Invisible Dental Support Organization (IDSO) partnerships with dental practices of all types continued to accelerate during 2023. Many LPS clients achieved new, record high values. A large influx of new IDSO bidders empowered by billions of dollars of fresh global, institutional capital drove values up. The investors in dental practice consolidation are not just Private Equity, but also trillion-dollar Sovereign Wealth Funds and multi-billion-dollar Family Offices which invested billions in IDSO growth in 2022 and 2023.

The opportunities for specialists in 2023 were especially broad with now 17 OMS-only, 14 Ortho-only and 10 Dental Trifecta IDSOs all competing to become a pediatric specialist, orthodontist, or an OMS doctor’s silent partner. (Learn more about the Dental Tifecta DSOs on my podcast) Growing periodontic, endodontic and implant-focused practices are also achieving six or more qualified bidders from single and multispecialty IDSOs, and GPs have dozens of qualified options.

Consolidation and IDSOs are beneficial to many practices but can bring new and growing risks to doctors eager to remain independent. IDSOs operate in all 50 states in GP and all specialties. They can be a doctor’s friend or a fiercely competitive foe.

Some IDSOs have now partnered with over 1000 practices in dozens of states. Their size enables far lower costs on virtually everything, including supplies, technology and benefits. In addition, many of the larger IDSOs are now reimbursed by payers at higher rates than achieved by independent dentists. 

Doctors become an IDSO partner by selling 51% to 90% of their practice for cash at today’s favorable tax rates. They reduce administrative burdens, gaining family time, and utilize their silent partner’s resources to grow bigger, faster, and more profitably, benefitting both the owner doctor and the IDSO silent partner. With the right IDSO partner, doctors continue to lead their practice with their brand, team and strategy for years or decades with full autonomy.

Interest rates have impacted the time required to complete an IDSO partner search and many IDSOs have limited their new partnership goals for 2024. Fortunately, the many newly capitalized IDSOs have taken their place and values in 2023 continued to achieve records for growing practices in desirable geographies. But doctors in their 30s and 40s are an increasing number of new IDSO partners, impacting values for doctors in their 60s.

I expect 2024 could see a minor reduction in values achieved due to the new rate environment, U.S. political uncertainty and growing global strife. I hope I am wrong, but at least the cash received by doctors up front in an IDSO partnership now earns a five+ percent yield in risk-free investments!

Environment, Social and Governance (ESG) Investment Impact on Practice Values

ESG investing is a hot topic in 2024 with trillions of dollars pursuing ESG related investments globally. The total investable dollars is murky given the various definitions of ESG, but Bloomberg estimates that ESG labelled funds have attracted over $7 trillion in assets. That compares to over $17 trillion estimated by the U.S. SIF Foundation, which is the “non-profit hub for sustainable and impact investment sector in the United States”.

The impact on U.S. dental practices of the growing ESG trend began several years ago. ESG focused funds started investing in IDSOs which provided government paid care for pediatric and orthodontic patients including Medicaid. I expect this trend will accelerate as ESG investments will potentially increase the institutional demand to deploy capital to increase affordable access to dental care via IDSOs and their practice partners. The Dental Trifecta IDSOs with ortho, pedo and OMS partners will likely be a major beneficiary of this new capital.

A hint at what some ESG investors are targeting comes from the ESG web page of Blackrock, the world’s largest investment manager, which is already an investor in other IDSOs in the U.S. through non-ESG focused funds. “Health is probably the most established sector within private equity and there are many opportunities to improve access to and affordability of basic medicines and healthcare services”…

I predict that the values for practices which accept Medicaid and other government supported dental care will be positively impacted by ESG investors in the coming quarters and years.

Doctors are urged to learn the details of an IDSO partnership as larger practices will ultimately join one or compete with many. We are still in the early innings of dental consolidation, but like other provider-based businesses (MD, Vet, etc.), consolidation is either predominantly completed or accelerating quickly. And as in any growing industry consolidation, there will be winners and losers. Doctors should become fully educated and choose wisely.

Chip Fichtner