Completing three acquisitions in Norway, Germany, and Hong Kong
On Sep 13, Modern Dental announced the completion of three acquisitions inNorway, Germany and Hong Kong. Management indicated that the threetargets are within the same group while the HK entity is mainly involved in thesupport functions of the operations in Norway and Germany. We believe thescales of these acquisitions are relatively small and the impact to earnings islimited. However we continue to like the first mover status of the company inthe consolidation of the industry. The acquisition targets are the existingdistributors of the company, consistent with the acquisitions that the companycompleted in Europe in the past few years. After the acquisitions, the companyis expected to become the second largest player in Norway vs. limitedpresence previously, and consolidate its position in Germany as the secondlargest player.
We expect Europe would be the focus of M&A
Management continues to expect the completion of the US acquisition in Oct2016. We anticipate that the next focus of M&A to be Europe, whichaccounted for approximately 50% of the sales of the company in 1H16. As themarket leader in Europe, the company is well positioned to capture the stableorganic industry growth of 5.3% CAGR14-19 while acquisition would beanother driver. Additionally, the global crowns and bridges industry is expectedto grow at a CAGR of 8% from 2014 to 2019 according to the company, drivenby low single digit ASP growth and stable growth in demand.