The dynamics of managed group practices and DSOs has changed. Ten years ago, they made up less than 2% of the industry. Now they are approaching double digits. Many more dentist-entrepreneurs have entered the space, and have aggressively grown single practices into multiple locations. Most of these newer players range in size from three to 10 locations; a small percentage has grown to 15 to 20 locations; a tiny percentage has grown to more than 50 locations.
Those with three to 10 locations are facing many perplexing issues. The larger DSOs, such as Pacific, Heartland, and Aspen — and to a lesser extent, Smile Brand and Affordable — are growing at a rapid pace. They have established practice models, infrastructures, experienced executives and proven personnel. They can scale rapidly, and they have deep pockets. They can get financing easily, given their track record. With the “big three” producing revenues that exceed a billion dollars a year, capital is crazy for the industry.
These mega-DSOs are pulling those DSOs with 50,100, and 200 practices rapidly along in their wake, so the growth in this intermediate space is also booming. Both large and mega-DSOs now have their engines in place to stay on the track and haul. Today, these larger groups and the mega-DSOs are looking for small, well-established groups to acquire, and for good reason.
Small groups have matriculated in the “school of hard knocks.” Small managed-group practices have been through the hard work and heartbreak of establishing moderately successful small groups. They understand the importance of leadership, of culture, and of solid financial management. They appreciate what large and mega-DSOs have been through to be able to form models that are scalable and replicable. They recognize just what quality executives can do for a company, and the importance of the expertise they bring to the table.
From Individual Owner to Managed-Group Practice
Owners of individual practices believe their practices are far more treasured than their true market value. Solo-practice owners overestimate their practice’s worth, the quality of their leadership, and the value of their current team. Solo-practice owners are ignorant of what goes into making a DSO successful, and the power it brings to leadership and operations.
Appreciation brings forth understanding. Because they lack appreciation for what DSOs have been through and what they provide, solo practices make tough acquisitions. When bringing on a solo practice, it’s necessary to shift the culture, alter the infrastructure, and get the right people on board so the solo practices can operate as part of the team. It’s far more difficult than bringing on a small group that very much appreciates what a large DSO has accomplished and car legitimately offer.
Additionally, owners of small groups recognize the amount of work ahead of them if they are to grow their enterprise to $25-$100 million in revenue. They realize the struggle in creating a real C-Suite, securing private equity, setting up a resource center, developing a recruiting department for associates, and so on.
But these small-group owners also have a very deep desire to be independent operators, entrepreneurs who are able to substantially grow their dental businesses. They love the challenge — the many tests that they have to pass, the competition, the comrades-in-arms with whom they have joined. They want to play in the big leagues.
These small groups find themselves in a “push-pull” situation. Large and mega-DSOs are offering good money, relief from many management burdens, co-ownership, and direct support in growing their businesses in exchange for some loss of autonomy and forfeiture of individual recognition. Rather than being king, these dentist-entrepreneurs would become just another knight at the round table. So ego becomes a big factor.
Now add the question: “Are the large and mega-DSOs acquiring at such a rapid rate — since they’re able to offer better compensation and benefits packages to staff and associates — that they are squeezing out small groups? Has the DSO industry tilted so far that if dentist-entrepreneurs stay independent, current opportunities for being acquired will disappear?”
“Should I stay, or should I go?” is now the question of the day.
The Dentist Entrepreneur Organization realizes that this dilemma is rapidly gaining momentum. We’re producing an open conference, the DEO Fall Summit — Should I Build, Sell, or Partner? Here, our clients and small-group practices will have the opportunity to connect with many well-established DSOs, who will present their offers and their stages of acquisition or partnership, and the benefits and costs for emerging and small groups.
If you are a part of an emerging or small-group practice, given the current environment and your future, you should not miss this event.
— Marc
