With higher inflation, interest rates and cost of capital causing a slow down in dentistry in the first half of 2024, there is a light at the end of the tunnel for one CEO.
J. Hedrick, the CEO of Dallas-based Smile Doctors, is optimistic about the gap in prices between practices and DSOs getting smaller with expectations resetting about what sellers can get on the market.
"I think right now, what you have is sellers still want to live off of the 2021 environment and buyers are solidly in 2024, which creates a little bit of a gap," Mr. Hedrick told Becker's. "The further we get away from the 2021-22 era will reset sellers' expectations a little bit as well. So I do think it'll get better."
However, don't expect this change to happen overnight. There are a few external factors to the dental industry that could push action more toward 2025, in particular the November election.
"I think the uncertainty around the election, regardless of which side of the aisle you're on, these elections are not good for harmony or making people feel good broadly," said Mr. Hedrick. "So once that is done, I do think it gives people a chance to kind of heal and move on and start to focus on the next four years, which I think will be helpful."
Smile Doctors, which supports more than 450 practices, is a big player in the dental M&A space. Mr. Hedrick says that it is important to know when to push for more inorganic growth and when to be patient.
"We have the ability to open or close the aperture there, depending on the environment where interest rates are, how performance is, and so that's certainly one that we will dial up or dial down based on, we think the macro environment and what it's giving us," said Mr. Hedrick.
For DSOs looking to expand their networks through acquiring dental practices, the economy might not open up until the start of 2025, according to Mr. Hedrick even as some in the industry feel the end of 2024 could bring more activity.
"To me, it feels a bit more like we'll see relief and activity in maybe the first half of next year, more than the back half of this year," said Mr. Hedrick. "But I know that I have counterparts in the space that are much more bullish about Q4 than I am right now."