The dental industry is expected to continue experiencing consolidation, but the pace of mergers and acquisitions is subject to a few conditions.
Interest rates, the aging dental workforce and the infusion of private equity dollars are three key drivers of consolidation in the industry.
In 2024, venture capital deals in the oral health industry surpassed $400 million, and there has been more than $6 billion of venture capital invested into oral health since 2013, according to a report by CareQuest Innovation Partners.
These six dentists and dental executives recently connected with Becker’s to share their predictions on mergers and acquisitions throughout dentistry.
Note: Responses were lightly edited for clarity and length.
Question: What are your predictions/expectations in terms of mergers and acquisitions and consolidation within the dental industry going forward?
Corey Anderson, DDS. Dentist of Affordable Dentures & Implants (Bridgeport, W.Va.): I am not a prophet. However, I expect private equity and other third party investors to follow the profit. Where margins are larger, M&A activity will follow. Hopefully this does not strain dentist-patient relationships in the interest of third party financial gains.
Robert Baskies, DMD. Dentist of Dr. Robert Baskies (Phillipsburg, N.J.): If I were the CEO of a DSO what would I do and what do I have to do? I might be forced to sell if I owned the DSO for about six years. Private equity firms only hold the portfolio companies for about that long because most investment portfolios have to liquidate their holding and repay their investors. If I don’t have to sell because I am a long-term player then I would sit and wait to see. There is no more “cheap money” to buy dental practices. It is a difficult time to navigate. Inflation and the fear of rising prices will force spending on high-ticket dental procedures to decline.
As for the consolidation of the dental supply industry, this already happened. There are no more mom and pop supply companies. Dental labs have already consolidated because there is a very high cost of buying new technology.
Mike Davis, DDS. Dentist of Smiles of Sante Fe (Albuquerque, N.M.): M&A in the private equity industry generally and the DSO industry specifically are highly impacted by interest rates. In my viewpoint interest rates have been held artificially high by Federal Reserve Chairman Jerome Powell. Inflation as measured by the consumer price index has been dropping. Food and fuel prices are dropping. Current favorable economic indicators should demand a drop with interest rates.
However, the “great unknown” will be the economic impact of trade tariffs. This could mean a great boom to the US economy overall, a freefall into recession or more probably a mixed result with winners and losers. A drop with interest rates will spark increased borrowing by DSOs to expand current business activities inclusive of practice acquisition. By contrast, static interest rates or elevated interest rates would likely collapse several smaller DSOs and even one or two in the top ten.
In private conversations, I’ve been told of several DSOs which are overextended in specific demographics. They are in direct competition with their own brand in these locales. I expect a culling of such clinics.
Richard Huot, DDS. CEO of Beachside Dental Consultants (Vero Beach, Fla.): With at least five more years of late boomers retiring, there should be plenty of opportunities for mergers and acquisitions in the private practice sector, and also consolidation among DSOs.
The current prime interest rate of 7.5%, which is one point lower than July of 2023, and the same as December of 2022. For some buyers, that rate limits the type of buying they can do, unless they have alternate sources of capital. This is where the bigger DSOs and large group practices have an advantage, and there are some sales that are being financed internally by the sellers at a rate that benefits both parties.
Buying practices is still one of the most effective ways of growing an existing practice, and with the dental workforce shortages still persistent, a great way to pick up additional dental team members, who still wish to be employed.
Geith Kallas, DDS. Dentist and CEO of Smile Makers Dental Center (Tyson’s Corner, Va.): The dental industry is expected to see significant consolidation in the coming years, driven by various factors. The key drivers of consolidation include providing relief from practice debt and ownership, staffing shortages, private equity investments and the desire from dentists to focus on providing dental care.
Around the industry, predictions are centered around increased M&A activity, mergers and acquisitions are expected to intensify, with DSOs and private equity groups buying up and acquiring offices. DSOs are predicted to become a larger part of the industry, with market penetration expected to reach 75% to 80% over the next decade. The consolidation trend is expected to continue, with 75% to 80% of dental practices predicted to be affiliated with DSOs within the next decade. There are benefits for dental practices when it comes to consolidation including improved access to advanced technology, improved patient care and increased efficiency.
David Skelton. CFO of Flagship Specialty Partners (Charlotte, N.C.): I expect that we will continue to see transactions in dental, but the bar will be high due to the uncertainty around consumer spending, tightening credit, high interest rates, rising default rates, trade wars and the increasing potential for a mild recession. DSOs with high-performing doctors, solid operations, integrated platforms, healthy margins and favorable organic growth will continue to find buyers at reasonable prices, and DSOs that don’t meet these criteria will have difficulty achieving exits. There are companies looking to exit and private equity capital that needs to be put to work in growing sectors for the right opportunities.
