#494: DSO Dynamics: The Trends You Need to Understand
Mar 20, 2024
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Explore the current trends of DSOs and dentistry with insights on choosing reliable partners. Learn about challenges in the DSO landscape and the impact of macroeconomic conditions. Discover strategies for monetizing a dental practice and insights on financial planning for a younger demographic.
Private equity firms are adjusting to shifting market conditions in the DSO landscape, seeking practices with strong EBITDA and growth potential.
Valuations of DSOs remain steady despite some being paused, with emerging DSOs filling the void and younger doctors in high demand.
Deep dives
Current Market Conditions and DSO Expectations
Interest rates are aligning with historical norms, yet private equity has not adjusted return expectations. A recalibration of expectations is expected over the next six to twelve months, with capital markets likely opening up. Due to tight market conditions, some DSOs are on pause, managing debt or operational growth issues.
Impact on Valuations and Sell-Side Activity
Despite some DSOs being sidelined, valuations have remained steady due to emerging DSOs filling the void. A third of DSOs are currently on pause post-COVID, focusing on operational catch-up. The scenario has not adversely affected class A quality asset valuations.
Factors Affecting Ideal DSO Candidates
DSOs seek practices with 1.5+ million revenue, multiple operators, and growth potential for lower post-affiliation multipliers. Younger doctors are in high demand for DSOs. Fit, culture, and personality also play a significant role in partnership success.
Navigating DSO Options for Multi-Location Practices
DSOs generally prefer all-or-nothing deals with practice owners, offering minimal options for partial sell-offs. More locations don't always equate to higher value, with overhead implications. Multiple locations can dilute EBITDA and affect valuations.
Due to shifting market conditions, the DSO landscape is changing with private equity firms adjusting to new circumstances—but DSOs are still looking for the right practices that have a strong EBITDA and potential for growth. On this episode of the Dentist Money Show, Ryan and Brannon Moncrief, Principal and CEO of McLerran & Associates, look into the current trends of DSOs and dentistry. Book a free consultation with a CFP® advisor who only works with dentists. Get an objective financial assessment and learn how Dentist Advisors can help you live your rich life.
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