Private equity isn’t going anywhere in dental M&A, but the buyers around it are starting to change.
Five executives say the next wave of dealmaking will bring longer-term capital, a possible IPO window for the largest DSOs and new entrants like health systems, payers and urgent care groups looking to get into dental.
These dental executives joined Becker’s Future of Dentistry Roundtable Sept. 14-15 to discuss how dental M&A is evolving.
Note: Responses were lightly edited for clarity and length.
Question: Will private equity continue to be the dominant force in dental M&A, or do you expect new types of buyers and capital sources to emerge?
Miguel Mireles. Director of Investment Banking at Skytale Group: Yes, without question private equity will continue to be a dominant source because you’re either private equity standalone ownership or there’s private equity-backed strategics that are acquiring you. Obviously, there are some exceptions to that, but I think you’ll continue to see them as the dominant force. You’ll also continue to see other groups start to emerge, whether it’s vertical integration plays, tangential health services — we’ve had urgent care groups look at some of our pedo groups as well.
I would love to see one of the top — as far as size — DSOs have a successful IPO over the next two to three years because you may not think of the public market as a buyer, but it is an exit and liquidity event for these larger DSOs, which we all know have had trouble trading over the last two to three years just given the interest rate movement from 2021-2022 to where it is now. So, I’d say absolutely PE will be the dominant player, but we’ll continue to see other groups get creative to get into dental.
Mandy Gast. Chief Development Officer at Lone Peak Dental Group (Denver): We’ve already seen some insurance payers buying up dental groups. I don’t think dental is immune to having health systems want to start to do the same again. It’s a network, it’s a farm [and] it’s a feeding and referral animal for them. I think PE will remain dominant, but I think the life cycle and ideology behind it will change. Instead of it being three to five years, it’ll be more of a five- to seven-year or seven- to 10-year type of play … I think the end game is having the public be buyers, having some of the larger groups go IPO, so we can put more capital into the market.
Ashish Bagai. Co-CEO at Vitana Pediatric & Orthodontic Partners (Plantation, Fla.): I agree about private equity still being dominant. I think there’s no replacement capital pool at that scale that’s going to take that over the next foreseeable future. Patient capital is probably going to come in more, so longer duration private equity. Not all private equity is the same, whether it’s family offices with longer-term holds — We’re certainly part of a long-term hold structure, which I think gives us and anybody else involved in that structure [an] advantage to build businesses the right way. In a world where financing is not the way forward, it takes a longer time to operate, so having patient capital on the private equity side is probably going to be the winner out of this.
Jeff Ungrund. Vice President of Affiliations at Heartland Dental (Effingham, Ill.): I think the patient capital is accurate because there’s a lot that can happen in a five-year window when it comes to things that are out of your control and a lot of variables. I think you’re seeing that now, the people that have been patient and sort of weathered the storm, and operated their core business and didn’t have to grow just to grow, are the ones that are coming out far stronger on the other side.
I also think buying businesses with the lens that you’re not buying them to transact them in two years, you’re buying long-term stable, good assets that you are going to own and operate for 20 years and are going to be desirable for, not just the dentist that’s in there, but the next dentist and the next dentist. Therefore it lessens your need on recruiting and the risk you run on recruiting because you can buy strong assets in markets that are not recruitable long-term or are very difficult to recruit long term. I think stability is what’s playing out, and patience is key.
Murat Ayik, DDS. Partner at Specialty1 Partners (Houston): This was all started by PE back in the day. That was the backbone. It’s going to be led by pe. How is [the market] going to be diversified through IPO? I think Park Dental went IPO this past six months to a year ago. They’re doing well. That is the future. But, potentially, you also have to look at the acquisition side when you’re acquiring from the dentist. They want to increase the equity value of their office. That’s the main reason why everybody’s being acquired by a DSO. Instead of a traditional type of cash debt, rollover equity, it might be a little less of rollover equity [and] a little bit more of the doctor who is selling owning their office so they can have some sort of a distribution effect. Some doctors don’t want to wait five to seven years to get a distribution right, so if they can potentially have some sort of a skin in the game directly at their office, that will be a potentially different type of deal structure moving forward.
