must find compatible options to allow their existing systems to work efficiently in new ways. For a lab to succeed it must keep its dentist customers happy, and that means being able to provide the restorations they are looking for at the level of quality and price point they demand.

Zooming out from the benchtop to the boardroom, it’s easy to see some similarities. While many of the companies creating the products, materials and technologies used in dental labs on a daily basis strive to provide start-to-finish systems, technological and material innovations can come from different sources, and finding ways to stay compatible can be a key.

In the past 18 months there has been a steady stream of press releases announcing mergers, acquisitions and formal partnerships between major dental companies. Technological developments are a key part of these moves, but they are motivated by profit margins as much as innovation. For the labs served by these companies, keeping track of who is aligned with who and understanding why these partnerships are being formed can be helpful when trying to figure out what the lab-level impact of these corporate actions might be.

Why now

Corporate moves such as these are a normal part of doing business, and the recent wave of mergers, acquisitions and partnerships might be coincidentally timed, but Ernie Knight, a Harvard MBA who has worked as venture capital director for Nationwide Mutual Capital, said it is just as likely that these moves are a sign that companies in the dental industry see good things happening in the economy and they are setting themselves up for post-recession growth.

“In the last few years with the financial armageddon of the Great Recession, companies have been hoarding cash. You can only hoard cash so long, and then you have to put it to use. The use is either giving dividends to your shareholders or making acquisitions that can drive value,” Knight said.

This is especially true in the technology sectors of the economy, and in the dental industry many of the recent moves have come from technology-focused companies such as Straumann, Dental Wings, 3Shape and Align Technology. While tech companies were once newer business entities, Knight said they have now established their place in the larger economy and react to the same market forces that drive the overall, global economy.

As the recession has eased, companies that have found themselves with cash reserves are now looking to branch out and put those resources to work. Growth through merger or acquisition is an established business strategy, and one that can be especially useful to a company looking for further investment via either public or private capital, Knight said.

“They have to buy to grow. They couldn’t possibly maintain growth rates that would be attractive to investors just through organic internal driven growth and innovation,” he said. “They have to be acquisitive to compete and to create shareholder value.”

What the moves mean

While these corporate moves are a normal part of the ebb and flow of a business cycle, Knight said they can be seen as signs that the companies doing the purchasing see the Great Recession as something in their rear view mirrors. Acquiring another company involves a good deal of risk as well as financial outlay, so the increase in the frequency of these actions can be seen as a positive sign for the overall direction of the economy.

“Any time you acquire, there’s a level of risk in that. There’s potentially product risk, there’s a risk you can lose focus. You tend to batten down the hatches in the tough parts of the cycle, and be more open and able to take on these growth risks when times are better,” Knight said.

Another good sign about the moves being undertaken in the dental industry is that they make sense from a product standpoint. While some acquisitions are undertaken as a way to absorb a direct competitor, more often these moves allow a company to accelerate its growth by adding on a profitable enterprise that has synergies with the acquiring company’s core business. This is certainly the case with Argen Corp.’s purchase of Captek, Align’s move to buy Cadent and DENTSPLY International’s acquisition of Astra Tech.

But not all of the recent moves have been outright purchases, as formal partnerships have also been something of a trend. The wave of partnerships kicked off in early 2010 as Nobel Biocare announced a Preferred Partner Program aligning with Ivoclar Vivadent, VITA and Noritake. More recent technology partnerships have been formed between Straumann, Dental Wings and 3M ESPE, as well as between Biomet 3i, 3Shape, Cadent and 3M ESPE. Earlier this year 3M ESPE also announced a partnership with Jensen Dental.

These deals allow the companies to collaborate on product development to create materials and technologies that are designed and tested to work well together even when different parts of the system come with different brand names on the packaging.

Knight said formal partnerships such as these have been more common in recent years. Sometimes they can be a prelude to a merger, as companies want to test the waters before formally combining corporate resources. Other times these partnerships are a way for both corporate entities to retain individual identities and cultures while adding new capabilities without the risk of full-scale investment.

“Lots of firms are wanting to walk before they run. You’re seeing a little more of that than you would typically because people are still trying to find their way out of the Great Recession,” Knight said. “It’s a way to mitigate your risk by not jumping in full force.”

Lab level impact

Whether the move is an outright acquisition or a partnership deal, Knight said he thinks these moves are often good for the marketplace and can spur innovation.

Acquisitions often involve a larger company buying a smaller outfit that has an innovative product or technology. The larger firm is in better position to leverage the technology and often can speed up the pace at which that technology can impact the industry as a whole. Partnerships can allow two successful companies to combine their offerings in an even more seamless way. When a hardware and a software company work together each company’s part of the system can be fine-tuned.

These corporate changes are not often immediately noticeable at the customer level. Even after an acquisition, a new sales person or product manager may take over, but Knight said smart companies make those moves slowly and help ease customers through the transition. In fact a larger company might be ready to offer new resources to the customers of the smaller firm that was purchased.

Still, Knight said it is important for a business’ customers to pay attention to the moves it is making at the corporate level because an acquisition or partnership deal may eventually lead to a significant change in a product a lab has come to rely on.

This can be especially true in the technology sector. If your lab has an open-architecture scanner and software from one company, and the material or production provider you work with is partnering up with a different software firm, there’s a chance your system may not be compatible at some point in the future. Knight said these moves rarely happen in a flash, and most companies will work to help their customers transition with the change. However, it is important as a customer to pay attention to avoid a potentially costly surprise.

“Clearly if they bury their heads in the sand and pay no attention to the trends and to what different partnerships are being developed, and to what type of things are being thought about with different vendors, it could come to pass that they wake up one day and there’s been a change and now they’re in crisis mode,” Knight said. “It’s something they should be able to plan for over time and not be caught off guard.”

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