Various approaches to dental practice acquisitions have created a dividing line between DSOs that are able to weather economic turbulence and those that struggle to stay afloat.
Ashish Bagai, co-CEO and head of business development at Vitana Pediatric & Orthodontic Partners, recently spoke with Becker’s to discuss how dentists’ expectations for DSOs are evolving, and what organizations are getting wrong about dentist partnerships.
Note: Responses were lightly edited for clarity and length.
Question: How have the expectations of dentists seeking a DSO partnership evolved over the years?
Ashish Bagai: The peak valuations were probably around 2021, given where the interest rates were and the buyer appetite at that particular time. What dentists expect now is a certain level of service and a certain valuation because of the transparency that has come into the market as a result of advisors, bankers and brokers that have brought a lot of information and a lot of support for the doctors to get armed with information of what they can and should get. There’s a lot of transparency. With that comes a level of support and the expectations of growth in both their practice as well as any sort of rollover they participate in. Most groups would now have that rollover for the dentists to come in on, so the expectation is for that portion to grow beyond what their practice does.
What most dentists are looking for now is income repair. That’s another expectation, saying “Sure, I sold my practice or a portion of my practice, but how can I get to that same annual income somehow to be able to sustain, even though I’ve gotten money up front?” I think income repair is one of these concepts that more and more dentists are expecting, or at least hoping for, as they go through a partnership.
Q: In your opinion, are most DSOs meeting these expectations?
AB: I think maybe in the last three to four years, there’s probably been a shakeout with regard to some that have done really well, and some that maybe have not done so well. I think the days of, “Let’s buy as much as we can and hopefully get a higher multiple” are gone. I’m not judging either way whether it’s a good strategy or not, but the market allowed that strategy to work maybe five to 10 years ago. Those have not performed well recently, just because the borrowing costs and the multiples on the sell side and buy side have sort of come together and shrunk. That gap has shrunk, so the math doesn’t work well. I think those DSOs struggled. I think the ones that were really focused and stayed on organic growth [and that have] been moderate with acquisitions or partnerships but really focused on support and driving that growth post-partnership, have shown that they have what it takes to sustain different economic conditions. There’s probably been a shakeout and a polarization of where those groups sit now as a result of market conditions.
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