Genesis Capital lifts Pacific Smiles takeover bid to $279 million

Pacific Smiles (ASX: PSQ) suitor Genesis Capital has brushed up its takeover proposal for the dental group by 25 per cent by putting an offer on the table valuing the target at almost $279 million, and the board appears more amenable this time around.

In December 2023 Genesis offered $223 million to buy Pacific Smiles, in a move that would add to its Impression Dental Group business formed from the assets picked up from failed Gold Coast-headquartered dental roll-up Smiles Inclusive in 2021, alongside various acquisitions since then in QLD, NSW and Victoria.

Pacific Smiles co-founder and substantial shareholder Dr Alex Abrahams had also been in the running to acquire Smiles' assets with backing from a Canadian pension fund, but ultimately lost out to Genesis.

With this history, and knowing just how far Pacific Smiles shares had fallen from highs of close to $3 per share at the end of 2021, the board of Pacific Smiles rejected Genesis' initial bid of $1.40 per share, describing it as "opportunistic" and materially undervaluing the company.

But the Pacific Smiles leadership did grant Genesis limited access to non-public information to see if it would lead to an improved offer. In late January, as a strong sign of its intent Genesis purchased 19.9 per cent of the issued capital in the company, and today has issued a non-binding, indicative proposal of $1.75 cash per share.

If the parties are able to enter a binding scheme implementation agreement that is worth at least $1.75 per share, the Pacific Smiles board has the intention of recommend that shareholders vote in favour of the proposed transaction unless a superior offer is received or an independent expert concludes it is not in shareholders' interests.

Pacific Smiles and Genesis Capital have entered into a process deed which provides a framework for the due diligence process, and the Pacific Smiles board has agreed to limited cost re-imbursement provisions.

"The board intends to work with Genesis Capital to understand and develop the potential option for Pacific Smiles shareholders to elect to roll their shares into unlisted equity in parallel with Genesis Capital’s due diligence," Pacific Smiles said in an announcement to the ASX.

"For completeness, the board has not yet formed a view on this potential component of the offer.

"There is no certainty that the revised Indicative proposal or the entry into the process deed will result in a transaction on the proposed terms or at all.

The suitor's investment in January came soon after Pacific Smiles' new CEO and managing director Andrew Vidler starting in his new role, having previously worked as executive general manager retail at Wesfarmers Health, including responsibility for Priceline and Priceline Pharmacy.

A month into Genesis Capital's time as a substantial shareholder in Pacific Smiles, the company revealed a strong half-yearly result of a 51.7 per cent lift in underlying earnings to$13.9 million and a 10.4 per cent rise in patient fees to $147.1 million. The company is expecting at least $293 million in patient fees for the full year, and underlying EBITDA of $26-28 million.

"I have joined Pacific Smiles in a period of transformational change," Vidler said on 27 February.

"What I see is a company well positioned for growth as it continues to reap the benefits of a significant investment program over the past three years.

"This is clearly reflected in the result today, with the company in a position of strong revenue growth and a very healthy bottom line. This result, combined with strong cash flows and a net cash position, supports the dividend payment announced today. We are in a position of strength to set the strategic growth path for the company."

At the time of publication, PSQ share are up 8.72 per cent at $1.62.