Rising buildout costs, higher doctor compensation and a more competitive patient acquisition market have made the de novo runway longer and more expensive. For many DSO leaders, that math has pushed acquisitions to the front of the priority line.
The case that leaders make for acquisitions goes beyond cost. What a well-run practice carries with its patient relationships, community trust and an embedded team, takes years to build and can’t be replicated by spending more on marketing.
Here is what five DSO leaders said about their growth calculus and why the intangibles matter as much as the investment.
Note: Responses were lightly edited for clarity and length.
Question: Are you finding more value in building de novo locations or acquiring existing practices right now, and has that calculation changed over the past year?
Rutulkumar Barot, DDS. CEO of Altius Dental (Arlington, Texas): We are finding greater value in acquiring existing practices, and the economics have made that preference stronger over the past year. The key consideration is the total capital and time required to build a sustainable, profitable practice.
With a de novo location, the investment goes well beyond construction. Buildout, equipment and supply costs have increased, while higher doctor compensation adds to the operating expense before the practice has an established revenue base. At the same time, attracting new patients has become more expensive and competitive. Together, those factors can extend the time needed to reach breakeven and increase the capital required to support the practice during its ramp-up.
An acquisition provides an existing foundation: an equipped facility, an established patient base, a team and ongoing revenue. Just as valuable are the patient relationships, community reputation and culture that a successful practice has developed over many years. Those assets take time to build and cannot be replicated simply by spending more on marketing.
We still see a role for de novo growth in the right markets. But today, acquiring a well-run practice at a disciplined valuation generally offers us a more attractive balance of investment, risk and speed to profitability.
Phil Cassis. Co-founder and CEO of Providence Dental Partners (Atlanta): Every organization’s business plan is different and each approach has its pros and cons. Some organizations prefer de novos and have built their teams and expertise around that strategy. Our model is built on acquisitions and partnerships and that remains unchanged for PDP. An established practice gives us a partnered doctor, an existing patient base, a seasoned team and a track record of business success to build upon. The market remains competitive, so we are increasingly selective about fit, provider continuity and culture. We remained focused on quality over quantity and long-term sustainability through an acquisition/partnership model.
Jay Glazer. Director, Business Development at DC Dental (Baltimore): Most groups are finding more value in acquiring existing practices right now than in pure de novo builds, and that preference has strengthened over the past one to two years.
Sam Jenio. Vice President of Strategic Partnerships and Procurement at EPIC4 Specialty Partners (Scottsbluff, Neb.): For us, acquisitions continue to be the more attractive path to growth, but it really comes down to the individual opportunity. When you acquire an established practice, you’re buying an existing patient base, cash flow and a doctor relationship. You also have a much better understanding of what you’re getting on day one. With a de novo, you’re investing upfront and building the patient base over time, with more uncertainty around how quickly you get to profitability.
I don’t think that calculation has changed dramatically over the past year. What has changed is the importance of being disciplined about where you put your capital. Not every acquisition is a good acquisition, and not every market needs another office. We’re focused on finding the right doctor partners and practices where we believe we can build on what’s already there. De novos can make sense in the right circumstances, but we don’t believe growth for the sake of growth creates value.
Antonio Molina, DDS. Partner at Guardian Dentistry Partners (Miami): I’ve always preferred to acquire existing practices. They are easier to project future revenue from due to their track record. When coupling that with partnering with the existing/previous dentist, it creates stability.
