Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Independent Dental Practices
Transcript
- Lucas: So here's a number that stopped me: private equity backed dental support organizations, or DSOs, now control roughly 15 percent of all U.S. dental practices. That's up from maybe 5 percent a decade ago. Luna: Fifteen percent feels low to me — I've heard the consolidation in dentistry is way faster than that. Lucas: You're right — the share of practices owned by DSOs is higher in certain states. In California and Texas, it's north of 25 percent. But nationally, 15 percent is the best estimate from the American Dental Association as of early this year. Lucas: The difference is most DSOs don't own the practice outright. They enter into a management services agreement where the dentist retains clinical control but hands over the business side. That lets PE firms structure the deal as a growth equity play rather than a direct ownership roll-up. Luna: Right — so the PE firm owns the DSO, not the patient charts. But economically, the dentist gets a salary plus a share of profits, and the PE firm takes the upside from scaling. Lucas: Exactly. The typical deal works like this: a PE firm buys a regional DSO that already has maybe 20 locations. They provide debt financing to acquire 30 to 50 more individual practices over three to five years. Each practice gets purchased at about four to six times EBITDA, with a mix of cash and equity. Luna: What's the typical EBITDA margin for a solo dentist? I've heard it's around 20 to 30 percent. Lucas: Yeah, a well-run single practice can do 25 percent. But the PE thesis is that by centralizing billing, marketing, HR, and supply procurement, you can push that margin toward 35 percent. Plus you get leverage with insurance companies and lab fees. Luna: And the dentist gets a liquidity event. They take cash off the table and get a second bite at the apple through equity in the larger DSO. That's the classic roll-up pitch. Lucas: It's a pitch that's worked on hundreds of dentists. According to a 2025 report from the dental consulting firm Levin Group, the average selling dentist received 6.8 times EBITDA, and about a third rolled over equity into the DSO. Cash-flow dentistry, as they call it, has become a PE darling. Luna: But there's been pushback. Heartland Dental — the largest DSO in the country, backed by the private equity firm KKR — had a CEO departure in 2025 amid whistleblower complaints about over-treatment and quality issues. How does that factor in? Lucas: It's a real tension. Heartland grew from seven hundred offices to over a thousand in three years. When you push for same-store sales growth, the pressure to recommend more expensive procedures — crowns, root canals, implants — can be intense. The ADA has cited several studies showing that dso affiliated dentists perform more high-margin procedures per patient than independent dentists. Luna: So the efficiency gains come with an incentive problem. The PE firm wants to maximize returns, the dentist wants to practice medicine, and the patient wants affordable, necessary care. That triangle gets squeezed. Lucas: Exactly. And this is where the episode's title gets meaty. The buyout model isn't inherently bad — many DSOs provide better equipment and support. But the data shows that when a PE firm owns a DSO, the rate of procedure mix shift toward higher-cost items tends to increase. Lucas: Quick honest thing — we're able to dig into these because a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. That's literally what keeps this show ad-free and lets us do deep dives like this. Luna: Yeah, if these conversations have moved your work or your thinking forward, that support is what keeps the lights on. No sponsors, no pitch breaks — just listener funding. Lucas: Back to the dental roll-up. So we know the economics work for the PE firm if they can grow EBITDA and exit to a larger buyout or an IPO. But the timeline matters. Most dental DSOs are held for five to eight years. The 2024–2025 exit market was tight, but we're seeing a pickup in 2026. Luna: Who are the buyers? Are we seeing other PE firms buying from each other? Lucas: Yes — secondary buyouts are common. For example, in 2024, the PE firm Nautic Partners sold its stake in a DSO called Dental Care Alliance to another PE firm, Gryphon Investors. That deal valued the DSO at about $1.5 billion. The original PE buyer had acquired it for around $400 million six years earlier. Luna: That's nearly a four-times money multiple on a single investment. That's why this sector attracts so much capital. Lucas: Total PE investment in dental DSOs since 2015 is now over $8 billion, according to PitchBook. And that's just the equity piece. Debt financing adds another layer. The average acquisition loan for a dental practice these days is around $1.2 million, with interest rates of prime plus two to three points. Luna: So the debt is cheap relative to other small business loans. And the collateral is the practice's real estate and equipment. Lucas: Right. And here's a wrinkle: many of these loans are recourse to the DSO, not the individual dentist. So the PE firm can leverage the entire platform's cash flow to acquire more practices. That's how you go from 20 locations to 200 in under a decade. Luna: But does the quality suffer? I've seen anecdotal reports of longer wait times and less chair-side time from dso affiliated dentists. Lucas: The data is mixed. A 2025 Journal of the American Dental Association study found that DSO practices see 20 percent more patients per day on average, but also report slightly lower patient satisfaction scores. The trade-off is volume versus personalization. And that's a trade-off PE firms are willing to make as long as the revenue per chair keeps climbing. Luna: So what happens next? Are we going to see consolidation hit 50 percent in the next ten years? Lucas: I think it's likely — especially if interest rates stay moderate and the IPO market opens up for large DSOs. There's already a $30 billion market cap for dental consolidators if you count public companies like Envista and Align Technology, but they're more ortho and implant focused. A pure-play DSO like Heartland could go public within two years. Luna: That would create a huge liquidity event for the PE backers. And it would also put even more pressure on independent dentists to sell before the multiples shrink. Lucas: Exactly. There's a FOMO element. The average age of a U.S. dentist is about 50, and many are looking for an exit. PE firms are capitalizing on that demographic wave. Lucas: One final data point: the average multiple paid for a dental practice peaked at 8.2 times EBITDA in 2022, then dipped to 7.1 in 2025 as interest rates rose. It's now back to about 7.5. So sellers are still getting good prices, but the easy money era may be passing. Luna: That's a great note to end on — the cyclicality of the buyout business. Thanks, Lucas. Lucas: Thanks, Luna. And to our listeners — if you're a dentist thinking about selling, just know there's a PE firm ready to answer your call.