Over the past decade, large Dental Service Organizations (DSOs) fueled their growth primarily through aggressive acquisitions. Private equity capital, cheap debt, and a highly fragmented dental market made consolidation the fastest path to scale. However, the environment has changed — and so has the strategy.
Today, many large DSOs are pivoting toward de novo (scratch start-up) development as a core growth engine.
Several major organizations have publicly reinforced this shift. For example, PDS Health is planning 100+ de novo practice openings as part of its forward growth strategy, building on dozens of new locations opened in the prior year.
Other DSOs that historically relied on affiliations are also testing or expanding de novo models as recapitalization cycles and acquisition economics evolve.
Why the Strategic Shift?
1. Acquisition multiples compressed ROI
As consolidation accelerated, competition for quality practices drove purchase prices higher, compressing returns.
2. Integration challenges
Many DSOs discovered that scaling acquired practices operationally was harder than underwriting them financially. Execution gaps between corporate strategy and clinical delivery have slowed performance in some groups.
3. Cultural and clinical alignment
De novos allow DSOs to build systems, culture, payer mix, and clinical protocols from day one — avoiding legacy inefficiencies.
4. Scarcity of premium targets
High-performing, doctor-led practices with strong EBITDA have become harder — and more expensive — to acquire.
Financial Struggles Among Large DSOs
While the DSO model remains viable, segments of the industry are facing financial pressure.
A recent high-profile example: Affordable Care, a large multi-state DSO, engaged restructuring advisers due to debt challenges stemming from a leveraged buyout. Rising interest rates significantly increased the cost of servicing floating-rate loans.
Key Financial Headwinds
• Rising interest rates
Debt-funded rollups are more expensive to maintain. Higher borrowing costs erode margins and slow acquisition pipelines.
• Leveraged buyout structures
Private equity-backed DSOs often carry substantial leverage, making them sensitive to economic cycles.
• Same-store growth pressure
With acquisitions slowing, DSOs must now drive organic growth — an area where many struggle operationally.
• Labor and reimbursement pressures
Staffing shortages, wage inflation, and insurance compression continue to strain margins across multi-site groups.
• Consumer spending sensitivity
Elective procedures — especially implant and full-arch — are vulnerable during economic slowdowns.
How This Impacts Dental Practice Valuations
The evolving DSO landscape will have nuanced — not universally negative — effects on practice values.
1. Valuation Multiples May Normalize (But Not Collapse)
During peak consolidation, EBITDA multiples expanded significantly due to:
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Cheap capital
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Heavy PE competition
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Platform expansion demand
As capital becomes more expensive and some DSOs retrench, multiples may stabilize or soften — particularly for average-performing practices.
However, strong practices remain highly desirable acquisition targets.
Typical acquisition ranges still often fall around 4–7× EBITDA depending on specialty, growth profile, and market position.
2. Premiums Will Shift to “De Novo-Proof” Practices
Ironically, the rise of de novos increases the value of certain existing offices — specifically those that are difficult to replicate, such as:
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Prime dental office real estate locations
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Dense patient bases
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Specialty referral hubs
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Digitally integrated practices
Practices with modern dental technology, strong efficiency, and loyal patients continue to command top valuations.
3. Buyer Pool Fragmentation
As some large DSOs slow acquisitions:
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Mid-market DSOs and regional groups may fill the gap
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Doctor-to-doctor transitions could rise again
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Joint venture and minority recap deals may expand
This diversifies — rather than eliminates — exit opportunities.
4. Greater Valuation Scrutiny
Expect buyers to place heavier emphasis on:
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Dental Provider dependence
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Hygiene profitability
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Payer mix
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Staffing stability
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Same-store growth trends
The days of “buy first, optimize later” underwriting are fading.
De Novo Expansion vs. Acquisition — Valuation Implications
| Factor | Acquisition Model | De Novo Model | Valuation Impact |
|---|---|---|---|
| Capital required | High upfront | Phased investment | Downward pressure on marginal practice multiples |
| Speed to scale | Fast | Slower ramp | Slows acquisition urgency |
| Integration risk | High | Low | Rewards turnkey practices |
| EBITDA at launch | Immediate | Delayed | Buyers more selective |
| Cultural alignment | Variable | Controlled | Premium on aligned practices |
The Big Picture: Short-Term Pressure, Long-Term Stability
Despite financial strain in parts of the DSO sector, the consolidation thesis remains intact:
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Only ~20–25% of practices are DSO affiliated today.
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Private equity continues targeting dental due to recurring demand and strong margins.
This means:
The buyer pool isn’t disappearing — it’s maturing.
Less speculative capital → more disciplined valuations.
Forward Valuation Outlook
Likely Trends (Next 3–5 Years):
1. Slight compression in average multiples
Especially for insurance-heavy or underperforming offices.
2. Continued premiums for elite practices
Multi-doctor, specialty, and fee-for-service models remain highly sought after.
3. More joint venture structures
Equity rollovers and doctor partnerships will increase.
4. De novo competition in suburban growth markets
May temper valuations where new builds are easy.
5. Distressed acquisition opportunities
Financially overleveraged DSOs may divest assets — creating buying opportunities.
Bottom Line
The shift toward de novo expansion — combined with financial strain among some large DSOs — signals a transition from hyper-inflated acquisition markets to a more disciplined, operationally focused environment.
What this means for valuations:
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Average practices → modest downward pressure
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High-performing dental practices → valuation resilience or growth
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Strategic locations → increased scarcity value
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Specialty and multi-site → continued PE demand
In short:
Valuations aren’t collapsing — they’re recalibrating.
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