Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Dental Support Organizations
Transcript
- Lucas: So Luna, you know how we've done a bunch of episodes on the quiet roll-up of all these fragmented industries — dental practices, vet clinics, even car washes. Today I want to get into a layer that often sits above the individual practice: the dental support organization, or DSO. Luna: Right, the DSO. Isn't that the model where a private equity firm buys a bunch of dental practices but keeps the dentists as owners of the clinical side? Lucas: Exactly. The DSO takes over the business side — billing, HR, supply chain, marketing — while the dentist keeps the clinical decisions. It's a way to scale without the dentist having to deal with running a business. And it's become a huge private equity playground. Luna: How huge are we talking? Lucas: So as of this year, 2026, there are over 600 DSOs in the United States, and they control roughly fifteen percent of the dental market. That's up from maybe five percent a decade ago. And the big players are rolling up hundreds of practices each. Luna: Is that the same playbook we've seen in veterinary medicine? Buy the practice, centralize the back office, increase margins, then flip the whole thing to a bigger PE firm? Lucas: Pretty much. But there's a twist in dentistry. The dentist often stays on as a partner, which is different from a vet clinic where the vets sometimes leave. The DSO model depends on keeping the dentist happy and productive, because the practice's value is tied to the dentist's reputation and skills. Luna: So the dentist is kind of like the CEO of the clinical side? They keep their autonomy? Lucas: In theory, yes. In practice, it gets more complicated. Some DSOs push dentists toward specific materials or procedures to boost revenue. There have been lawsuits and whistleblower complaints about overtreatment in corporate dental chains, like the ones run by Aspen Dental or Heartland Dental. Luna: Ah, so that's the dark side. But I'm also curious about the economics from the PE side. What kind of returns are they expecting? Lucas: Look, a typical dental practice might generate, say, half a million dollars in EBITDA. A DSO will buy it at four to six times that, then centralize purchasing and staffing, which can lift margins by three to five hundred basis points. Do that across a hundred practices, and you've created a lot of value. Luna: But isn't there a limit to how many practices you can roll up before you hit antitrust issues? Lucas: That's the big question this year. The Federal Trade Commission has started looking into DSO consolidation, especially in local markets. If one DSO controls forty percent of dental practices in a metro area, that could raise prices for patients and reduce competition. Luna: So is that why we're seeing some PE firms pivot to smaller regional roll-ups instead of trying to build a national chain? Lucas: Exactly. It's easier to defend a regional platform than a national one. And the valuations have gotten richer — the multi-time arbitrage has compressed as more buyers chase deals. So firms are getting creative, like offering earn-outs tied to the dentist staying on for five years. Luna: I've also heard that some DSOs are now going after specialty practices — orthodontists, oral surgeons, periodontists. Is that the next frontier? Lucas: Yes, and that's where the growth is. General dentistry is fairly saturated, but specialties have higher margins and stickier patient relationships. A pediatric dental practice, for instance, has a really loyal patient base, and the DSO can cross-sell orthodontics or sleep apnea appliances. Luna: So the DSO model isn't just about buying practices — it's about layering on more revenue streams per patient. Lucas: Precisely. And that's why we're seeing a handful of DSOs now top out at over a billion dollars in annual revenue. They're not just consolidating; they're transforming the practice into a retail-like business model. Luna: I wonder what that means for the typical dentist who's been in practice for thirty years and wants to retire. They can sell to a DSO and get a good multiple, but they might feel like they're selling their life's work to a faceless corporation. Lucas: That's a real tension. Some see it as an exit strategy, others as a loss of independence. But the reality is that many independent dentists are struggling with rising costs and insurance complexities, so the DSO offer can be a lifeline. Luna: And for patients, does it mean better care or worse? I mean, you hear horror stories about assembly-line dentistry. Lucas: There's definitely a spectrum. Some DSOs are excellent, with advanced technology and robust quality controls. Others are profit-driven and push production. The challenge is that patients often can't tell until it's too late. That's why state dental boards are paying more attention. Luna: So what's the next chapter? Do you see DSOs going public, or will they stay private? Lucas: A few have tried to IPO, but it's tough because the model depends on acquisitions for growth, and public markets scrutinize that. I think we'll see more consolidation at the top — the big get bigger — and maybe some private equity firms merging their platforms to create mega-DSOs. Luna: That's a lot of power in few hands. Lucas: It is. And speaking of power, you know what actually keeps us independent — no corporate overlord telling us what to cover? The listeners who support us. Luna: Yeah, we're not backed by a private equity firm, that's for sure. Lucas: Right. So if these conversations have moved your work forward in some small way, or just given you something to think about, a couple of dollars a month is genuinely what keeps this going. You can find us at buy me a coffee dot com slash fexingo. Luna: And it's because of that support that we can stay ad-free and dig into these niche corners of business. So thanks for that. Lucas: Back to the buyout world — so where do you see this going over the next five years? Do you think the DSO model will eventually dominate dentistry the way it's dominated, say, veterinary medicine? Luna: I think it's inevitable. The economics are too compelling. But I also think we'll see a backlash — some states might pass laws requiring a dentist to own a majority of the practice, similar to what some states do for law firms. Lucas: That's a real possibility. A few states already have corporate practice of dentistry laws that limit non-dentist ownership, but DSOs have found ways around them by structuring as management service organizations. The legal gray area is where a lot of the action is. Luna: So if you're a dentist listening, what should you be thinking about if a DSO comes knocking? Lucas: First, get an independent valuation. Don't just take their number. Second, look at the earn-out structure — make sure it's realistic. And third, talk to other dentists who've sold to that DSO. The horror stories are often about broken promises after the deal closes. Luna: Solid advice. And for investors, is there still room to play in the DSO space, or is it too crowded? Lucas: The middle market is still fragmented. There are thousands of independent practices out there, and if you can build a regional platform with a strong reputation, you can still get good returns. The key is to focus on quality, not just growth at any cost. Luna: And we've seen what happens when growth is the only metric — you get regulatory scrutiny and consumer backlash. Lucas: Exactly. The DSO playbook is still being written, and the next few years will tell whether it becomes a model for other healthcare specialties. But one thing's for sure — the independent dental practice, as we knew it, is becoming a thing of the past. Luna: Maybe we'll see a DSO for podiatrists next. Lucas: Actually, I wouldn't be surprised. The same playbook is already moving into dermatology, ophthalmology, even fertility clinics. So stay tuned.