The increase in interest rates and the cost of capital in 2023 and 2024 has led to fewer DSO deals. However, with rates beginning to come down, some dental industry executives are forecasting an uptick in activity.
Here is what five executives throughout the industry are predicting when it comes to the economic conditions and how dentistry may be impacted as we move into the last quarter of 2024 and into 2025.
Gary Kadi. Founder of NextLevel Doctors Group (New York City): We believe in creating our own internal economy of scale. You can't control circumstances and we can't predict the future. Money used to be a commodity, and now today, the cost of money is real. You just have to be smarter with your dollars, how you spend them and how you're buying practices. For sure, in a presidential election year, there are doubts. In November, we're going to know a lot more, but the one thing we do know is that there are always tax positions. There are always different options. We look to create a highly profitable business that takes care of people along the way, and then we adjust based on any external circumstances. We don't plan given the circumstances, we plan based on what we know we can do and what we have control over.
J. Hedrick. CEO Smile Doctors (Dallas): 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. 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. 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, but I know that I have counterparts in the space that are much more bullish about Q4 than I am right now.
Hunter Smith, DDS. Co-Founder and CEO of GPS Dental (Jonesboro, Ark.): I think versus this time last year or in the beginning part of 2023, we were seeing rate increases quarterly. We were seeing the upward trajectory of the bell curve ... What people are seeing now is that it has at least been flat for some period of time and the conversations about it coming back down are happening now. Once you start to see that, then these deals are going to get more hyper competitive. We're going to kind of be back in the cowboy era a little bit. Those that can execute from the last year should be able to execute going forward. That's why those of us that have performed well during that are seeing positives for the latter half of this year.
Stephanie Townsend. Senior Vice President of Operations (Effingham, Ill.): We are closely monitoring economic indicators, including interest rates. While we stay informed about these trends, our primary focus remains on our core values. These values drive our business success and support our doctors through various economic conditions. We've worked to be adaptable in response to economic fluctuations by investing in timeless, evergreen values. Our goal is to help patients afford the treatment they need, even in a tighter economy with less discretionary income. To achieve this, we are creating opportunities and awareness for financing and savings plans outside traditional dental insurance, helping patients bridge financial gaps.
Stephen Saukaitis. CEO of Select Dental Management (Florham Park, N.J.): Select continues to see strong demand across our practices despite economic challenges. We anticipate that borrowing costs will continue to decrease through the end of the year, which may encourage more deal activity for DSOs.