As you know from our monthly DSO Deal Roundup articles, consolidation is booming in the DSO Industry! Will it last? What else is going on and what will the next year bring? As we emerge from the pandemic of a lifetime, we hear from DSO thought leaders from various specialties as they reflect on 2021 and make predictions for 2022 and beyond:
Dr. Roshan Parikh, President – Dntl Bar, CEO & Founder – DSO Strategy
“When I think of 2021, I think of resilience. Despite things not going as planned, when the dust settled, there is more private equity-backed and institutional capital being invested into dentistry than ever. It was also a record year for mergers and acquisitions. It goes to show that through thick and thin, our industry perseveres and institutional investors continue to believe in the future of dentistry.
That’s not to say there weren’t challenges. There is a great resignation underway leaving many dental positions unfilled and a workforce with a new set of demands. There’s also the challenge of finding a balance between teledentistry and traditional in-office visits.
However, with these challenges comes exciting opportunities. Technology is rapidly advancing in the dental industry and it’s enabling providers — both DSOs and private practices — to offer more convenient and safe dentistry than ever before.
Computer vision AI, digital credit card processing, and teledentistry are the three big things I have my focus on for the future of dentistry. This tech allows us to shift focus to the patient experience and how to make their lives easier. In turn, making things easier for dental providers — if they choose to invest that is.
For example, credit card processing via smartphone makes the checkout process seamless and quick for a patient after getting their tooth pulled. Computer vision AI can help clinicians diagnose disease more comprehensively and consistently. While teledentistry accommodates the hybrid lifestyle that’s prevalent in the workforce and other areas of healthcare. It could also be a massive help in combating the challenges of a dwindling dental workforce.
This year is going to be a period of growth and learning for the dental industry. But as they say: either you’re a part of change or change happens to you.”
Brian Colao, Member & Director, Dental Service Organizations Industry Group at Dykema
“Despite the stubborn persistence of the Pandemic, 2021 was an overwhelmingly positive year for the DSO industry. The great evolution and consolidation of the industry continued at a record pace. I had previously written that the single biggest key to the recovery would be an end to dental office closures and there were indeed no wide scale closures of dental offices in 2021. However, there was an abundance of backlogged transactions, insatiable demand for dental practices by DSOs and private equity groups and uncertainty as to whether capital gains tax rates would sharply increase in 2022. All of these conditions led to the busiest M&A market in the history of the DSO industry. Sellers of solo offices, group practices and DSOs of all sizes were able to realize the highest multiples in the history of the DSO industry. 2021 also saw some large DSO acquisitions by some of the biggest DSOs in the industry a trend that is expected to continue.
In other developments:
1) the direct-to-consumer tele-dentistry marketplace gained further traction and broader acceptance by clearing some important regulatory hurdles and is poised for record growth;
2) although many DSO conferences were disappointedly cancelled in early 2021 the Dykema conference had industry wide record attendance in July of 2021 and many other conferences rebounded in the third and fourth quarter with very strong attendance; and
3) 2021 also saw the formal launch of Women in DSO a revolutionary organization whose mission is to provide access, opportunities and mentorship to the many talented women of the DSO industry.
The feared capital gains tax increases appear to have stalled in the United States Senate which should lead to the continuation of the explosive DSO M&A markets, especially if the Republicans retake a majority of the House and/or Senate in the closely watched November mid-term elections. I also predict the continued growth and expansion of innovative direct to consumer tele-dentistry platforms. Finally, I predict a complete rebound of our cherished DSO conferences in the second quarter of 2022 starting with the inaugural Women in DSO Event March 9-11, 2022, which is on pace for a sold-out show.”
Gary J. Pickard, Senior Director, Government & Industry Affairs, Pacific Dental Services, Legislative Affairs
“2021 felt like a reclamation year. While it’s nearly impossible to make up for lost time and unrealized revenue, we did see dentistry continue the strong bounce back – proving dentistry is indeed essential. We saw more bills addressing the challenges we were still facing due to COVID – from increased PPE requirements and provider reimbursement to mandated employee vaccinations and / or testing. And it was the closest we’ve ever been to seeing a dental benefit for our seniors due to the proven connection between good oral health and overall health. States were right to continue to increase scope of practice for oral health care providers allowing them to test for COVID and prescribe and / or administer vaccines. And organized dentistry seemed to be building bridges with DSOs and supported dentists, the likes of which we’ve never seen before – the ADA and leading state dental components deserve a lot of credit and support for this.
The end of 2021 and early part of 2022 was a bit bumpy with the Omicron variant and severe weather across much of the US which negatively impacted many businesses, including Dentistry. However, February is looking good, there’s robust talk about the virus moving into the endemic stage, states are moving away from mask mandates and COVID specific legislation & regulations appear to be lessening. I’m confident it’ll be a strong year for PDS and the rest of the space. I think we’ll enjoy another banner year if the industry continues to be united around elevating dentistry, maintaining it’s essential status in the hearts, minds, and souls of patients and policy-makers, increasing access, addressing the staffing challenges, and improving the patient experience.”
Dr. Mary Pham, CEO and Founder, Lollipop Pediatric Dentistry & Orthodontics
“In 2021, our core values of leadership, dedication, growth-mindset were tested beyond our wildest dreams. But through it all, our company had a record-breaking year in 2021. I truly believe it all comes down to mindset. If you tell yourself, you are the best, you are doing amazing things, you can get through anything, you can break records, then you absolutely CAN and nothing will get in your way! Teamwork truly makes the dream work at our company. No doubt about it.
In January 2022, our revenue increased, and our forecasted goals were met, so I believe that this trend will continue in 2022 with the right team and right mindset. Again, believe and take action. There is nothing that can’t be done. Organizations must stay resilient since regulations are constantly changing and the team wants to know you are proactive. Focus on keeping your team engaged. Check in on them. People need a good reason to come to work, and it’s not their paycheck. It should be because they love you and they know you care. So, my advice is spending your time there more than anywhere else. What do I forecast for 2022 for the dental industry? It’s actually quite simple. Whatever you tell yourself it will be.”
Heidi Arndt, Founder & CEO, Evolve Dental Advisors
“2022 will look a lot like 2021, with the staffing shortage being the main headline. The staffing burden will continue to be a spotlight because of its massive impact on the patient’s ability to access the dental practice.
Dental groups will need to be creative with modifying processes to ensure they provide access to their existing and new patients while maintaining the same quality of care. Cross-training team members and utilizing team members to the top of their licenses and capabilities will be crucial. Do you know what your dental hygienists and assistants are allowed to do in your state? Are you fully utilizing your staff?
I also suspect that more states will start to pass laws to expand teledentistry and broaden the scope for dental therapists, dental hygienists, and dental assistants and find ways to make it easier for people to achieve licensure. We have already seen states discussing the expansion of skills for dental assistants, and I believe this dialogue will escalate in 2022.
In addition, recruiting and retaining staff will remain a principal focus in 2022. Investing in the team will be essential for retention. Creative bonus structures, team building, and staff development days are necessary. With team members meeting burnout, there needs to be a more significant reason for employees to come to work. Building relationships and camaraderie among the team will be essential, as wells your staff knowing they are part of something greater.
Overall, I do not see a remarkable recovery in staffing. Labor shortages take a while to resolve, and there is no quick fix. However, 2022 will set the foundation for national and industry-wide shifts. I believe most of these will come from state dental boards.”
Dr. Alex A. Giannini, Founder/CEO, Aligned Dental Support, LLC, Florida Affiliated Dental Support, LLC d/b/a Affiliated Dental Support
“The DSO and Group Practice sector within the dental industry continues to flourish and prosper with the record numbers of consolidations, mergers and transactions at the end of 2021. A majority of the Group Dentistry Now thought leaders from 2020/2021 very well predicted this would occur.
Looking back, 9/11 was a direct assault to the travel/hospitality industry. Covid-19 has been a direct assault on the medical industry; however, dentistry has proven its resiliency and will continue to do so whether directly assaulted by the pandemic, the subsequent recession, or whatever 2022 will throw in its way. With each of these challenges, dental groups and DSOs have been better prepared to overcome them than solo practitioners have been. I have clearly seen the financial impact due to the alarming rate of labor shortages and rising costs. U.S. consumer prices have skyrocketed across the board at 7.2% annually – the biggest jump since 1982.
Unless dental practices raise fees and/or better manage expenses, we see EBITDA margins shrinking. To make matters worse, with the influx of PPP and EIDL loans dissipating, groups and practices are experiencing a hangover with cash roadblocks. Labor costs as a ratio of revenue is creeping close to 30% in many groups, not including doctor compensation.
While we are still in the “golden era” of group dentistry, there persists incredibly unrealistic expectations than ever in terms of valuations. This results in groups with a get-rich-quick mentality hurriedly “duct taping” a cluster of practices into a “DSO” to bring to market. Unfortunately, as the old adage goes, there is a sucker born every minute so once in a while the jackpot hits for these opportunists; however, for the most part those days are primarily over.
To own and operate a successful DSO business, it requires outstanding leadership, execution, infra-structure and a solid platform. It is not for the faint-of-heart! Ironically, with the resilience of the industry, you really have to go out of your way to drive a dental business to disaster; yet there are numerous untold and public failures occurring today—whether the culpability is on the DSO, Dental Group or Investor side. During the boom of 2005 to 2007, everyone made lots of money buying and flipping homes, and during the Great Recession in 2008-2011, only the professionals who understood the business and market were able to survive. Dentistry today is currently in the same position which provides for exciting times for sure!”
Jonathan Eskow, Founder and Lead Attorney, Eskow Law Group
“2021 was one of the wildest years in DSO history. For buyers, there was confidence to grow as dental operations stabilized with Covid becoming more accepted in day-to-day life and means to grow as private equity and middle market lenders delivered truckloads of money. For sellers, there was pressure to sell due to threatened adverse capital gains tax treatment after 2021 and desire to sell as valuations climbed higher and Covid-related challenges remained fresh. These factors created a perfect storm for M&A activity in the dental industry.
2022 will be an interesting year. Given the high number of acquisitions for many DSOs in late-2021, there will be a period of adjustment for those DSOs in early 2022 as the influx of newly acquired practices get onboarded/integrated and hiring ramps up to support the condensed growth. At the same time, all the money that was poured into DSOs in 2021 will need to be “put to work” and this will spark another very active year for M&A that I think will rival 2021 in terms of volume.
Despite what I think will be an active 2022 M&A market, it may also be harder to get deals done. At every level of DSO development (start-up, growth, middle-market and large-scale), there is more competition than ever before. This competition will force DSOs to learn how to differentiate themselves (beyond transaction value) and communicate those unique qualities and deal structures effectively in order to win deals. Also, there are now many professionals (legal, accounting, brokerage) who have “touched” but overstate their experience in DSO M&A, and deals become unnecessarily challenging when buyers or sellers get bad advice or choose the wrong team.”
Jon Fidler, Founder & CEO, Fidler and Associates
“2021 In Review – 2021 had started off with a number of high impact moves with DSOs and multi-location groups from private equity. We saw a direct reflection of this in our number of placements and opportunities. We continued to see the executive search portion of the industry evolve in many different ways. The main changes were the ability for senior level leaders to work remotely and the acceptance of candidates coming from outside of the dental segment.
2022 Looking Forward – We expect to continue seeing a large increase in calls from groups and private equity firms looking to break into (and continue to grow) within the dental segment. We are confident that this will continue throughout the rest of the year and create continued competition throughout the market. From an executive search perspective, we are seeing some searches take longer than normal due to the competitive landscape to hire talented leaders. We also believe strong candidates will continue have one or more offers to leverage causing a rise in salary and cost of acquisition for talent.
If you ask any leader what the most valuable part of a DSO is they will, undoubtedly, tell you that having the right people is at the top of the list. It is definitely a candidate’s market and we foresee this continuing through the remainder of the year. We encourage starting searches early as the timeline is expanding due to multiple options for candidates.”
Mike White, CPA, Principal, Health Care, CliftonLarsonAllen (CLA)
“2021 proved the resiliency in dentistry which translated to one of the busiest consolidation years we have seen in the industry. We have been watching the energy and excitement in the consolidation markets for the last decade and when COVID happened and many practices shut down or struggled to re-staff practices who appeared to be on the fence sought out assistance through partnerships and affiliations. This along with the pent-up demand in private equity to deploy capital created a flurry of activity for 2021. For 2022 we anticipate the consolidation activity to continue with so many deals not closing at year and so many new platforms created in 2021 who need to continue to grow their market.
We are also starting to see signs of the sophistication in the industry continuing to grow and the experience that is being generated across all service specialties. As the industry continues to gain experience in operating and growing DSOs, we see the talent pool to help practices grow is in high demand. The need for strong accountants, regional directors, and billing managers along with the assistants, hygienists and providers those practices are always seeking continues to put pressure on practices to acquire this talent. There are so many opportunities to continue to help this industry and we are excited to see how 2022 unfolds.”
Jeromy R. Dixson, DMD, MBA, CEO – The DSO Project, CEO – Dental Capital Partners
“True to many DSO industry expert opinions, including my own in last year’s thought leaders’ article, 2021 was undoubtedly a “white-hot” year for M&A activity and industry consolidation. As the uncertainty of 2020’s pandemic response receded and investors regained confidence in dentistry, both the deal activity and valuations hit new record levels. These strong tailwinds were supercharged in 2021 by a keen interest from many DSO owners and investors to close a transaction or finalize a recapitalization event prior to year-end with the specter of a threatened increase to the federal capital gains rate. This multi-factorial perfect storm culminated in 2021 being the best on record for DSO M&A.
In 2022, the core characteristics driving rapid DSO M&A and consolidation continue to be highly attractive to investors: recession resistance, solid margins, highly fragmented, etc. As of Q1 2022, strong deal flow is occurring, even if the market has receded slightly from the frantic push to close deals in the second half of 2021. Specialty focused and multi-specialty focused groups continue to form and transact at accelerating levels, including an increase in efforts to better synergize GP’s and specialists. Larger and well-established DSOs will seek to purchase smaller groups, furthering the rapidity of industry consolidation.
Perhaps the most disruptive innovation that I believe will become significantly more mainstream in 2022 is the appearance of next-generation DSOs seeking evolved, alternative approaches to grouping and consolidation of dental practices. This trend has the potential to be increasingly disruptive to traditional, established DSO’s efforts to consolidate individual practices and small groups if they get the traction they expect this year. Certainly, another exciting and potentially unprecedented year is in store for our industry in 2022. ”
Dr. Marc B. Cooper, Elder and President, MBC Consultants Inc. LLC, Wisdom for Leaders
“I don’t need to remind you of the problems you faced in 2020 and 2021 and will face in 2022; Covid and its many costs down every line of business and clinical operations; staff shortages, supply issues, cash flow issues, increased costs, investor pressures, and on and on.
The same things you are feeling – overwhelmed, burdened, unsure, anxious, apprehensive now exist within the context of every practice and every industry stakeholder. Water to the fist. Air to the bird. Uncertainty to the future. You lead into an uncertain future where vision and incentives have lost their power.
What is needed from leadership, what is required to lead is not something you have well developed. Leadership must provide a context where individual and collective anxieties and worries are constantly diminished. Where leaders need to override overwhelm and understaffing, breakdowns occurring at much higher frequencies in every domain of practice. Things are uncertain.
Leading into an uncertain future is not more strategies, tactics, rocks, and integrators. Instead, this other kind of leadership takes becoming a more self-aware human being. Because if you can’t see it in yourself, you can’t see it in others. If you can’t see the ball, you can’t hit the ball.
Leaders need to develop a much greater capacity for self-examination and introspection. Leaders need to thoughtfully and wholeheartedly engage in self-inquiry to discover who they are. Understanding how they operate, react and respond at a more fundamental and human level is now more essential than ever before.”
Priyanki Amroliwala, Senior Manager, Talent Acquisition, 42North Dental
“2021 – The Great Resignation! The Great Reshuffle! In 2021, both terms and phrases came to frequent use we hadn’t heard of ever before. What was this about? Well after a long 2020 with the pandemic, we expected people to start re-entering the workforce and coming back to a full work schedule (kind of how were in 2019). Here’s what happened, people did return to the workforce, however with their own set of expectations! What does that mean? Well, they knew that they had choices, and they were going to work where they wanted, how they wanted, and in their own time frame. Employers had experienced the most amount of turnover (resignations), then ever before! In a market where hiring has been so difficult, the employees have been reshuffling and resigning!
Pulling out my crystal ball, I can tell you that the trend from 2021 is easily leaking into 2022, things haven’t yet changed! We’re in an ever-evolving situation, where the employees are calling the shots (and rightfully so!). Employers need to understand and come to terms with this, we are in a candidate driven market, so any employer needs to know that if they are hiring, they need to rethink their compensation, benefits, and overall job and expectations to truly be up to date on current hiring trends. What are these hiring trends?
- Flexible schedules – allow full or part-time options and timings of work
- Set realistic expectations of the job from the get-go and be clear and concise when communicating this to the potential candidate
- Be creative with the compensation and benefits – you don’t need to break the bank account to make this happen
- Allow for the candidate to ask questions during the interview process, and show them what a great place it is to work
- RETENTION!! Don’t forget to retain your new and existing hires, small things make a world of difference, things you can do every day to make the employee feel valued and their opinion is heard”
Andrew Smith, Executive Director, Association of Dental Support Organizations (ADSO)
“Last year was an outstanding rebound for the dental industry. After the initial pandemic shutdown caused over 50% of dental offices to close in 2020, the industry returned to pre-pandemic numbers a year later. Dentists and dental staff across the country were ready to jump in and join the fight against COVID-19.
To date more than 20 states have authorized dental hygienists to administer the COVID-19 vaccine. This is a sign that political leadership is beginning to recognize the ability and readiness of dentistry to improve access to critical care for patients in urban and rural areas.
Looking ahead to 2022, the defining trend is the widespread awareness of the mouth-body connection. In laymen’s terms, the mouth-body connection is the idea that what happens in a person’s mouth affects their overall wellbeing. Studies show that good oral health has a multitude of overall health benefits including lowering the risk of heart disease, stroke, & diabetes; decreasing blood sugar levels for patients living with type 2 diabetes; and lowering the risk of infections throughout the body. As the public becomes increasingly aware of this, we are confident that patients will look to dentists to improve their oral and overall health.
Another trend that will shape our industry in 2022 is the rapid growth of dental support organizations (DSOs). According to the American Dental Association’s Health Policy Institute, DSOs will more than triple their current market share by 2035. Increasingly dentists are deciding to forgo the hassles of running a business and partnering with a DSO. This phenomenon will translate to more face time with dentists, flexible scheduling, and integrated health records which will provide deeper patient-practitioner connections.”
Linda Ryan, Director of Talent Acquisition, Elite Dental Partners LLC
“Reflecting on 2021 we have learned valuable lessons as to what candidates are seeking in their career choices, and their work- life harmony. Talent Acquisition has certainly changed and is evolving from years past, and we must adapt quicky to these changes to attract and retain our valuable talent in 2022. As everyone is aware of by now, candidates are being bombarded by recruiters with many options to choose from, and they are being offered lucrative and flexible opportunities like no other time in history. The worst part of 2021 was watching the “Great Resignation” unfold and knowing many organizations were losing their valued dental team members to competitors and to other industries. With that being said, I believe it is time to minimize the turnover and implement a robust “retention strategy” vs trying to find new ways to recruit employees to replace the loss of our talented team members when they accept another position, or worst, leave the dental industry all together. The actual hidden costs of employee turnover and lost productivity to organizations, is staggering. When we fail to fully understand the actual cause and the damage excessive turnover does to our business, we need a wake- up call to reflect and make improvements to our pay structure, benefits, calibrating current employee salaries, cultivating a people first culture, providing growth and development opportunities, and really listening to employee exit interviews, so we can diligently course correct accordingly.
Here are some tips to consider for success in 2022 and beyond:
- Employees who feel valued and meaningfully supported will stay in their job, even while being actively recruited! Creating this type of culture is a proactive and protective factor to consider. Employers that create a culture of connection, support, and inclusion, will have much higher retention rates and enjoy greater office morale and productivity.
- Employees are looking for career growth, and a lack of career progression is a reason many employees site for job hunting. People are re- evaluating what they need from their careers and are looking for fulfillment and roles that challenge them and can provide upward mobility.
- Embrace flexibility with your office hours and schedules, as candidates are still navigating childcare and school challenges as they try to juggle their personal and professional lives. If you can create a schedule that fits into their lives, you will have happy employees that will stay with you and be completely engaged and forever grateful. Get creative and do whatever is needed to take care of your existing employees and their families.
Cheers to everyone for a prosperous 2022 with less employee RECRUITING and more employee RETENTION!
“If you don’t appreciate your employees, your competitors will. They are looking for great talent” ~Stacy Sherman”
Dr. Barry Deirmenjian, CEO, Smiles West
2022 seems to be off to a roaring start as the pandemic becomes more of an endemic. I believe we will see more single office acquisitions and mergers take precedent over the multi-office and group practices as they are commanding incomprehensible and unsustainable valuations. Growth for smaller to mid-size DSOs will be slower but will grow healthier. Selling doctors will be a little younger and will want to participate on future growth with rollover equity and continue to practice as they remove some chips off the table. Larger DSOs will not be as attractive as they have already transacted and taken a majority of the meat off the bone. I am working very closely with M&A firms currently and seeing these trends in action. I also see trends in purchasing relationships with direct manufacturers as this segment has been fragmented and the dental supply/equipment world has changed. Direct relationships will be the future for DSOs.
Maria Melone & Kurt Harvey, Managing Directors of Dental, Caber Hill
“There was record-setting M&A activity last year, and as underlying conditions have remained largely unchanged (if not accelerated), our guidance remains positive for sellers in 2022.
Buy-side demand remains as strong as ever. While some point to rising interest rates, inflation, and stressors on the employment and supply chain landscapes as reasons why both valuations and overall activity may cool, we remain convinced that abundance of capital and exuberance of investors will provide counterbalance to sustain these levels of activity.
Buyers will continue targeting practices with a strong foundation for growth. Some of the key attributes buyers seek include a strong rate of doctor retention and a trend of same-store growth. Retention, in particular, is a priority as the entire healthcare industry has felt pressure around workforce recruitment and retention. We expect rollover equity for sellers and ownership opportunities for associates to continue to be the norm rather than the exception in transactions. As we see more PE-owned DSOs sell to their next PE owner, we’ll also gain more perspective into the performance of rollover equity.
Last year we saw major growth in specialty acquisitions, and in talking with private equity investors we see even more interest in specialty than ever before. While traditional GP practices will continue to be attractive, increasing value is being placed on unique value propositions. GP-led multi-specialty groups, true multi-specialty hub-and-spoke models, and other super GP practices will attract broader interest and close at higher multiples.
We also anticipate more minority and structured capital investments, as many growing DSOs need capital but don’t want to give up control, and an increasing number of private equity firms are willing to make non-control investments in order to stand out from a crowded buyer field.”
Andrea Garson, Chief People Officer, Guardian Dentistry Partners
“From the HR/people lens, I view 2021 as a remarkable year for learning and growing, creating a recipe for great success in employee engagement in future years.
2021 continued to test teams’ stamina and courage, as they came to work every day with smiles on (behind their masks) when so many people, including patients, colleagues and families were suffering from the Covid blues. We didn’t have the luxury of saying “we’re done with this” and relaxing protocols or pivoting how we work. Colleagues had to rely on each other and their relationships to boost spirits and morale. The exercise of resilience will be carried forward in future years.
The “great resignation” hasn’t escaped our industry. Clinical staff in particular found several reasons to look for new opportunities, or leaving the workforce altogether, posing challenges for us. The biggest opportunity now is where to find the talent with the current labor shortage, and perhaps more importantly, how to hang on to the great talent we already have. I saw investment and creativity in talent acquisition, not only from HR, but from managers and Doctors as well. The old concept of “post and pray” won’t work anymore. Redirecting investment (time and money) into creative ways to attract talent can only enhance our ability to recruit in the future. Similar focus was put into retention– forcing us to look at our culture and find ways to understand why people are staying (vs leaving) and continuing to make investments in our existing talent through training, compensation, incentives, recognition, and career growth. This can only benefit us in the future.
Finally, teamwork and caring were two key themes that prevailed for us in 2021. We learned the value of connecting with people – colleagues, patients, and families. The Omicron variant reminded us how swiftly things can change. Before Covid, we likely didn’t reach out to colleagues when they called off sick. Now, team members are checking on each other and pitching in at the practice to make sure patients are taken care of. It’s not as if we didn’t care before, but the past year or two has really refined how much energy we all put into showing how much we care and appreciate those around us. A sense of belonging to a team that cares about you can only serve us well in the future.”