Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / How Private Equity Acquires Your Local Dental Practice
Transcript
- Lucas: If you've been to a dentist in the last five years and noticed the logo on the door looks more like a corporate brand than a local name, you're not imagining it. Luna: Yeah, I just switched dentists and the practice was called something like 'BrightSmile Dental Group' — very polished website, but also very… generic. Lucas: Exactly. That's the surface-level sign of a massive roll-up strategy that private equity has been running in dentistry for the past decade. We're talking about thousands of independent practices being bought up by Dental Service Organizations, or DSOs. Luna: And the biggest name in this space is Heartland Dental. They're backed by KKR, and they now operate over 2,500 locations across the U.S. Lucas: Heartland is a good case to anchor on because it shows the whole playbook. KKR first invested in 2012, and since then Heartland has grown from a few hundred offices to one of the largest DSOs in the country. They don't buy a practice and slap their name on it overnight — it's more gradual. Luna: Right, they call it a 'supported autonomy' model. The dentist keeps their name, their staff, their clinical decisions. But Heartland takes over the backend — billing, HR, supply chain, marketing. Lucas: That's the pitch. The selling point to a retiring dentist is: you keep doing what you love — treating patients — and we handle the business headaches. Plus they offer a liquidity event: the dentist sells their practice for a multiple of EBITDA, often with an earnout to stay on for a few years. Luna: And that multiple has been climbing. In the early 2010s, DSOs were paying maybe 5 to 6 times EBITDA. Now we're seeing deals at 8 to 10 times for high-quality practices. Lucas: Which makes sense when you think about the macro. The average age of a U.S. dentist is over 50. Many independent practitioners are looking for an exit. Private equity sees a fragmented industry with stable cash flows, low tech disruption risk, and a demographic tailwind. Luna: But there's a tension here. Once a practice is acquired, the DSO needs to hit margin targets. That can mean pressure to see more patients per day, upsell procedures, or use cheaper materials. Lucas: And that's where the critics get loud. There have been lawsuits alleging that Heartland and other DSOs set quotas — things like a certain number of crowns per month or a minimum percentage of patients who should accept treatment plans. Heartland has denied those claims, but the regulatory scrutiny is real. Luna: The FTC has been paying attention. In 2023, they challenged a DSO acquisition in Texas, arguing it would reduce competition in the local market. That was a signal that consolidation in healthcare, even in something as local as dentistry, won't go unchecked. Lucas: State dental boards also push back. Some states have laws restricting corporate ownership of dental practices, forcing DSOs to structure as 'management services organizations' rather than direct owners. The dentist technically retains ownership but the DSO controls the economics. Luna: So the deal structure is critical. Let's talk about how an acquisition actually gets done for a single practice. Lucas: Sure. Let's say you're a dentist with a practice generating $1.2 million in revenue and $400,000 in EBITDA. A DSO might offer $3 million — roughly 7.5 times EBITDA. But you don't get all cash upfront. Luna: Typical structure: 60 to 70 percent cash at close, and the rest as an earnout based on revenue or EBITDA targets over the next three years. The earnout keeps the dentist motivated to not retire the day after the deal. Lucas: And the DSO also takes a management fee — usually 6 to 8 percent of revenue — which covers their overhead. Plus they may require the practice to use their preferred suppliers, capturing additional margin on supplies. Luna: So the DSO makes money three ways: the management fee, supply chain kickbacks, and the underlying practice growth. If they roll up enough practices, they can also refinance the debt used to acquire them and extract dividends. Lucas: That's the private equity lever — use debt to buy practices, improve margins, then either sell to a larger DSO or take the platform public. Heartland itself tried an IPO in 2021 but pulled it. Some say they're waiting for market conditions to improve. Luna: It's a huge market. There are about 200,000 active dentists in the U.S., and maybe 15 percent are currently affiliated with a DSO. That leaves a lot of runway for consolidation. Lucas: But the model isn't risk-free. If interest rates stay elevated, the debt financing becomes more expensive. And if regulators crack down on the profit-maximizing tactics, the multiples could compress. Luna: There's also the question of dentist burnout. Some of the complaints from acquired dentists are about losing clinical autonomy. You're no longer the owner — you're an employee with production targets. Lucas: Yeah, and that's a real factor in whether the earnout period actually works. I've spoken with practice brokers who say about 20 to 30 percent of sellers regret the deal within the first two years. The culture clash is real. Luna: Still, for a dentist approaching 60 with no succession plan, selling to a DSO can be the best option. They get a payout, a transition period, and they don't have to worry about closing the practice. Lucas: And for private equity, the math is compelling. A well-run DSO can generate return on invested capital in the high teens. That's hard to find elsewhere. Luna: By the way, if these deep dives into how businesses actually get bought and sold have been useful to you — even just giving you a sharper lens when you see a name change on the door — a handful of listeners chip in monthly through Buy Me a Coffee dot com slash Fexingo. That's literally what funds making episodes like this one. Lucas: It's true. No ads, no outside sponsors, just a small group who find value here. Appreciate every one of you who does. Luna: Alright, back to the deals. One trend we're watching is the rise of 'mega-DSOs' — platforms that own hundreds of practices — and they're starting to acquire smaller DSOs rather than individual dentists. Lucas: That's the next phase of consolidation. You're seeing roll-ups of roll-ups. In 2025, the largest DSO in the country, Heartland, acquired another top-10 DSO in the Midwest. That kind of merger creates a platform with serious market power. Luna: And that triggers antitrust concerns at a higher level. The FTC is already signaling they'll look at horizontal consolidation among DSOs more carefully. Lucas: So the question for an independent dentist considering a sale is: do you sell now to a DSO at a good multiple, or wait? Because if regulations tighten, multiples might come down. But if you wait too long, there may be fewer buyers. Luna: The smartest practice owners I've seen are the ones who prepare early — clean up their books, standardize their operations, so they can attract the best offers. Lucas: That's good advice for any business owner, not just dentists. The acquisition game favors the prepared.