Like many sectors of health care, the dental space has suffered through a traumatic period brought on by COVID-19. We reached out to a number of our contacts in the dental space, including operators of different sizes located in geographies across the United States, in an effort to gather real-world, anecdotal evidence of the impact that COVID-19 has had on operations as well as on deal-making activities.

COVID-19 Impact on Operations – Then and Now

Regardless of the size of the operation or the geography, patient volumes declined precipitously with the onset of COVID-19. In many cases, revenue and patient visits dropped by more than 90%. The vast majority of visits during the early months of COVID-19 were for emergency procedures. A large operator we spoke with closed a majority of its offices and utilized call centers to triage emergency situations to those offices that remained open for business. Hygiene visits, and the follow-up treatments that often result from them, flatlined in many parts of the country.

Fast forward to today and it appears that the volume of visits has largely recovered with several respondents indicating near full recovery, even when adjusting for the effect of burning through the backlog of deferred visits.

Of great concern for most of the DSOs we spoke with are (i) the failure of hygiene visits to fully recover as many patients are still unwilling to risk their overall health for this service, and (ii) the potential impact on business recovery of possible COVID-19 spikes this Fall/Winter. PPP loans combined with aggressive expense management and capital support from financial sponsors allowed most DSOs to managed through the crisis thus far. That said, with many smaller dental practices operating with limited cash resources (30-45 days), any further interruptions to operations could be devastating.
On the HR front, several of the operators we spoke with indicated difficulty in attracting hygienists due to fears around possible infections given their relatively higher risk of exposure. However, some also noted that attracting new associate dentists to their practices has become somewhat easier as many younger dentists are becoming increasingly risk averse in this COVID environment and less likely to “go it alone”.

In terms of bright spots of relative strength, certain practices, including orthodontics and pedodontics, and other specialty areas, such as endodontics, seem to have come through this period without quite the same levels of patient visit volatility.
A few large DSOs, which were relatively highly levered before the onset of COVID-19, found their leverage levels unsustainable in light of the dramatic decline in visits. In the case of Benevis, backed by Littlejohn & Co. and Tailwind Capital, the result was a Chapter 11 filing. In other cases, such as with Elite Dental Partners, backed by Cressey & Co. and Tyree & D’Angelo Partners, restructuring debt at the expense of equity holders may be the key to survival.

M&A Activity

Like most other sectors, M&A activity in the dental space went on hiatus for a few months with most significant deals in the market hitting the pause button from mid-March through June.

Beginning in June, DSO deal activity began picking up again, and the number of DSO deals closed through the first nine months of 2020 (as reported by Capital IQ) is essentially unchanged from the same period in 2019. Of note, prices being paid in terms of multiples remain relatively strong. For good quality assets with scale, multiples are essentially unchanged. However, one of our respondents did indicate that there has been some pull back in pricing for smaller, single-site assets with prices being paid declining by 10-15% to approximately 70% of revenue.

While we did hear mention of increased use of structure (earnouts, other forms of deferred compensation, etc.), this doesn’t appear to be widespread. Rather, the amount of equity roll for the DSO seller is increasing, particularly in instances where the purchase multiple is being pushed up. Higher multiples typically equate to greater equity roll, and, in some cases can be as much as 40%.

To sum up, we believe that the dental sector will continue to be highly attractive for investors as the overall dynamics remain strong, and we don’t see recent events changing anyone’s long-term views. The strong M&A market that we’ve seen over the past several years will likely continue as the dental industry is still largely comprised of smaller players and so remains ripe for continued consolidation.

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Automotive OEMs and suppliers continue to operate in one of the sectors most heavily impacted by the negative effects of the COVID-19 pandemic and resulting recession. With production halted and consumers locked down by stay-at-home orders, the seasonally adjusted annual rate (SAAR) of light vehicle sales in the U.S. bottomed out in April at a 50-year low of 8.7 million units. Since that time, sales have rebounded at a faster rate than most expected, with the August 2020 SAAR rising to just over 15 million units. Sales are expected to level off for the remainder of 2020 before rising again in 2021 to a level anticipated to be somewhere in the mid-15 million range. This compares to unit sales in both 2018 and 2019 of approximately 17 million units, and pre-pandemic expectations of roughly the same level for 2020.

The crystal ball for automakers’ future results has perhaps never been more opaque. Those on the more optimistic side point to the momentum of sales growth in recent months driven by both pent-up demand and a desire for private vehicle ownership given the health-related concerns of ride sharing alternatives. For those with less rosy expectations, concerns center on continued economic headwinds associated with permanent job losses and wage reductions, as well as historically low inventory levels for new vehicles.

Within the industry itself,  trade organization OESA (Original Equipment Suppliers Association) monitors suppliers’ sentiment with its Supplier Barometer Index (SBI), a quarterly survey in which supplier executives indicate their optimism or pessimism for the year ahead. On a 100 point scale, where a score of 50 indicates a neutral sentiment, the index for the second quarter of 2020 dropped 32 points to a score of 15, its lowest level in the history of the survey. For the third quarter, as suppliers resumed production and automotive sales began to rebound, the SBI rose sharply to a somewhat optimistic overall score of 53; however, there were a meaningful number of respondents (30% of the total) whose outlook became even more pessimistic in the quarter.

M&A activity in the automotive sector has slowed in recent months and will continue to be challenging given both economic and industry-specific headwinds. In some cases, the need to address supply chain disruptions and/or enhance competitive positioning within the ACES (Autonomous, Connected, Electrified, Shared) environment will continue to drive M&A activity in spite of challenges standing in the way of getting deals across the finish line. A case in point is Borg Warner’s recent acquisition of Delphi Technologies for roughly $3.2 billion.  A meaningful transaction for bolstering Borg Warner’s capabilities in the arena of electrified propulsion systems, the deal was originally announced in January 2020, placed on hold during the early months of the pandemic shutdowns, and finally completed just last week. With financing sources currently reluctant to fund capital intensive automotive suppliers, we expect to see an increasing volume of divestitures of non-core assets and divisions to generate the funding needed to support ACES investments as well as other capital expenditures. Finally, the current pull-back in automotive sales and related production is certain to produce a meaningful volume of distressed M&A transactions over the next 12 to 18 months. Companies with sufficient financial wherewithal will take advantage of this environment and actively pursue acquisitions of debt-burdened suppliers that further the buyer’s strategic initiatives.

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The law firm Foley & Lardner recently released a compelling survey of nearly 150 manufacturing executives across a variety of industries, including a large number operating in the automotive industry.

The survey focused on supply chains, and in particular, how supply chains are evolving in response to significant disruptions related to both (i) mounting trade tensions in recent years, and (ii) the impact of COVID-19.

As someone that has worked in and around the industrials sector for a number of years, I was struck by the trends aimed at pulling back from decades of supply chain-focused cost reduction initiatives…namely low-cost country sourcing (China in particular) and just-in-time (JIT) inventory management systems. Survey respondents indicated that while costs will continue to be a prominent consideration for purchasing executives, there is a new reality in which the value of supply chain reliability must be weighed against the higher costs that come with it.

Some of the survey’s key findings include…

  • 93% of the executives surveyed indicated they are either implementing or strengthening contingency plans to address future disruptions
  • 43% of respondents with operations in China have either already withdrawn from the country or are in the process of doing so, with another 16% considering it
  • For those companies exiting China, 74% are looking at reshoring some portion of operations to the United States, while 47% are considering Mexico and 24% looking to Canada
  • 70% of respondents expect that, as a result of the pandemic, companies will reduce their focus on sourcing from the lowest-cost supplier
  • Almost two-thirds of respondents believe companies will place less focus on JIT manufacturing models in order to ensure greater operational stability and resilience

Bottom Line

The negative effects of increasingly frequent and severe supply chain disruptions outweigh the cost savings associated with traditional supply chain models that have largely focused on low-cost country sourcing and JIT manufacturing processes. While costs will go up, the value associated with supply chain stability and resilience justifies those increased costs, at least in the near-term. The question remains where those increased costs will be absorbed, with higher prices to consumers likely to be at least a part of the answer.


Don Luciani

Partner, Investment Banking Practice Leader

If you missed our recent webinar, Financing Your Business in the COVID-19 Environment, or would just like to review or share the session, you can access the recording now via the link below.

Original broadcast date:

Wednesday, September 2, 2020, 10 a.m., EDT

About the webinar:

Is your business looking for financing as we rebound from the effects of COVID-19-related shutdowns and restrictions? Hear from our panel of experts on what to expect.

Join us as senior professionals from across the debt and junior capital markets provide an update on both current conditions and future expectations

Moderated by Amherst’s Co-founder Scott Eisenberg, this webinar also features insights from Frank Capella, Founding Partner at Oxer Capital; Steve Davis, Senior Vice President of Middle Market Banking at Comerica Bank; Michael Egan, Partner, Executive Vice President, and Chief Credit Officer at Monroe Capital; and Doug Winget, Executive Vice President, Huntington Business Credit, Huntington Bank.


The onset of the COVID-19 pandemic in March 2020 impacted all aspects of the U.S. health care system to varying degrees.

Some providers, including physician and dental offices, experienced practice closures (with the exception of emergency procedures) for several months, and, to the extent they were unable to pivot to virtual care, saw revenues decline precipitously (e.g., by as much as 80% in April, according to one account). Others, such as acute care hospitals, saw elective procedures, which typically generate a large portion of hospital profits, cancelled entirely to prepare the hospitals for the expected wave of COVID-19 admissions through their ERs. It was feared, and in some cases the fear was borne out by experience, that patients experiencing COVID-19 symptoms severe enough to warrant visits to emergency rooms and subsequent inpatient admissions would outstrip available hospital beds and other resources.

On the other hand, the home health and hospice experience has been, in general, quite different. All things considered, home based care and care “brought in” to senior care communities (independent living, assisted living) has proven to be very resilient in the COVID-19 environment.

Home Health Care, Hospice and Personal Care Services

In addition to the introduction of CMS’s Patient Driven Groupings Model (“PDGM”, effective January 1, 2020), the COVID-19 pandemic presented significant challenges to home health and hospice operators, though the impact on operational and financial performance has varied depending on size and scale of the company, service line, geography, site of care, and the preventative actions taken.

Home health care (i.e., skilled care) experienced, in general, a significant decline in patient admissions (as much as a 33%, according to some estimates) as many referral sources, such as acute care hospitals, were locked down or limited as to the procedures they could perform, thus reducing or eliminating the patients that would otherwise have been discharged to home with physician orders for home care services. Broadly speaking, hospice care experienced only a modest decline in volumes (estimated 10% reduction in weekly admissions) but has, for the most part, recovered to pre-COVID-19 levels.

Personal care services also experienced a modest decline in volumes based on anecdotal evidence of (i) visit cancellations by patients due to fears over COVID-19 exposure from caregivers, (ii) decline in available caregivers due to, among other things, schools being closed down and caregivers having to take care of their children, and (iii) senior care communities preventing visits due to COVID-19 lockdown. Even well-resourced strategics saw a dip, with Addus Homecare witnessing a 5% to 10% decline in admissions.

In general, providers with access to adequate supplies of personal protective equipment, good controls in place with respect to their clinical and non-clinical staff, and well-developed contingency plans, seem to have rebounded quickly from any softness in their businesses. Additionally, to the extent that they were already utilizing, or able to quickly adopt, technology (e.g., remote patient monitoring and telemedicine) as part of patient care, health care interventions occurred sooner. As a result, patients were able to stay in place through medical episodes as opposed to having to transfer to the emergency room.

It is no surprise that, like PDGM, the impact of COVID-19 on home care services providers was most acutely felt by the smaller, less sophisticated industry participants.

Amherst Home Health Client

In terms of providing specific evidence of the performance of some home health care companies through COVID-19, we can look anecdotally at a current Amherst client, a multi-state, geographically diverse, Medicare provider of home health and hospice care, as well as personal care services, which Amherst expects to bring to market in the coming months.

As it relates to the home health and hospice business, the overall patient volumes remained relatively steady. Some the Company’s agencies saw slight declines in patient volumes, primarily due to the inability to visit patients in certain senior communities whose operators did not allow outside care providers to enter their facilities during COVID-19, and the reduction of referrals related to elective surgical rehabilitation. However, other agencies experienced an uptick in patient volumes. Management attributes the Company’s overall steady performance during the COVID-19 pandemic to the strength of its referral relationships, the confidence those referral sources have in its clinical outcomes, and the commitment of the front-line workers to care for its patients. With respect to the personal care services, the Company experienced a modest decline in volume in March and April but has seen patient volume return to pre-COVID levels in May and June.

The Company’s performance under the new PDGM reimbursement model has been net positive, as the Company was well prepared to operate profitably within the new therapy guidelines of PDGM, while still providing high quality of care for its patients to ensure positive clinical outcomes.

The Company has a strong, experienced management team, robust clinical and administrative systems, and an extensive referral network across all agencies. As a result, it was well prepared for the commencement of PDGM and was able to address the issues created by COVID-19 rapidly and with good effect.


While parts of home health and hospice have been negatively impacted by COVID-19, overall performance has been good, and, to the extent that volumes took a hit in the March to May timeframe, they have shown signs of a strong rebound.

Home based services, including those brought into senior living communities, continue to grow because of their cost advantage relative to traditional institutional facility-based care, such as skilled nursing facilities. Technology, such as telemedicine and remote patient monitoring, as well as advances in bio-pharmaceuticals and medical devices, enable seniors to live at home for much longer than was previously possible.

Importantly, consumer preferences on the part of both seniors and their families are to have patient care, including skilled care and hospice, as well as assistance with activities of daily living, provided in the home, assuming that is the most appropriate site of care. This trend to keep patients and residents out of facilities and in the home will only grow stronger as the younger Baby Boomers, Gen X and Millennials reach the ages where the need for medical and personal care assistance makes delivery of services in the home an important option.

Like other areas of health care, the future appears to favor providers with scale, geographic diversification, service line/revenue diversification, consistently strong clinical outcomes, sophisticated administrative operating systems, and multi-pronged growth strategies. Fueled by the strong industry tailwinds that have been further amplified by COVID-19 (i.e., preference for aging in place combined with providing care in a lower cost setting), Amherst expects to continue to see significant consolidation within the home health and hospice industry for the foreseeable future.


John Patterson

Managing Director, Healthcare Industry Team Leader

Marc Gondek

Director, Investment Banking

The US Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP”) funding began on April 16, 2020 and has since distributed more than $500 billion to more than 4.6 million companies.

Now, two months later, many companies have utilized most or all of their funds, leaving them without a safety net and uncertain of what to do next.

The SBA’s initial guidance dictated that recipients had to deploy the funding within eight weeks and utilize a minimum of 75% of the funds for payroll to qualify for forgiveness. While the timeframe to use the funds has now been extended to 24 weeks, this change came after many companies (relying on the initial framework) already spent most, if not all, of their funds. Payroll, rent, and utilities were effectively covered by the PPP funding, allowing many companies to generate positive cash flow during this period and increase their cash reserves and availability on lines of credit. In fact, despite the precipitous downturn created by COVID-19, many commercial bankers recently reported that a number of their customers are borrowing less and have more liquidity right now than they did at the beginning of the year.

But what to do now as the money runs out? The impact of the pandemic on businesses will vary widely based on industry and geography and, for many, the pace of the recovery and return to profitability will not come before the current liquidity cushion runs out. Businesses will fail as a result. In other cases, the need to pay down past-due suppliers and restart operations after extended shut-downs may be creating liquidity issues, even though revenue may have returned to profitable run-rates.

The excess liquidity from the PPP should provide a cushion even after the disbursement period ends, but now is the time to develop strategies to mitigate economic risk. Many businesses have been hesitant to prepare detailed plans because of the economic uncertainty, e.g., “Why bother putting together a forecast? We might as well just throw darts at a board!” While pursuing a “wait-and-see” approach is an understandable reaction, the amount of economic uncertainty we currently face is exactly why businesses should be throwing some darts, so to speak, and developing contingency plans (plural). Those who wait until the dust settles to evaluate strategy will probably be too late.

Earlier this year, we were in a position with several of our clients to proactively lay out strategic plans prior to receipt of their PPP funds, allowing them to work within the (then existing) parameters for loan forgiveness, while developing action plans to adjust and “right-size” infrastructure and operations immediately upon hitting the forgiveness requirements. This advanced planning allowed our clients to be in the best possible position for their new, post-COVID economic reality. Our recommended approach is the same whether a business just received its PPP funding or has already completed its eight-week (now extended to 24 weeks) expenditure period:

Management should first assess their current and short-term future liquidity, making sure to consider current cash on hand (net of all outstanding checks), current borrowing availability, expected receivable collections, and required disbursements. This is best accomplished through the financial industry standard “thirteen-week cash flow forecast,” which is a comprehensive, weekly cash forecast incorporating all of the previously noted variables. Multiple scenarios should be considered and, in businesses with significant seasonality, a longer outlook will probably be necessary.

Next, if liquidity appears to be an upcoming potential issue, management should immediately:

  • Review expected disbursements and distinguish “want-to-pay” from “need-to-pay” items
    • Be sure to include any new post-COVID costs (e.g., PPE, more frequent cleaning, increased employee compensation due to competing with unemployment compensation, etc.)
    • There should be no sacred cows when considering what expenditures can be eliminated or deferred
  • Assess labor mix and overall staffing levels to maximize net positive cash flow, and consider staff adjustments that can or should be made (likely implemented after the PPP expenditure period ends)
  • Reconsider upcoming capital expenses
  • Look for opportunities to increase and accelerate cash inflows
  • Investigate sources of new capital (e.g., increase in line of credit and/or more generous formula terms, new financing arrangements, etc.)

Finally, with their short-term liquidity issues resolved, management can turn their attention to ensuring long-term financial stability by ensuring profitable, cash-flow positive operations at new, post-COVID revenue level.

  • Post-COVID profit and loss forecasts should be created, with multiple scenarios considered
  • Focus on how to reduce fixed costs and achieve break-even or better profitability at various revenue levels
  • Consider selling underutilized equipment/facilities, and renegotiating and/or rejecting unprofitable revenue streams
  • Consider any possible opportunities to generate new revenue (e.g., craft breweries making hand sanitizer)
  • Review vendor relationships
    • Maintain good communication with vendors, especially if payables are being stretched
    • Management should pay close attention to the financial condition of its key vendors, since their financial problems can quickly become your problems

Throughout the process, it is important to ensure a stable relationship with lenders. This is especially important in the current environment where lending standards are getting tighter, pricing is increasing, and collateral valuations for machinery and equipment and real estate are under pressure.

  • Management should reach out to their lender(s) proactively, especially when loan modifications may be needed. Bankers tend to assume the worst in the absence of good communication and current information, so keeping them informed is key.
  • Present a comprehensive, realistic plan with well thought out, documented assumptions
  • Be prepared to offer accommodations to the lender (e.g., providing additional collateral or personal guarantees in exchange for lender accommodations). Lenders will typically not respond well to a plan where they are being asked to carry the bulk of the financial risk.

The most important take-away we can leave you with is that the sooner you begin planning, the better. Revisions to strategy are inevitable but are much more easily managed than trying to develop a strategy after a crisis has arisen. Businesses need to manage day-to-day operations, stay on top of the changing economic and regulatory conditions, and manage customers, vendors, lenders and employees – a challenge even during the best economic times.

You are not in this alone, though. Everyone is trying to weather the same storm to a greater or lesser extent, and we can take heart from past experiences that promise that this, too, shall eventually pass. In the meantime, please don’t hesitate to reach out to any of Amherst’s professionals to discuss questions you may have on this article, or any other matters for which you may require assistance.


Bruce Goldstein
Managing Director, Restructuring Advisory Services

Shareef Simaika
Director, Restructuring Advisory Services