As dental consolidation continues to move forward, there is a natural maturation cycle that also takes place. In the early stage of dental consolidation, it was primarily a "land grab" whereby private equity groups (PEGs) were acquiring practices, each with their respective earnings before interest, taxes, depreciation, and amortization (EBITDA). Once they reached a certain size, they would sell that "bundle" of practices to the next PEG.
Ryan Mingus.
Usually, the second PEG owner would specialize in operationalizing the bundle of practices, optimizing the platform, and extracting incremental profit along with continuing to grow through the acquisition of new practices. The larger the dental service organization (DSO) becomes, the more important it is for there to be real operational improvements, expense management, marketing expertise, and many other services that capitalize on economies of scale and centralized services.
Tusk Partners predicts that we are approximately halfway to full maturation of the dental industry. Full maturation does not mean full consolidation, because there will always be unaffiliated practices and groups in the space. We estimate that full maturation would result in 65% to 80% of the market being affiliated with a DSO and the remainder being unaffiliated.
What does this mean to an owner who is interested in affiliating with a DSO?
Simply put, it means that there are more options than ever and that the landscape is much harder to navigate than in the early stages. In the early stages, all groups were new; however, now we have groups that were started 20 years ago as well as groups that are looking for their first acquisition! Because there is still a good runway in the industry and dental performed well through and after the pandemic, it is still attracting new PEGs.
Through our process, we identify our clients' goals and pain points. Some clients want a hands-off partner (an invisible DSO), while others want a group with a full-service offering, including boots-on-the-ground operational support. There have never been more options available to a seller.
The formula
The key to maximizing a valuation is to find two parties that fit together perfectly and where 1 + 1 = 3. This requires a seller that has upside in their business or value to add to the DSO, and it requires a DSO/buyer that can unlock that upside. For example, if you have unutilized operatories in your practice, then you are not at full capacity at your facility. This is a very attractive variable to the right DSO.
One size does not fit all
Tailoring the perfect match for your business involves a comprehensive survey of the entire market. With an expanding pool of potential buyers, it becomes crucial to hire an adviser who is well versed in the operational and cultural DNA of the ever-changing buyer landscape. This strategic approach not only accelerates the partner selection process but also conserves your time while optimizing the overall value of your business. Partnering with the best partner for your business can allow you to receive the value you deserve for your life's work.
Ryan Mingus is managing director of Tusk Partners and has more than 12 years of sales and leadership experience in the dental and healthcare industry, most recently as the business development director for strategy and optimization at Align Technology Inc. Mingus earned his bachelor's degree in economics and business from the Virginia Military Institute and his Master of Business Administration from the University of San Diego. He also held the rank of captain in the U.S. Army National Guard.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
