Deals and acquisitions will still be made throughout the dental space but rapid consolidation might not be in the cards due to macroeconomic trends.
J. Hedrick, the CEO of Dallas-based Smile Doctors, recently made a big move with the acquisition of myOrthos, an orthodontic organization with more than 70 locations.
With the addition, Smile Doctors expanded its network to more than 550 affiliated practices, making it one of the largest dental groups in the U.S.
Each DSO that is thinking about consolidation will have to take their own view on things and consider how they want their organization to operate.
“I think it’s going to come down to what each DSO sees as the way they’re going to create value for their stakeholders,” Mr. Hedrick told Becker’s. “Are you going to create an organization that’s more vertical, or are you going to be a GP platform that tries to bolt on some really good specialty organizations? I think that can make a lot of sense.”
The size of an organization does not matter much unless that group is able to have the operations and efficiency to scale up successfully.
“The belief was people were going to aggregate these businesses just for the sake of size and scale,” Mr. Hedrick said. “The last few years have shown people that size and scale doesn’t really matter if you’re not an operating business with the data available, and the ability to have an organization that can respond to the data and react to the data. Size for the sake of size, is not really very valuable when it comes without an operating prowess and efficiency.”
However, if a group has that efficiency, and the larger DSO has a business plan in place, it may make sense for that larger company to come into the picture in terms of consolidation.
“When you get those things involved, or if you’re going to go more vertical, and you’ve got the ability to learn better specialty management or have a patient referral funnel throughout it, that’s when it makes sense,” Mr. Hedrick told Becker’s.
With the current market conditions, including interest rates and the dental labor market, the industry may not be seeing too many large consolidation deals, according to Mr. Hedrick.
“I don’t think growth for the sake of growth through large acquisitions is going to make a lot of sense, at least not right now to me, given the current still interest rate environment, some of the macro trends, some of the labor trends, I think we’re a little ways off from that,” Mr. Hedrick said.
