Dentsply Snaps Up Byte For $1.04B; Top Analyst Sticks To Hold

Dentsply Sirona has bought teeth aligner company Byte in an all-cash deal for $1.04 billion, in a move to expand its business growing market for online orthodontic care.

Specifically, the dental technology supplier believes that the combination with Byte and its SureSmile clear aligner business will help connect more patients with dental professionals and ease the access to oral healthcare. Dentsply (XRAY) expects the deal to be immediately accretive to its revenue growth rate and non-GAAP EPS in 2021. The acquisition is projected to generate non-GAAP EPS accretion of at least $0.05 in 2021 and be incrementally accretive in the years thereafter. The net present value of the tax benefits associated with the transaction is estimated to be about $160 million.

The transaction, which closed on December 31, 2020, was funded with cash on Dentsply’s balance sheet.

Byte has developed an online business model for the direct-to-consumer clear aligner market. The company’s doctor-directed system provides customers with access to at-home clear aligners kits for teeth. Headquartered in Los Angeles, Byte has over 450 employees and runs a nationwide network of licensed dentists and orthodontists that prescribe and oversee every customer’s treatment plan.

Jorge Gomez, Dentsply’s CFO commented, “As we bring the two businesses together, we are confident that we can unlock incremental growth and further capitalize on the increasing consumer demand for clear aligner solutions. In addition, we expect the acquisition to be accretive to Dentsply Sirona’s long-term financial commitments as we continue to focus on driving growth and value for our shareholders.” 

Dentsply said that the acquisition comes amid expectations that the clear aligner market will increase at a 20%-25% growth rate in coming years. The company expects Byte to generate 2021 run-rate sales of at least $200 million. Combined with the SureSmile business, which has a projected revenue run-rate of $100 million by the end of 2021, Dentsply now forecasted the combined clear aligner revenue run-rate to triple to more than $300 million by the end of this year.

Commenting on the deal announcement, Barrington Research analyst Michael Petusky, said that “in addition to the materially enhanced scale, this transaction allows the company to more fully participate in a marketplace that is likely growing faster than any other in dental.”  

However, Petusky continued to maintain a Hold rating on the stock as although he likes the transaction and believes that it “holds the promise of helping the company to both accelerate its top line and drive margin expansion, we do not see the current valuation of XRAY as super-compelling given the near-term uncertainties associated with a still very challenging COVID-19 backdrop.” (See XRAY stock analysis on TipRanks)

Overall, the rest of the Street is in line with Petusky’s outlook. The Hold analyst consensus is based on 5 Holds, 1 Sell and 3 Buys. The average price target stands at $55 and indicates 2.3% upside potential over the coming 12 months.

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