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Dentsply Sirona Inc. -- Moody's says Dentsply Sirona's acquisition of Byte has no rating impact

·10 min read

Announcement: Moody's says Dentsply Sirona's acquisition of Byte has no rating impact

Global Credit Research - 04 Jan 2021

New York, January 04, 2021 -- Moody's Investors Service, ("Moody's") commented that Dentsply Sirona Inc'.s acquisition of Byte, while strategically sensible, is credit negative as the company used approximately $1.04 billion of cash to fund the acquisition. While modestly deleveraging, the company has utilized substantially all of its excess cash to fund this acquisition. There is no impact on the company's Baa2 senior unsecured rating, Baa2 issuer rating, and Prime-2 commercial paper rating or the stable outlook.

Dentsply Sirona announced today that it has acquired Byte, a rapidly growing company in the direct-to-consumer clear aligner market, for approximately $1.04 billion which was funded with cash on hand. As of September 30, 2020, Dentsply Sirona had approximately $1.27 billion of cash and cash equivalents. The transaction multiple is high at 5 times Byte's 2021 revenue of $200 million (as projected by Dentsply Sirona). While the purchase multiple is high, Byte is profitable, and Moody's expects it will be accretive to earnings (excluding any one-time integration costs).

The addition of Byte's earnings will be slightly deleveraging, however the acquisition comes as Dentsply Sirona's leverage is elevated as a result of the coronavirus pandemic. Debt/EBITDA (as adjusted by Moody's) was approximately 3.9 times as of the LTM period ending September 30, 2020 and would be slightly lower on a pro-forma basis. Moody's expects Dentsply Sirona's sales and earnings will grow over the next 12-24 months, driving further deleveraging. Dental procedure volumes will recover, as most dental procedures will be deferred and not permanently cancelled. As a result, Moody's expects that Dentsply Sirona's debt/EBITDA will fall below 3 times in the next 12-24 months, though there may be quarter-to-quarter variability depending on the trajectory of the coronavirus pandemic and the pace of deployment of vaccines.

Moody's considers the Byte acquisition to be strategically sensible. The direct-to-consumer segment of the clear aligner market is rapidly growing, and this transaction will expand Dentsply Sirona's presence into this market. Further Moody's expects Byte's growth prospects will be enhanced now that it is owned by Dentsply Sirona, given the latter's significant scale, strong market position and geographic reach. For example, Byte currently generates most of its sales in the United States, while Dentsply Sirona has a global presence in more than 100 countries.

Dentsply Sirona Inc., headquartered in Charlotte, North Carolina, is a leading manufacturer of professional dental products and technologies. The company's products and dental solutions include leading positions and platforms across consumables, dental equipment, technology, and specialty products. Fiscal 2019 revenues exceed $4 billion.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Scott Tuhy Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Jessica Gladstone, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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