It's a game of 'musical chairs and Russian dolls': DSO exec on consolidation

Patience is an important virtue for DSOs to hold for the rest of 2024 and beyond, as consolidation in the dental industry could pick up with large, well-funded DSOs beginning to acquire smaller groups. 

What was a strong 2023 for dentistry led to some uncertainties at the start of 2024, but as the year has progressed, more executives feel that the back half of the year will bring more action for DSOs. 

With private equity firms becoming more prominent in the DSO landscape, there are more opportunities for funding. However, those opportunities are not endless, and not every DSO is going to receive an influx of cash. 

According to Greg White, DMD, president and CEO of Lexington, Ky.-based PepperPointe Partnerships, this could lead to the larger DSOs that have access to capital start to swallow some of the smaller groups.

"It's a combination of musical chairs and Russian dolls, you have X number of funding opportunities, and you have X number of DSOs that need the funding," Dr. White told Becker's. "As the number of DSOs that need funding outpace the money available, you're going to see some folks that are not going to be able to have a chair when the music stops. That is going to precipitate the Russian doll phenomenon, which means the larger will eat the smaller." 

PepperPointe and other DSOs that do not require much in the form of capital are not as concerned with the game of musical chairs and not being able to find a seat. They can afford to be patient and methodical.

"I am sitting patiently while growing organically and waiting for the dust to settle to see where those big opportunities are to swing for the fences and get the home runs," Dr. White said. "I would much rather do fewer deals, but better deals than to grow for the sake of growth." 

For DSOs, it is crucial to be both operationally and financially sound. By being both of those things, companies do not have to panic and search for the exits before the music stops. 

"They know the last note is getting ready to be played and there's nowhere to sit down, so they're looking for exits," Dr. White said. "The ones that have the capital are going to be able to be a solution for those folks, albeit it may not be the solution that reaches their primary goals, but it is going to make the strong, stronger and the weak, weaker."

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