Dental industry consolidation is entering a new phase — one where groups absorb groups rather than DSOs picking up individual practices, according to Jeremy Behar, CEO of Canadian Dental Services.
For most of the past two decades, “consolidation” in dentistry meant one thing: a DSO acquiring a solo or small group practice. That model built some of the largest dental organizations in North America. But the next wave, Mr. Behar says, will be defined less by DSOs absorbing individual offices and more by groups of scale coming together.
Mr. Behar recently connected with Becker’s to discuss the impact of private equity and the future of DSO consolidation.
Note: Mr. Behar’s responses were lightly edited for length and clarity.
Question: How does being the only major dental group in Canada that is not PE-backed play out? Is that something that dentists appreciate and seek out?
Jeremy Behar: The answer is absolutely. By the way, the other four groups are good people and good businesses, but they’re different businesses. What I say to dentists is that you are going to go through the sale of your business once in your life. If it is with a DSO and not selling it to another doctor, you’re not only selling your business, but you’re establishing a relationship commitment. Do your due diligence. Get to know the people that are offering you a relationship. Don’t just get to know the money. Get to know what’s behind it, because for every seller, whether it’s a week, a month, or a year, at some point, the honeymoon of the check you put in your family’s bank account kind of wears off a little bit, and you still have to put your pants on one leg at a time every morning and go to work.
We have people who seek us out because today we’re the only Canadian-owned DSO. I would say that’s a little lower on the scale. I would say second, and more prominent, is that the investment world has got a bad rap today. It’s not that all PEs are bad, but some have generated bad reputations. Just like every DSO is not the same, not every PE firm is the same. We definitely have people who seek us out because we’re independently owned. We make decisions on resourcing and priorities that we believe support great healthcare, both in the medium and long term.
Q: Some of the largest DSOs in the U.S. now operate more than 1,000 locations. Is there a point where that scale stops making sense?
JB: I wouldn’t look at it purely from a numbers standpoint. I’d look at it from a value perspective. Here’s what I mean: Big company, medium company or small company is not the right lens to look at when you think about value for the team and the patients. What we need to look at is, at 30,000 feet, are they doing good for the industry; at 20,000 feet, the community they’re in; at 10,000 feet, the team they’re supporting; and at the ground level, the individual mom and dad and kids that are coming in every day.
That’s my rubric. There are 1,000-practice groups that I would say no, they’re not creating value, and there are 1,000-practice groups that I would say are unbelievable, kudos and hats off. I don’t think it’s the number, I think it’s the mission that the organization is on. Companies that are that big are generating enormous resources. The question is, are they putting them to good use or not?
Q: Where do you see dental industry consolidation heading in North America over the next few years, and what might surprise people about the pace of it?
JB: I think that we’re now in another chapter of sort of the evolution of our industry when you look at the last 20 to 25 years. I would say 10 years ago all DSOs were the same, and I would say today there is a fairly significant sort of disintermediation between healthy and non-healthy. At the end of the day, there is more carnage in our marketplace today; there are more troubled and challenged DSOs and situations than we’ve ever had for macroeconomic and microeconomic reasons.
If you look at all other industries over the last 50 years that have followed similar patterns to this industry, what happens as industries and sectors mature, right? You have a bunch of players that are big, and they get bigger. You have the small and mid-sized ones, though, that fall into these different categories of health and sustainability. Some of them will go away. Other ones, small ones, will get eaten up by medium-sized ones. They’ll be put on medium-sized platforms that help give them a better shot at running a good set of clinics, and then some of the mid-sized ones will come together to create bigger ones. Some of the mid-sized ones will go to some of the bigger ones.
The word consolidation used to refer to multisite dental businesses picking up individual practices. I think now we’re moving into an era where there will be consolidation definition number two, which doesn’t refer to picking up individuals. It’s where groups consolidate with groups, and so I think we now have multi-level consolidation, and that is the sort of era that we’re moving into.
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