kicked off strategic reviews, which are the investment banking equivalent of sticking a “For Sale” sign in the front lawn. Both companies grew by rolling up smaller rivals – in dentistry and IT consulting, respectively. Both saw their share prices drop by more than 60 per cent over the past year, triggering November’s board reviews.
Market leaders such as Constellation and Couche-Tard continue to expand through ever-larger acquisitions. But smaller roll-ups stop rolling when their share prices tank and cheap capital, in the form of low-interest-rate loans, dries up. Mr. Young said Converge had failed to meet investors’ expectations when it came to integrating acquisitions and striking new contracts with clients.
Dentalcorp faces the same valuation challenges. Shares in the Toronto-based company, backed by private equity fund L Catterton, currently trade at 8.5 times its forecast EBITDA, according to analyst Douglas Miehm at RBC Capital Markets. Comparable U.S. companies command a valuation of 18 times EBITDA. “The decision to conduct a strategic review process is likely due to the significant decline of the stock, and de-rating of the stock versus peers,” Mr. Miehm said in a report.