Sunday, August 12, 2012

Did Levine Leichtman unload a sinking ship in InterDent?

I can only hope so. Not that I’m all tore up and concerned about Levine Leichtman. I just find it lip smackin’ good to see another private equity firm that may well get burned over the illegal practice of “Corporate  Dentistry”. Levine Leichtman operated dental clinics under the following names:
Gentle Dental
Smile Keepers
Capital Dental
Blue Oak Dental Group
Mountain View Dental
Affordable Dental Care
Dedicated Dental Systems Incorporated
Also associated with InterDent is Northwest Management Services.
Levine Leichtman Capital Press Release:
LOS ANGELES, Aug. 8, 2012 -- /PRNewswire/ -- Levine Leichtman Capital Partners (LLCP) announced today the closing of the sale of InterDent, Inc. to H.I.G. Middle Market, LLC
InterDent, Inc. is a leading dental practice support organization ("DSO") in the United States. The Company  provides support services to over 145 affiliated dental offices in eight western states including California, Oregon, and Washington. InterDent's affiliated offices benefit from professional management, economies of scale, superior information systems, and specialization of functions. Its network delivers comprehensive dentistry to over one million patients annually, including general, orthodontics, periodontics, endodontics, pedodontics, prosthodontics, and oral surgery.
"The InterDent investment has been very successful for our partners, our management team and all of the Company's stakeholders.  We are proud of the successes the company has achieved over the past years and believe the growth will continue with HIG's support," said Lauren Leichtman, CEO of LLCP.  "We are also pleased to provide a very attractive return to LLCP's investors through an exit that underscores our commitment to investing in the middle market."

Seriously?!  According to the WSJ, Levine Leichtman Capital Partners invested in 2000.  They filed for bankruptcy in 2003. Prior to the bankruptcy they owned and operated 226 dental offices in 14 states and now operate 145 dental offices in 8 states.
In 2008. InterDent entered into a 5 year Corporate Integrity Agreement with the Office of Inspector General due to fraudulent billing by at least two of it’s Dedicated Dental clinics in California.  They also agreed to pay $364,500 in restitution and pay $364,500 in damages. The 5 year Corporate Integrity Agreement expires on June 20, 2013.
John Steinbrun signed the Corporate Integrity Agreement as President and CEO of InterDent, Inc and InterDent Service Corporation and Scott Breman signed as President and CEO of Dedicated Dental Systems Incorporated.
I’m sorry, but bankruptcy, a corporate integrity agreement with the OIG, downsizing by 1/3, and numerous lawsuits is considered “very successful” for partners, management or stakeholders.
More of the Press Release:
Moelis & Company advised InterDent on the sale.
Levine Leichtman Capital Partners is a Los Angeles, California-based investment firm that manages approximately $5.0 billion of institutional investment capital through private equity partnerships, distressed debt and leveraged loan funds. LLCP is currently making new investments through Levine Leichtman Capital Partners IV, L.P., Levine Leichtman Capital Partners SBIC Fund, L.P., and Levine Leichtman Capital Partners Deep Value Fund II, L.P. Prior investments by Levine Leichtman Capital Partners include CiCi's Pizza, Hackney Ladish, Jon Douglas Real Estate Group, Overhill Farms and Quizno's. 
SOURCE Levine Leichtman Capital Partners, Inc.
A short timeline of InterDent
1978 – Gentle Dental formed by a group of dentists with offices in Portland, OR and Vancouver, Washington. The management part of the company is Northwest Management Services.
1997/1998 Gentle Dental merged with Dental Care Alliance – Steven Matzkin, David Nichols and Mitchell Olan- to form Wisdom Hodlings, Inc.  Dental Care Alliance, based in Sarasota, FL had offices in California and Hawaii according to InterDent’s website – About Us page.
1999 – In February the name was changed to InterDent
2000-2001 – Levine Leichtman Capital Partners invests.
After quickly acquiring 244 offices in just three years, they couldn’t pay their bills and were forced to unload 80 offices that totaled $70 million in sales to provide much needed cash according to an article written in late 2001 by H. Wayne Posey, Chairman & CEO, InterDent, Inc.  He also said InterDent took other actions to recover from their stupidity including:
1) The Office Profitability Team focused on closing negative EBITDA offices and turning around under-performing ones.  Using a scorecard approach, in conjunction with a traveling SWAT team for implementation, they’ve logged $2.5 million in verified annualized benefits to date.  They’ve hired specialists to enhance revenue where practical, and have improved efficiency in targeted offices.
2) The Managed Care Team focused on analyzing and negotiating for increased insurance plan reimbursements.  The team has developed the reports necessary to justify and monitor increases in reimbursement rates.  They’ve met with over 20 major plans, and to date have generated approximately $1 million of annualized improvement with much more on the horizon.
3) The Overhead Reduction and Working Capital Team completed a number of initiatives, ranging from accelerating collections (accelerating over $4 million to date by sending 11,000 collection letters), reducing corporate staff positions, implementing over 20 on-line policy documents to improve spending control, and reducing telecom expense by eliminating lines and expensive services.  To date they’ve logged over $2 million and nearly $1 million in annual and one-time improvements, respectively.  They’ve recently launched another initiative that should have major impact on purchasing efficiency – Electronic Data Interchange (EDI) for key vendors.
4) The Procurement Team focused their efforts on three key areas:  creating a single and standard on-line formulary from which all offices order dental supplies, reducing the number of lab vendors across the company by over 50%, and negotiating pricing and terms with remaining vendors.  When full implementation is realized, they should have driven over $2.5 million to the bottom line.
Infrastructure Development efforts at InterDent are focused on positioning the company for future growth once the core turnaround plan is complete.  It’s efforts include
1) reducing historically high dentist turnover by implementing an industry-unique career development and compensation approach,
2) improving staff capabilities through standardized front office training,
3) reducing insurance costs by changing to a more effective broker,
4) improving the quality and timeliness of financial reporting through reorganizing and reengineering the financial department and reporting process, and
5) consolidating Central Billing Offices (CBO), and standardizing and augmenting the services they provide (historically only two-thirds of its offices receive billing services from one of seven non-standard CBOs; in the future all offices will receive billing, insurance, payroll, clinical credentialing, staff training, and perhaps scheduling services from one of only three standardized CBOs).  InterDent’s new Southwestern CBO is scheduled to open in July, replacing two CBOs as well as other dispersed functions across the Southwest.
Management brought in a Special Assistant to the CEO to focus on Operations, leading the internal improvement initiatives.  They initiated a Dental Advisory Board early in the process to provide both a clinical perspective to operational initiatives and leadership to the broader clinician group.  Because insurance plan management is so fundamental to the business, they hired an experienced Director of Plan Management.  Management eliminated a regional recruiter position, while reassigning a Senior Vice President to better coordinate clinical recruiting across all offices.  It hired a Director of Training to support the development of all professional staff.  In the area of regional and office management, InterDent executives have been and will continue to be evaluating and upgrading management staff across all regions.  And as they go, they’ve been transitioning both clinical and management staff to more variable, pay-for-performance, compensation schemes.
InterDent Revenue 1997-2001

*Source - Transitioning from Aggressive Acquirer to Efficient Operator - 2002
by H. Wayne Posey, Chairman & CEO, InterDent, Inc.  Thomas C. Anderson, Senior Associate, AlixPartners

- Profits had gone from $5.2-mil to losses of $48.7-mil, according to an article by Sean Roth and – Out of the Public Eye Companies March 31, 2006.
– Marzkin, Nichols, and Olan gathered other investors to purchase the 80 clinics their own merged company, InterDent, needed to unload and put them back under the corporate heading of Dental Care Alliance (DCA).
2003 – InterDental filed for Bankruptcy protection.
2004 – In December Levine Leichtman Capital Partners invested further taking the majority stake in InterDent from DDJ Capital Management, LLC. Both had provided Debtors-in-Possession financing for InterDent during it’s bankruptcy reorganization.
2006 – Traveling InterDental oral surgeon, Dr. Richard D. Bae, od’s on Fentanyl.
2008 – Dr. Bae’s wife sues InterDent Kim v. Interdent, Inc., No. C 08-5565 SI in the U.S. District Court for the Northern District of California.
- Entered into a Corporate Integrity Agreement with the Office of Inspector General due to fraudulent billing. I’m guessing that performance base compensation scheme” didn’t work out so well.
2012 – Levine Leichtman unloads the Albatross to H.I.G.
I’m sure there is much more to this whole mess I’ve missed, but I’m just as sure someone will fill us in on the rest so don’t miss the comment section.
 InterDent Corporate Integrity Agreement
Transitioning from Aggressive Acquirer to Efficient Operator  - by H. Wayne Posey, Chairman & CEO, InterDent, Inc. and Thomas C. Anderson, Senior Associate, AlixPartners 
InterDent May 2003 SEC filings

Wife States Claim against Dental Management Company for Delivery of Drugs Her Surgeon Husband Overdosed On

Out of the Public Eye – A look at Dental Care Alliance March 31, 2006