The dental service organizations (DSO) market has entered a phase of cautious yet fundamentally important reassessment. Although 2025 did not become a period of rapid growth and record-breaking deals, industry experts agree that the foundations for a more significant recovery are being laid now. In the latest episode of the discussion series All Things DSO, Planet DDS Chief Editor Beth Gaddis discussed the current state of the market with Brian Colao, Director of the DSO Industry Group at the law firm Dykema. The conversation focused on mergers and acquisitions, interest rates, consolidation, and shifts in investment expectations for the 2026 horizon.
According to Colao, the external calm does not reflect the actual processes. He emphasized that significant movement is occurring behind the scenes, and by the end of the year, the market may see several announcements that could provide new momentum for deals.
Special attention in the conversation was given to monetary policy. The day before the webinar, Federal Reserve Chair Jerome Powell indicated that additional interest rate cuts were possible by the end of the year. Colao expressed confidence that at least two new cuts appear highly likely.
In combination with the adjustments already implemented, this brings the market closer to a more favorable financing environment, which is critically needed to trigger delayed deals. Although 2025 is still perceived as sluggish, according to Colao’s forecast, 2026 could benefit from increased liquidity in the M&A market. He characterized the upcoming period as “slow but steady,” expressing confident optimism about the coming year.
One of the most notable events was the acquisition by Heartland Dental of the Smile Design Dentistry network in Florida, comprising approximately sixty clinics. According to Colao, this deal is not an isolated case but indicates the resumption of a trend that was temporarily halted due to market uncertainty.
He noted that major DSOs traditionally target not only small practices but also mid-sized platforms comprising twenty-five to seventy clinics. In the case of Heartland Dental, the strategy remains disciplined and pragmatic: deals are executed when they truly make economic and strategic sense. According to Colao’s forecast, further large-scale consolidations can be expected, as well-capitalized groups continue to seek growth opportunities.
One of the webinar audience questions concerned the practical consequences of consolidation, particularly the fate of centralized services and management positions after mergers. Colao’s response was direct and realistic. When a smaller DSO is acquired by a larger one, the primary objective becomes maximizing overhead cost reduction.
He cited the example of a group of thirty clinics with corporate expenses of about five million dollars, which were almost entirely eliminated following the deal. Meanwhile, clinical teams at the individual practice level are generally retained, whereas the administrative infrastructure is integrated into the acquirer’s structure. This approach allows for a sharp increase in the EBITDA metric and improves the financial performance of the consolidated organization.
Despite signs of revival, not all deals reach the final stage. Colao highlighted several reasons that continue to constrain activity. Even with anticipated rate cuts, uncertainty regarding borrowing costs still exerts pressure on large transactions.
The quality of EBITDA is also of significant importance. Buyers are increasingly analyzing how sustainable and reproducible the profit is, rather than merely reflecting past performance. Another risk factor is technological fragmentation. The use of multiple practice management systems can negatively impact a company’s valuation, as it complicates integration and analytics. The lack of a unified data structure and systemic consolidation often makes investors hesitant or leads them to abandon deals altogether.
Activity in the public markets also became a topic of discussion. In Canada, one of the most notable deals of the year was GTCR’s acquisition of Dentalcorp. Colao viewed this move positively, noting that exiting the public market grants the company greater strategic flexibility.
In the United States, recent attention has been drawn to the IPO of Park Dental Partners, which raised approximately twenty million dollars. Although this is a relatively small offering, it demonstrates that going public is not only feasible for billion-dollar DSOs. Nevertheless, Colao believes that the next wave of IPOs will primarily come from the largest players, for whom further growth in the private format is becoming constrained.
Significant changes are also occurring in the regulatory sphere. The American Dental Association and the Association of Dental Service Organizations have achieved substantial progress in reforming insurance legislation: in 2025 alone, thirty-seven reforms were adopted. The most important areas include requirements for medical loss ratios, which obligate insurers to prove that funds are directed toward patient care rather than administrative expenses, as well as new rules for the use of virtual credit cards, which now require voluntary enrollment instead of automatic enrollment.
Additionally, regulation of the use of artificial intelligence is beginning to take shape. Colao supported the application of AI in clinical decision support systems but expressed serious concern about its use by insurance companies for automated claim denials.
Investors are increasingly focusing less on scale alone. The spotlight is on comparable growth metrics over the past twelve to twenty-four months, rather than data from five years ago. Colao noted that particular value is placed on practices that demonstrate growth in new patient numbers, expansion of services per patient, and reduction of overhead costs through operational efficiency.
According to him, the ability to demonstrate stable results in challenging years, such as the period from 2023 to 2025, is one of the strongest arguments for investors.
An interesting observation was that smaller, doctor-owned groups willing to provide personal guarantees continue to secure relatively favorable lending terms. The greatest difficulties arise for mid-sized DSOs that are unwilling to provide personal guarantees but have not yet reached a level of operational efficiency attractive to banks.
Colao emphasized that for financial institutions, DSOs are not an asset that can be easily liquidated. In the event of management difficulties, recovery can take up to two years, which increases risks for lenders.
Addressing the question of whether it is advisable to sell a business, Colao once again emphasized that there is no universal answer. If the payer structure is balanced, corporate culture is resilient, technologies are unified, and the growth history is compelling, 2026 could be a favorable moment for an exit. Otherwise, a more reasonable step would be reinvesting in operational readiness and internal processes.
In conclusion, Colao expressed cautious yet confident optimism. He noted that the market is unlikely to set records; however, under favorable conditions, significant recovery is possible. He considers a gradual and steady improvement to be a more realistic scenario.
Отрасль DSO сегодня находится в стадии восстановления, а не отступления. Победителями станут те организации, которые уже сейчас инвестируют в дисциплину, данные и устойчивость. Именно эти факторы, по мнению экспертов, определят лидеров стоматологического рынка в 2026 году и далее.
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