Universal’s dental merger plan receives competitive prescription

Universal Partners, a low-key offshore investment company listed on the JSE, might have to settle for a slightly smaller bite of the UK dental market.

In a quarterly update on Wednesday Universal cautioned that a proposed merger deal involving its largest investment, dental practice business Dentex, and rival business Portman Dental Care might require some tweaking to appease competition authorities.

In the quarterly review Universal CEO Pierre Joubert indicated that the only condition precedent outstanding in the Portman deal was the approval by the Competition and Markets Authority (CMA) in the UK.

Joubert said the CMA announced its Phase 1 decision earlier this month, confirming that there were no competition concerns at a national level. But the CMA argued there was a realistic prospect of a substantial lessening of competition in certain local areas if the Dentex and Portman merger went ahead.

Joubert said Portman and Dentex would propose remedies — “specifically the disposal of certain practices in the areas where the CMA has concerns”. The group is still hopeful of completing the transaction in the quarter to end-June.

Since investing in Dentex about six years ago, Universal has seen the business expand from just three dental practices to 154 practices. Universal, which has three other significant investment holdings, values Dentex at about £60m (R1.3bn), which represents more than 85% of the current market value of the group on the JSE.

Universal reiterated that the Portman transaction would not have a material effect on the current valuation of Dentex in the short term. But the group believed that as transaction progressed to completion, “an increase in the value of Dentex was likely”.

In other investment activity, Universal increased its exposure to WorkWell (WW), a contractor accountancy and payroll solutions specialist based in the UK.

In December and January, Universal subscribed for £5m (about R110m) worth of convertible loan notes (CLNs) in WW. The CLNs are convertible into equity at any time before end-June with the conversion strike price set at a 13% premium to Universal’s current carrying value of WW.

Capital raised

The group still values its stake in WW at £32.3m with the CLN investment valued at cost.

Joubert said the fresh capital raised through the issue of the CLNs was used to fund the recent acquisition of Whitefin Group, an international contractor management group headquartered in Barcelona, and this month’s purchase of TBOS, a specialist provider of outsourced middle and back office services to the recruitment sector.

He pointed out that despite a difficult operating environment, WW ended its first quarter to December marginally ahead of its budget. “The business is well positioned to continue this performance as it enters the 2023 calendar year.”

Things are also looking livelier at SC Lowy Partners, a financial services player specialising in high-yield and distressed debt market-making and investment management. SC Lowy also owns two banks: Solution Bank in Italy and Choeun Savings Bank in South Korea.

Joubert said the performance of the flagship Primary Investments (PI) fund improved markedly in the quarter to end-December, with a net positive return of 2.6%.

He noted the PI fund had made a strong start to 2023 and market conditions were looking promising.  Management were also looking to launching a new European-focused fund later in the year.

Universal stated its latest net asset value at £1.429 a share — or about R31 a share — which means the JSE share price is now offering a discount of about 32%.