DSO leaders are using their experiences from the tough economic times of the last couple of years to guide their strategies for growth in 2025.
Some of the challenges facing these organizations stemmed from a lack of proper planning or overspending without having the resources to support acquisitions, several executives have shared with Becker's.
Gary Kadi, founder of NextLevel Doctors Group, told Becker's he has seen this in recent years with smaller groups that failed to recapitalize.
"There has been such wild growth with consolidation in the last few years, that I believe we’ll start to see some small groups fail," he said in 2024. "What started as highly successful practices are now struggling to scale because they didn’t have a plan in place and, almost more importantly, don’t have anyone to spot inefficiencies and proactively course correct."
Josh Davis, the chief development officer of Imagen Dental Partners, told Becker's last year that many companies went on a buying spree without making sure they were able to deliver on their value proposition.
"[Some DSOs] promised a lot over the last few years with the expectation that they were going to put the services and the support in places they go," he said. "Many have had to slow down on the acquisition side and start to work on cobbling together the value proposition they originally offered but now can't deliver on."
Now that many groups have taken the time to focus on organic growth and supporting their partners, leaders are ready to kickstart their inorganic growth initiatives again.
"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'," Weston Spencer, DDS, the CEO SPP Dental Partners, told Becker's. "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."
With the excitement back up for the M&A market, Robert Rubino, the CEO of Qualitas Dental Partners, told Becker's it will be important for DSOs to be strategic going forward to avoid past mistakes.
"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," he said. "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."