Tooth straightening startup SmileDirectClub is set to close its operations after a potential deal to save the struggling company fell through. The company had filed for bankruptcy in September and had been in negotiations for its founders to inject fresh capital and buy the company out of Chapter 11. However, SmileDirectClub was unable to secure the needed support from its major lender, HPS Investment Partners, and other creditors, leading to the breakdown of the deal.
Over the past two months, the company had actively sought bidders, but all potential suitors withdrew or submitted unworkable bids. The proposed sale to the founders, which emerged recently, was contingent upon the support of HPS Investment Partners and lower-ranking creditors. However, Attorney Spencer Winters described this bid as a desperate “Hail Mary” attempt.
SmileDirectClub’s fortunes had taken a sharp downturn despite its initial public offering (IPO) valuing the company at $8.9 billion in 2019. The company struggled with declining revenues and failed to turn a profit. It also faced a legal battle over patents with a rival, leading to drastic cuts in sales and marketing, compounded by the pandemic-induced shutdowns.
At the time of its bankruptcy filing, SmileDirectClub had accumulated nearly $900 million in debt, with $138 million of it linked to HPS. The lender has a claim to the company’s receivables and intellectual property.
Although efforts were made to find a buyer for a going-concern sale, the company ultimately failed to secure a solution to keep it afloat. With the closure of SmileDirectClub, the tooth straightening industry will experience a significant shift, leaving room for other players to step in and compete in this market sector.
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