Dental Practice Financial Services Insights
Three trends in the dental practice market include the increased activity of private equity firms, changing business models, and making investments. Complete details for each trend have been outlined below.
- PE firms are supporting consolidation in the dental practice industry by continuously buying dental practices one after the other.
- As per reports and expert opinion, the industry is yet to see even more private investment.
- This trend is booming because this industry does not absorb the impact of economic changes. Furthermore, PE firms also supply small-practice owners "with the liquidity they need to optimize their practices."
- An example of a recent PE firm acquiring a dental practice is the 2017 acquisition of Jefferson Dental by Brentwood Associates.
- "The significant expected returns and the high valuations from recent DSO deals" are expected to continue to favor PE investment into the dental practice industry.
- Dental Service Organizations (DSOs) are on the rise and many newcomers to the dentistry practice market have been favoring DSOs as opposed to their own businesses because of a few reasons.
- As per Modern Dental Network, solo dentistry practices are disappearing at a rate of 7% per year. The American Dental Association (ADA) also reported that 7.4% of dentists are currently participating in DSOs.
- 16.3% of new dentists, between the ages of 21 and 34, are part of DSOs as opposed to the 7.4% overall figure.
- If things keep going like this, DSOs can claim as much as 30% of dentists by 2021, as predicted by a report.
- DSOs are favorable as compared to self-owned business in terms of "managing costs, decreasing expenses, enhancing access, negotiating with third parties and vendors, securing and retaining associates, providing strong benefit packages for staff and providing dentists with a solid exit strategy. There’s no generational divide on the appeal of DSOs, with both millennial and boomer dentists finding them attractive."
- Additionally, joining a DSO gives new graduates the opportunity to focus on clinical practice rather than worrying about running a business. Apart from that, it allows them to have a more predictable income minus the additional financial obligations.
- Owing to the huge amount of investment required to start a dental practice, which can be as high as $1 million in some cases, debt-burdened dental school graduates naturally favor DSOs as opposed to starting a dental practice. As opposed to new graduates, boomers prefer DSOs "because they can work reduced schedules without the headaches of running a business as they transition towards retirement."
Making an Investment
- When dentists are about to make an investment, whether it be for a new offering or an equipment upgrade for an existing offering, they consider going through "a wide variety of sources [including] clinical research, peer-reviewed journals, the recommendations of key opinion leaders, and more."
- Jim Wiggett, interim CEO of The Dentists Supply Company, articulates the goal of such behavior to be looking for the best value. He says, "Value is the balance between the quality/authenticity of the product and its price. For highly disposable products, dentists may be driven more by price, but anything that is going into a patient's mouth or has a clinical application requires more of a quality standard."
- Dental publications and colleague influence ranked the most influential factors when it comes to researching new equipment.
- Connections with colleagues are many times formed through professional associations. "Approximately 80% of dentists surveyed said they are members of at least one professional association, and of those respondents, 54% consider their professional associations to be an important resource when making product purchasing decisions. In addition, 38% of the dentists surveyed said they were members of study clubs, and 74% of those consider the study clubs to be an important resource when making purchasing decisions."
- 75% of survey respondents also voted for research, stating that research is also very important when switching to a new product.
- As many as 53% of dentists invest more than 10% of their annual budget on new technology. In terms of new technology, 65% of dentists have digital sensors, 39% have lasers, 28% have intraoral scanning, 17% have cone-beam computed tomography (CBCT)/3D imaging, 15% have in-office milling, and 4% have 3D printing.
We have identified trends in the dental practice market, specifically relating to financial services, e.g. acquisitions, franchising, and streamlining elements like business operations, team members, and new equipment. We have focused on the dental practice market in the United States. Trends have been identified by going through several credible industry sources and keeping an eye out for things that appear across multiple publications. Trends have also been based on industry surveys and statistics.