After a strategic reset in recent years to build deeper partner value, DSO leaders are now eyeing 2025 as the year to ramp up expansion efforts, potentially charting a new trajectory for consolidation for the future.
Two DSO leaders — Weston Spencer, DDS, the CEO SPP Dental Partners, and Robert Rubino, the CEO of Qualitas Dental Partners — recently joined the Becker's Dental + DSO Industry Virtual Forum to discuss the future of DSO consolidation.
Question: How do you see DSO consolidation evolving over the next five years?
Dr. Weston Spencer: Everybody feels like it's going to be really bullish going forward [with] the growth of group dentistry and consolidation in general. We'll often talk with partners about what's happening, just to kind of put numbers to what they're feeling or seeing in their areas. We reference a report from the [American Dental Association] in 2019. At least 100,000 [of practices were estimated to] probably change hands over this next decade from 2020 to 2030. That number is actually estimated to probably hit that number closer to 2026 or 2027, so that definitely escalated ... more than half of those are happening between a dentist and a group in some form.
There is a lot of money on the sidelines that has been waiting to be deployed, whether it's private equity [or] other groups holding on to some of that money ready to invest more and more soon, so just a ton of that is waiting to go. It feels like the last year or two, a lot of [DSOs'] focus has been on driving up the quality of their companies and working on having good value within the group and a little bit of M&A, and now it feels like everybody's just like, "Okay, enough is enough. Let's go. Let's start partnering with more and more practices." So, we expect a significant increase in what people thought years ago was a steady increase to probably speed up pretty quick over the next few years.
Robert Rubino: The average age of the dental practitioner in one of our states is over 60, and in a couple of the other states it's kind of late 50s, so the clock's running out on a lot of people. So, they're naturally going to have to transition at some point. How do you get there? I would agree with Weston, too. I think you're going to see more and more practices trying to figure out how they do that, and maybe they want to join a group. The old model, like in my Dad's day because he was an oral surgeon, they would pass [the practice] on to an associate, and the associate would buy in. You see, obviously, less and less of that today because, number one, it's really expensive to go to dental school, and if you're any type of specialist now, you're coming out with a lot of debt and it's really hard to buy in at those levels. Two, there seems to be a little bit of reluctance on the part of dentists coming out of school now to really take the mantle and run these individual practices, whether they're being taught that, whether that's just a new generation, or whether they actually see how difficult it is to run a private practice with higher costs that are going on — not only the inflation and supply costs, but also the wage inflation that's going on out there — and the regulatory burden that's coming on. The regulatory burden that's going to continue to come down in the industry is going to raise costs as well. So, we think the demographics are favorable to consider continued consolidation.
We do think it has to change a little bit from the past. Around 2021-22, you had a lot of irrational exuberance going on, in terms of acquiring, that bigger was necessarily better. Well, as we got to '23 and '24, a lot of those models did not perform very well. There was a lot of equity destruction in those models because there wasn't consolidation of the enterprise or wasn't an industrial logic to what they were putting together … We firmly believe that the successful partnership model of the future is also going to be one [in which] diligence is practiced very well, and understands how that new practice fits strategically into what they're doing. Ultimately, it's better for patients, it's better for the providers and it's better for the teams that are taking care of those patients. We're cautiously optimistic, but we're striking a cautionary tale to everyone.