Turnarounds

Castle was formed in 1981 by Jack H. Castle, D.D.S. as a single-location, multi-specialty dental practice. Over the next 15 years, Dr. Castle expanded the company to 10 clinics operating in Houston. After an initial public offering in 1997, Castle’s management team pursued an aggressive expansion strategy and opened or acquired more than 60 new dental clinics across four states.
By 2001, Castle had depleted all its cash and incurred substantial indebtedness in executing its growth strategy. Unfortunately, an inability to realize lofty sales and profit projections left Castle unable to service its debt. Faced with rapidly deteriorating financial performance, Castle’s board replaced senior management and attempted to stabilize the business by reducing costs and closing unprofitable locations. In early 2003, having stabilized the business, certain of Castle’s senior lenders were willing to sell their debt at a deep discount. In response, Castle’s new management began a process to seek new equity capital to recapitalize the company. Sentinel prevailed in a limited auction due to its multi-unit retail experience, strong rapport with management, and its longstanding relationship with one of Castle’s lenders. Following Sentinel’s investment, Castle remained a publicly traded company.

• To acquire a dental services platform with a recognized brand at a favorable valuation
• To invest in a recession-resistant industry with a promising growth outlook fueled by favorable demographic trends
• To acquire a business with the potential to generate strong growth with sustainable unit economics in a sector that was temporarily out of favor with many investors

Rightsized Castle’s Balance Sheet: Sentinel’s investment allowed Castle to reduce its senior debt by approximately 70%, providing management the flexibility to operate and grow the business.

Stabilized the Company: After several years of uncertainty, management turnover, and the presence of turnaround consultants at Castle, Sentinel stabilized the business, which enabled its employees to focus on operating clinics and providing best-in-class patient care.

Restarted Growth: Following the closing, Sentinel worked closely with management to implement operational initiatives to improve clinic-level performance as well as to launch a new incentive program to better align incentives for both management and clinic-level employees. These initiatives helped Castle return to its historical growth trajectory.

After restructuring Castle’s balance sheet and completing an operational turnaround, Sentinel received several unsolicited inquiries from strategic buyers, who had been closely watching Castle’s progress. In June 2004, Castle was sold to Bright Now! Dental, Inc., in a highly successful transaction for Sentinel, management, and the public shareholders.