DSOs could continue to face high interest rates and market volatility that will test their financial stability, according to one executive.
Ian Mcnickle, the co-founder and CEO of Icon Dental Partners, recently joined Becker’s Dental + DSO Review Podcast to discuss current trends in the DSO field and his outlook for the economy.
Note: Responses were lightly edited for clarity and length.
Question: What’s your current outlook on where the economy is headed and how that’s going to affect DSOs?
Ian Mcnickle: I wish I had that crystal ball. Not to be political, but I am not a fan at all of this current White House administration. I think they are volatile, they’re unpredictable, and markets hate that. The stock market is not the same as a business. When you have a volatile political environment and you don’t know what’s happening and interest rates are going up, the cost of living is going up, inflation is going up, it makes it hard for companies in general to make investments and large strategic decisions. So, people tend to hunker down and just wait until the storm passes. The problem with that is, for our industry, to really start seeing some recaps and some deal flow, we need some predictability and interest rates to drop, and unfortunately, it looks like they’re probably going to start going back up again almost entirely because of what this White House is doing. It’s a lot of self-inflicted shots to the foot, so to speak, so I’m hoping that will get under control over the coming months, and hopefully not much more than that, but we shall see. If we can get some predictability in the markets, I think that could help interest rates, hopefully, and contain costs of inflation, so we’ll see. It’s something that certainly makes me nervous, in terms of, when are we going to get some relief on these interest rates? I don’t see it happening this year, to be honest. I’m hoping next year, but who knows. We’ve all been thinking that for years now, and it really hasn’t. So, it’s definitely the new normal. I just don’t know how long it’s going to last.
Q: What are you most excited about when it comes to dentistry, and is there anything else making you nervous about the field?
IM: I’m still bullish about the industry. People always need to go to the dentist, right? We are always going to have teeth, so dentistry historically has proven to be pretty resistant, pretty robust to ups and downs in the economy and recessions and things like that. Roughly half of the country doesn’t see the dentist on a regular basis, and that hasn’t really changed too much over the decades, so there’s no reason to really expect it’s going to change in the future, but there’s a big marketplace out there. To me, as long as you focus on supporting your providers, your doctors and your inner clinical staff, giving them the training and the support they need, I think you can still have very successful practices that are still profitable in this environment, and our practices are doing pretty well.
The fundamentals of the dental industry are good. I think it’s a great industry to be in. We’re excited to be a part of it. I just think there’s a lot of untapped potential. It’s going to be interesting to see what happens with AI. Everybody’s talking about AI, that’s an obvious buzzword, and it is starting to have some impact in some areas. But again, we’re in the very early stage of what AI is going to be able to ultimately do, so I’m very much excited, probably like everybody, to see what kind of tools emerge over the coming months and years that really make it more efficient, more profitable to run a practice because we have a lot of things working against our margins right now. Payroll just keeps going up with staff salaries, labs and supplies are more expensive — everything gets more expensive over time. To fight that, we need to be smarter. We need to have economies of scale to negotiate, we have to get more efficient and productive within the practice. That’s where AI can certainly help. There are always going to be challenges. It’s never going to be totally smooth sailing, right? But I think fundamentally, I feel good about where we’re at, especially within Icon. I feel like we’ve got a really strong business model and a strong team, so I’m pretty excited about that, even though there are a lot of headwinds like we talked about.
Q: What will the most effective healthcare leaders need to be successful in the next two to three years?
IM: Any group, if they can figure out how to leverage their scale with negotiations — be it insurance companies, suppliers, labs, things like that — taking advantage of scale will be helpful, and I think you’re starting to see some DSOs buying each other, merging with each other, and that will help them ultimately. It may not have a big boon to their stock valuation, but it certainly can help them in other areas — with efficiency, with negotiating power, and so forth. I think leveraging scale for groups is going to be important.
The folks who can figure out how to attract and keep hygienists are going to be ahead of the curve, and that’s easier said than done. We don’t have any magic bullets at Icon. We’re struggling like everybody else. We’re having our wins, we’re having our losses, but we keep trying to work on that issue.
The last thing I would probably say is really going to be important is managing the debt and the balance sheets. A lot of groups are in trouble because they’re pretty over leveraged. It’s interesting when interest rates are low and debt’s cheap, and people are just buying practices right and left. That was what happened obviously pre-COVID, and even a little bit during the early stages of it. Those days are kind of — I don’t know if they’re gone, but they’re certainly on hold, and so it’s forced a healthy refocusing on balance sheets to get that debt under control to focus on organic growth and operations. I think the most effective dental leaders are going to have to get really good and dialed in at operating their practices as a business, and I don’t mean that in a bad way. We are all about clinical autonomy. Our doctors have full control over their clinical decisions and labs and supplies and whatnot, but you can have your cake and eat it too. You can run a very effective and efficient practice while delivering great healthcare to your patients and having a good culture for your team. They’re not mutually exclusive. So, to me, that’s where you’re going to have to be really dialed in — running efficiently, don’t have a ton of debt and figure out how to grow organically. I think if you can do that, you’ll be in pretty good shape.
At the Becker's 5th Annual Future of Dentistry Roundtable, taking place September 14-15 in Chicago, dental leaders and executives will gain insights into emerging technologies, practice growth strategies and the evolving landscape of dental care delivery, with a focus on innovation, patient experience and operational excellence. Apply for complimentary registration now.
