During a Feb. 26 webinar hosted by Becker's Dental Review Bart Walker, a partner with law firm McGuireWoods; Geoffrey Cockrell, head of the McGuireWoods private equity group; and Karan Garg, a vice president with Houlihan Lokey, discussed the state of the dental practice management market and where the field is headed.
Consolidation
Mr. Walker, Mr. Cockrell and Mr. Garg all work heavily in the healthcare sector, and they have seen a healthy number of dental deals within the past 24 months. On the national level, there are large dental practice management companies with 400 plus offices across the country seeking to further consolidation in their existing markets and expand beyond that. While smaller, regional groups are finding opportunities for private equity backing and consolidation on a smaller scale. "The statistic I have heard, even with all of the consolidation happening, is that no more than 10 to 15 percent of dental visits are made to large dental groups," said Mr. Cockrell. "Consolidation is a long way from over. There is a lot of space left in the industry."
Though dental services organizations have a growing footprint in the market, there remains significant potential to expand that hold. The top 20 DSOs in the country hold less than 4 percent of the market, said Mr. Garg.
Development hurdles
While there is rich opportunity for consolidation and growth in the dental space, there remains a level of fragmentation that can present challenges. "There are smaller businesses with even 10 to 30 offices that aren't professional," says Mr. Garg. "There is no full management team, they are lacking in compliance and have no IT integration. If I were an entrepreneur, the lacking in these areas would be a big hurdle." Though the lack of cohesion can be an obstacle, it is not impossible to address. Addressing these areas drives values, particularly when a dental business is looking to place itself on the market for sale.
Private practice vs. DSO
DSOs hold a relatively small piece of the dental market pie, meaning a significant number of dentists are still practicing independently. But, this dynamic could begin to shift. Already the market is experiencing an uptick in consolidation, coupled with the fact that younger dentists entering the market may have a different mindset than their predecessors. "The traditional model has been for older dentists to practice with a younger dentist for a few years and then be bought out," said Mr. Garg. "But, these younger dentists are coming out of school with such high levels of debt." High levels of debt and reluctance to shoulder the struggles of running a business may make DSOs a more attractive option for young dentists just entering the field.
Growth opportunities
Two of the largest opportunities for growth in the dental field are the Medicaid model and models focused on specialty care. "The resurgence of the Medicaid model has enormous potential for de novo growth that you don't see in a lot of other health sectors," said Mr. Cockrell. The pediatric Medicaid business is particularly attractive as the PPACA has expanded coverage for younger patients.
In the realm of specialty services, areas such as periodontics, endodontics and orthodontics are becoming increasingly attractive. "These sectors clearly provide a long runway for growth," said Mr. Garg. "If you do it the right way, investors can really capitalize on these opportunities."
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