Private equity funds are investment vehicles that pool capital from private equity investors such as family offices, pension funds, and high-net-worth individuals.

These funds aim to acquire and grow companies, often within stable industries like the dental sector, to achieve high returns.

In recent years, the dental market has been particularly attractive to private equity groups because of its potential for steady cash flow, operational efficiencies, and fragmented structure.

What are DSOs?

Dental service organizations (DSOs)—management companies that provide administrative support to dental practices—are a primary focus for private equity investments.

The DSO business model allows dentists to focus on providing patient care while delegating HR, billing, and marketing responsibilities to the DSO.

Why Private Equity (PE) Finds Dentistry Attractive

#1. Stability of Demand

Dental services are considered essential healthcare services, making the industry less vulnerable to economic downturns.

#2. Fragmentation

Many dental offices are independently owned, offering opportunities for consolidation into larger DSO platforms.

#3. Growth Potential

With advancements in dental care technology and an aging population requiring more medical services, the market is primed for expansion.

#4. Equity Arbitrage

By acquiring smaller dental companies and rolling them into a larger entity, private equity firms can increase the enterprise value significantly, creating opportunities for secondary sales or recapitalization.

How DSOs Fit into the Picture

A dental service organization acts as a partner for dentists, offering support in areas such as payroll, compliance, and marketing.

This partnership allows dentists to prioritize clinical tasks while the DSO handles business operations.

Some of the key benefits include:

• Better Access to Resources: DSOs can negotiate bulk pricing for supplies and equipment, reducing costs for affiliated practices.
• Streamlined Operations: By centralizing administrative tasks, DSOs create operational efficiencies that can improve a practice’s financial performance.

DSO Deal Structures

Sale Structure	Description
100% Sale	The dentist sells the entire practice, often transitioning into an employee role.
Joint Ventures	The dentist retains partial ownership, typically 10%-40%, while selling the majority to the Dental Service Organization (DSO).
Equity Rollovers	Dentists sell their practice and reinvest a portion of the proceeds into the DSO for future growth opportunities.

When a dentist decides to partner with a DSO, several models are available:

Related article: Thinking of Selling Your Dental Practice to a DSO? Read This First

The Appeal of Private Equity to Dentists

For Late-Career Dentists

Dentists nearing retirement often find DSOs appealing for the following reasons:

• Simplified Operations: By outsourcing administrative tasks, they can focus solely on dental procedures they enjoy.
• Maximized Sale Value: DSOs often pay above fair market value, offering higher payouts than individual buyers.
• Transition Opportunities: Dentists can gradually step away from the practice, ensuring continuity of patient relationships.

For Mid-Career Dentists

Mid-career practitioners are often motivated by:

• Immediate Liquidity: The sale of a portion or all of their practice provides cash to pay off debts or invest in other ventures like real estate.
• Relief from Management Stress: DSOs manage staff members, regulatory compliance, and marketing, alleviating the burdens of being a business owner.

For Young Dentists

Recent graduates face unique challenges, including substantial student loan debt. Partnering with DSOs offers:

• Job Security: Competitive salaries and benefits packages make DSOs a stable entry point into the profession.
• Professional Development: Many DSOs provide extensive CE opportunities, helping young dentists refine their skills.

Concerns About Private Equity in Dentistry

Despite the benefits, private equity-backed DSOs are not without controversy. Common concerns include:

• Quality of Care: Critics argue that the focus on profitability may sometimes compromise patient care and clinical autonomy.
• Loss of Autonomy: Many dentists struggle with relinquishing control over their practice operations.
• Decreased Flexibility: Contracts often include restrictive clauses, such as non-compete agreements and performance targets tied to payouts.

Legal and Regulatory Scrutiny

The Federal Trade Commission (FTC) and the Justice Department have taken an interest in the rapid growth of DSOs.

Issues such as antitrust reviews, Medicaid fraud, and the erosion of the corporate practice of dentistry restrictions are being closely monitored.

Key Considerations for Dentists Exploring Private Equity

Before entering into a partnership with a DSO or private equity-backed group, it’s essential for dental practice owners to evaluate their options carefully:

1. Understand the Terms: Thoroughly review the purchase agreement, including payout structures, administrative fees, and contract obligations.
2. Seek Professional Advice: Engage with legal counsel and financial advisors to navigate the complexities of private equity transactions.
3. Align Personal Goals: Consider how the partnership fits into long-term objectives, such as retirement planning or expanding services.

The Future of Private Equity in Dentistry

The rise of DSOs represents a significant transformation in the dental sector, with no signs of slowing down. Kyle Francis, an industry expert, predicts continued consolidation, with private equity money flowing into both large and small dental organizations.

This growth is fueled by the industry’s stability and potential for high returns, making it a lucrative focus for pe firms.

Final Thoughts

The intersection of private equity investments and dentistry offers both opportunities and challenges. For some, partnering with a DSO provides financial relief and operational support, while others may find the loss of autonomy unsettling.

Whether you’re an oral surgeon, pediatric dentist, or general practitioner, understanding the nuances of private-equity-backed DSOs is critical.

Navigating this evolving landscape requires informed decision-making, supported by future research and guidance from trusted professionals.

As the winds of change continue to reshape the dental market, dentists must weigh the benefits and drawbacks to find the best deal for their unique situation.