Reflecting back on 2019, it was one of the most active and exciting years in the DSO segment of the dental industry, and at that time, 2020 seemed to be looking even better. Then COVID-19 hit. And it hit dentistry hard. As we all continue to emerge from the pandemic of a lifetime, we hear from DSO thought leaders as they reflect on 2021 thus far and make predictions for the rest of the year and beyond. Here is what they have to say:
Roshan Parikh (Dr. Ro), DDS, MBA, Founder, DSO Strategy
“To me, the year 2021, is quickly shaping up to feel like a year as if you’re a portfolio company of a healthcare private-equity firm; where every quarter feels like a whole year. The first quarter of 2021 definitely felt like a year to me and to many of the other DSO industry leaders and fund managers I stay connected with. In the “first-year” of 2021, DSOs had two feet firmly planted in their existing operations, focused on the safety/comfort of their patients, providers, and teams while optimistically simultaneously looking to shore up their P&Ls to pre-COVID levels. Many of the groups are reporting their highest average visit revenue (AVR) across the board, partly fueled by continued increased demand for restorative and specialty procedures.
Looking forward to the current “second year” of 2021 as well as the other two remaining years, I would expect this patient demand to continue. With more and more of the American population getting vaccinated, I think there will an increased number of patients starting to return for their (assumed overdue) hygiene appointments. DSOs will also take one of their two feet off of operations and look at their business development pipelines, starting to reignite their acquisitional growth strategies. From what I see, there are many opportunities to be had in the acquisitions space and that will continue throughout the remainder of 2021, and into 2022.
One question that still lingers in my mind is, “how do we bring back hygienists and make them feel safe?” If data is true that 1 out of every 8 hygienists has left the profession, and if patient demand for recall visits starts to rebound as vaccination numbers continue to rise, then how will DSOs look to meet that demand? It’s a fact that hygiene visits drive restorative and specialty dentistry, but in today’s convenience-driven world, will patients accept a 3+ month wait for a 3 or 6month hygiene appointment? Will more dentists do hygiene to help speed up patients getting the next phase of their treatment plan done and to maintain the goodwill of their practice? Metaphorically speaking, there are 2.5 years left in 2021, so time will truly tell the conclusion to those questions, and more.”
Mike White, CPA, Principal, Health Care, CliftonLarsonAllen (CLA)
“As we reflect on the last 12 months in many ways it feels like 36 months and in some ways it feels like we skipped a year. When looking back over the last 12 months we watched dental practices close, reopen, and then rebound to pre-COVID numbers in most markets. Dentists, industry professionals, and outsiders looking in had the opportunity to see the resiliency of dentistry as an industry and the people in and around practices each day. Dentists and their team worked hard to open their practices back up safely, bring their patients and team back, and look at new ways to practice all while navigating PPP, EIDL, HHS, and PPE — new acronyms that will be part of our dialogue for at least the remainder of 2021.
It has been an exciting start to 2021 in terms of acquisition activity and I anticipate Q1 being reflective of a very busy and fast-growing next few years. As consolidations into DSOs and formations of new DSOs has been an active discussion point for the last decade, we are seeing a greater level of activity to start the year and anticipate 2021 continuing on that path.
For those that were on the fence about whether they needed a bigger support system, this past 12 months helped them make their decision. While others realized that they could either help others through a life-changing event and are doing so by forming a DSO and management agreements.
Valuations are rebounding to Pre-COVID levels and we will continue to see EBITDA improve as the COVID months no longer become part of the trailing 12-month discussion.
We are excited to continue discussions with those that are seeking guidance and a better understanding of their numbers. The past 12 months taught many of the importance their story is telling in decisions they need to make through proper financial reporting.”
George Radigan, Vice President of Business Development, North American Dental Group (NADG)
“The beginning of 2021 brought a lot of optimism and togetherness along with a lot of continued questions of uncertainty. The finish line to the pandemic was/is finally on the horizon, and although the dental industry still has a long way to be on the backside of the pandemic, it has certainly come a long way within the year.
The bad news is that dentistry has finally shown a vulnerability with the pandemic. Staffs were furloughed, some patient and staff fears have intensified, and the cost of some goods have increased while insurance companies have consistently lagged behind the curve in reimbursements. Fears have resulted in recruiting challenges and access to patient care.
The good news is that dental practices are now thriving from pent-up demand. Both doctors and staff have been forced to work on their business rather than in their business during the shutdown. Offices are running more efficiently with better communication to their patients with the implementation of new technology and teledentistry tools. Practice values have also continued to be consistent with pre-COVID valuations with equal or more demand from well-capitalized buyers.
There will be a mad dash towards the end of 2021 for sellers because of the imminent tax increases. Most doctors are analyzing and concluding that they are better off selling earlier under the current tax treatment this year rather than waiting another couple of years.
With everything taken into consideration, 2021 should be a banner year for both the dental industry and the consolidation of practices across the country.”
Brian Colao, Member & Director, Dental Service Organizations Industry Group at Dykema
“As most people in the DSO industry know, during the last 10 years the dental industry has been undergoing a Great Evolution and Great Consolidation from dentist-owned solo and group practices to a DSO affiliation model. 2019 was a record year for DSO affiliations and the early months of 2020 continued the record pace until the unthinkable Great Lockdown occurred.
As scary as it was to see dental offices closed for the first time in history, the Great Lockdown was followed relatively quickly by the Great Reopening and then the Great Recovery. By late summer 2020, the DSO M&A markets were churning at a breakneck pace. There were more transactions closed in the final quarter of 2020 than I have ever seen during a single quarter in my 25 years in the dental industry. The record-setting fourth quarter was fueled by pent-up and new demand due to concerns of a new tax code and fears about the prospect of “going it alone” if a similar event were to ever happen again.
The incredible momentum of Q4 2020 has continued into 2021 with an enormous pipeline of transactions and closings over the first quarter. With worries of a potential new tax code intensifying, many solo and group offices have accelerated their consolidation timing while the DSOs continue to have an insatiable appetite to affiliate profitable dental offices of all kinds in all markets.
As a result, 2021 has all of the makings of a record year for DSO M&A markets as the Great Evolution and Consolidation returns to the unprecedented pace of 2019 and Q4 2020. The dental industry has truly proven itself to be virtually recession proof, and now pandemic proof. The current DSO market penetration of approximately 30-32% will likely continue its unabated march to 75-80% over the next 10 years.”
Aziza Abed, RDH, CEO, Pure Health Dental Partners
“Q1 of 2021 has been a pleasant financial relief considering being in the middle of a pandemic. It reminded me of historical trends. Q2 is starting off a little slow, but to be expected as it marks the first anniversary of a complete month-long shutdown.
Our team culture has been positive, and the vaccinations have allowed our patients to feel more comfortable about returning to the practices. Our patient count has increased incrementally, and new patient trends are doubling. Many of my peers are experiencing the same momentum.
As for the acquisition scaling, we have added 2 more locations and have an LOI on 2 more. We are projecting to improve organically by 10% as well as add an additional $5 million in revenue with new acquisitions by the end of 2021. I am continuing to see many small to mid-size DSOs being created. The government’s support with the PPP loans has definitely assisted the process.
The negative impacts we are experiencing in 2021 have come mostly from staffing. Although our retention rates have always been maintained at 98%, we are struggling to add new team members. The going rates for dental hygienists and EFDAs have skyrocketed creating a need to adjust the business model to hopefully yield what we consider an acceptable best practice’s return. The other area we are seeing financial increases is in construction. We are currently working on a de novo project that due to lumber and labor increases; we are paying close to 20% more overall than with prior buildouts.
Overall, I feel very blessed that Pure Health Dental and its teams survived 2020 health-wise and financially. I am very fortunate to be surrounded and supported by genuinely kindhearted selfless individuals. Looking forward to an epic 2021!”
Steven Jones, Co-Founder & Chief Operating Officer, CORDENTAL Group
“The dental industry faced significant challenges in 2020, but the future appears brighter as Q1 2021 comes to a close. Patient volumes are at or above pre-COVID levels, less canceled/no-show appointments are occurring, and patients are feeling comfortable with elective procedures again.
It is exciting to travel back out to our practices and see the incredible positivity and commitment of our teams to each other and our patients. CORDENTAL was built upon our “COR” values – Collaborate, Optimize, and Respect.” These values remain stronger today than ever… especially collaboration within the teams at our practices, as well as between the practice teams and the resource center. We have heard over and over how appreciative everyone is for the support we provided during the past year to ensure protocols and PPE were in place to protect our staff and patients. Many affiliated doctors indicated they couldn’t have done it as a sole owner and expressed how appreciative they are of their affiliation with CORDENTAL.
Technology remains a focus for 2021, as we continue to enhance our systems for better patient experiences. Text messaging and online scheduling are more accepted than ever, as the past year forced these technologies upon patients in every aspect of their lives. Marketing remains another commitment for this year to ensure we continue to grow our patient base.
Staffing and recruitment are probably the biggest challenges the industry faces at this time. Some employees made the decision not to return post-COVID, while others struggle with balancing kids at home with their work schedules. This has led to more creative scheduling and, in some cases, higher compensation in some markets. This trend will likely continue for the remainder of the year.”
Jerry Lanier, DDS, CEO, Kids 2 Dentist & TurnKey Dental Properties
“With change comes opportunity. With great change comes GREAT opportunity.
In post pandemic 2021, small DSOs will start moving towards Uber/AirBNB style TurnKey Offices. New or small DSOs will use more outsourcing services to experts for fast start-ups and growth using Branded Business Franchise Format principles for vendor relations rather than doing everything in house.
The “New Normal” will be far different from the current normal. Collaboration, alignment and synergies will become more than just catchphrases. The business of dentistry has become more complex and competitive than ever, requiring that we build teams of collaborative experts with experience and resources.
There are so many advantages to this type of synergistic relationship that it precludes you from reinventing the wheel each time you want to go somewhere just as Uber does when we outsource a ride to the airport. Why own a vehicle and pay a monthly car payment, insurance, etc., when all we need is a ride to the airport occasionally. Likewise with marketing, billing and many other services. TKD Properties is now preparing to deliver 4 large Turnkey Destination facilities in Central California with Pediatric dentistry as the anchor tenant and Orthodontic and Adult Dental as well as medical as integrated services. The fully equipped brand-new practices are already branded, advertised and marketed with a waiting list of new patients ready for engagement. The new owners will have an AirBNB style facility with resources ready to rocket launch these as if they were existing practices without all the cost of purchasing someone else’s list of patients that may or may not return to the new organization.
My vision is to collaborate with young dentists or small, aggressive growth DSOs and leverage my facilities platform and Brand “Kid2Dentist.com.” Additionally, they get to leverage my experience and expertise as well as my resources acquired by having been down this same or similar path before.”
Heidi Arndt, RDH, CEO, Strive Dental Management
“2021 is proving to be another interesting year within dentistry.
From my perspective, patient flow continues to be strong since February. January was challenging due to an uptick in active COVID cases.
Patients are actively seeking routine and preventive dentistry, and I see this trend continuing throughout the rest of the year as vaccines become widely available.
Staffing continues to be a challenge across the country. Everything from dental hygienists, dental assistants and front office staff are not readily available. I do not see staffing improving until 4th quarter, when kids are back at school and unemployment benefits start to taper off again.
The staff that is at work are working harder than ever before to make up for the empty positions that still exist. Dental groups will need to be thoughtful about staffing, team support and ensuring the team is rallied around the mission and goals of their organization.
M&A will be hot in 2021. I predict the larger DSOs will continue to be extremely active in their M&A efforts. The larger DSOs have the advantage of knowing how to do transitions well and improve operating efficiencies rapidly after closing. This is a key advantage for them, and it allows them to provide a strong valuation and quick closing.”
Gary J. Pickard, Senior Director, Government & Industry Affairs, Pacific Dental Services (PDS)
“There’s a foundational saying in one of our belief statements that deftly applies to the last year – “We understand that as a business we will always have problems, and problems are just opportunities in disguise.” (We only have space to focus on a few though so I encourage you to share your thoughts if we miss any.)
First and foremost, dentistry, thanks in large part to DSOs, found their voice shortly after being forced to close. They fought back, for the healthcare professionals they support, and the communities that depend on them for their oral health. This effort created a movement that ultimately resulted in dentistry being formally recognized as essential. This allowed dental practices to quickly open back up, rebounding at an astounding rate, proving once again how resilient and important our industry is. Today we’re now sitting at stakeholder tables previously unavailable to us.
The integration of medical and dental has definitely accelerated, at least in part due to the pandemic. We need look no further than dentists, and in some states, hygienists and dental assistants, being given emergency authorization to administer the vaccine. Several states have made it permanent, legislating the change in scope. The ADA even approved emergency codes for vaccines and diagnostic tests to be added to the CDT this year – a first.
And regardless of what your personal stance is on masks, we have proven that oral healthcare professionals are infection control experts. Yet, OSHA continues to push the broad use of N95 respirators and other additional unnecessary infection control requirements. We must educate policy-makers and the public if we’re going to prevent new burdensome regulations.
Overall, I’m very bullish on the practice of dentistry, and the future of the dental industry. I recommend you hold on, the next few years are going to be a heck of a ride.”
Jon Fidler, CEO & Founder, Fidler and Associates
“2021 To Date: We continue to see the industry rounding back into shape and seeing the groups who weathered the 2020 storm continue to get stronger. 2021 has started off with a number of high-impact moves and investments in DSOs and we have seen a direct reflection of this in our number of placements and opportunities we are partnering to fill. From mid-management level opportunities to building C-suite teams, we have seen a record number of overall movements and opportunities occurring. We are also seeing a record number of remote opportunities as technologies have evolved and owners have warmed up and see this can be a viable option.
2021 Looking Forward: We expect to continue taking a large increase in calls from Private Equity groups 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, this is opening up a pipeline of candidates that are not traditionally from within the dental industry.
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. With all of the innovation coming into healthcare, the beginning of 2021 has been exciting to watch. As we continue to take steps towards a heavier learning integration of technology, people continue to be the heart and soul of the dental segment.”
Jeromy R. Dixson, DMD, MBA, CEO, The DSO Project
“After a year of high-highs and low-lows in dentistry, 2021 is shaping up to be potentially the most active M&A year we have seen in the space. The first quarter of 2021 may be best summarized as “white-hot”, according to one industry expert I’ve spoken with…and I absolutely agree.
After nearly a year of investor and industry uncertainty, a confluence of factors is likely to create a highly active market in 2021. Investor capital began being deployed en masse again in Q4 of 2020 and Q1 of this year. This rebound was fueled by a combination of robust financial performance through the mid and later stages of the pandemic and somewhat of a pause in 2020 by many potential investors in new dental platform investments. Many of 2020s heavily structured deals and uncertainty around government-mandated dental practice shutdowns last spring are now beginning to fade into our collective rear-view mirror.
In addition, the core characteristics of why consolidation has been rapidly occurring, along with the key reasons that investors currently favor the dental market (recession resistance, solid margins, highly fragmented, etc), remain intact. All of these reasons and more, create the probability of an accelerating M&A market in 2021 and beyond.”
Maria Melone, Managing Director, and Kurt Harvey, Managing Director of Dental/Healthcare, Caber Hill Advisors
“Earlier this year, Caber Hill Advisors made six predictions for M&A activity in the dental industry. And last month, one of our Managing Directors shared an updated forecast at the ADSO conference on a panel discussion on industry consolidation. Below are the team’s three key takeaways:
- More Large Transactions Set for 2021
Dozens of sponsor-backed DSOs are in the later stages of their hold periods and will likely transact in the next 1–3 years. The acquisitions of Clear Choice, Midwest Dental, and MB2 are just the beginning.
- Buyers Target Specialists Over Generalists
Expect a rise in the acquisition of specialty dental practices, like endodontics, oral surgery, and orthodontics—three of the hottest areas in all of healthcare M&A. Last year, these specialists were less impacted by shutdowns than general dentistry. And with targets set on strong specialty practices, look for intense competition among a mix of buyers: from pure players to multi-specialty DSOs, to private equity firms.
- All-Cash Deals Becoming a Thing of the Past
As recently as February of 2020, many sellers expected to receive an all-cash deal for their sale. But now—because of uncertainty concerning a post-pandemic market—buyers are deploying other tools that might give practices the valuations they held in 2019, but with some safeguards to the risk still present in the market. Some of these tools include deferred payouts, equity packages, and earnouts. Equity packages, in particular, look to be especially appealing for hesitant sellers, whether they’re younger practitioners who think there’s a high ceiling for growth at their practice, or those who put in the “sweat equity” last year to adapt and persevere through COVID headwinds and are reluctant to exit now.”
Andrew Smith, Executive Director, Association of Dental Support Organizations (ADSO)
“To date, 2021 has been a strong rebounding year for the dental industry. After a majority of dental offices were temporarily closed for part of 2020, we have finally begun to see the expanded integration of health in dentistry. For some time, dentists in many states have helped with other health care measures including screening for high blood pressure and diabetes, all pointing to the general implications on wellness. Now, with dentists joining the ranks of those approved to deliver the COVID-19 vaccine, there is an opportunity for collaboration on innovative care models. Oral health ties to overall health, and as the COVID-19 pandemic continues to change the face of health care, we predict that dentistry will increasingly be viewed as an essential service in a holistic health care model.
Specifically, for the growth of DSOs, the ability to provide great quality care and efficient office management is invaluable. With mobility and work-life balance, DSOs will continue to help dentists by offering necessary business support which allows them more time to focus on their patients. In turn, there is expanded access to care in underserved and rural communities due to the cost efficiencies of collective buying power. The Association of Dental Support Organizations (ADSO) contributes to the growth of DSOs by providing industry leading support in government relations, best practices and networking opportunities, facilitating assistance to dentists and the communities they serve.
For the ADSO, there is a commitment to providing the knowledge on what a dental support organization is and the benefits to the entire dental industry. With the effort, there is the educational piece that factors into how the DSO model is changing. Labeling as a DSO is no longer enough. It’s a dynamic process of continuous growth and stakeholder engagement to elevate the dental advocacy aspect of the business. Ultimately, the ADSO seeks to build a strategic vision for the organization, define and expand dental advocacy, and discuss the crucial role of DSOs in dentistry.”
Austin Hair, Partner & Business Development Manager, Leaders Real Estate
“2021 is off to a roaring start in the dental real estate world as many dental providers and DSOs resume normal growth cycles. While real estate remains at all-time high values, many operators continue to wait for the market to reset. Due to continued government support, we see the market in a bit of shock mode. The effects of the pandemic on commercial real estate state have not been greatly recognized yet; and we don’t see any immediate changes until the government and banks resume normal activities and reduce the assistance and eviction programs.
We anticipate a significant ripple once the programs elapse and we get back to normal. However, it will disproportionately affect real estate classes. “A” areas will be less affected than “B” areas and so on. This leaves “D” areas the most at risk. The balance of this shake-up, in addition to the Fed’s control of interest rates, will play heavily into the future landscape and opportunity in commercial real estate.
Healthcare is growing in desirability among retail landlords. The pandemic has continued to shift the acceptance of healthcare practices occupying retail spaces while many retail sectors continue to be disrupted. The focus on the next several years will be optimizing their locations. While we will continue to see de-novo-based growth, the long-term effects of vacancy will provide savvy operators the opportunities to “upgrade” their practices by relocating to become more patient accessible and convenient.”
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