All Things DSO: Dental Industry Outlook for 2025
The dental industry is poised for a dynamic year in 2025, marked by cautious optimism and strategic shifts. Brian Colao, director of the Dykema DSO Industry Group, shares his expert insights on the January 2025 edition of All Things DSO. Colao discusses a range of topics, from changing market conditions to mergers and acquisitions (M&A) trends, shedding light on the factors shaping the future of dental organizations. His observations underscore the importance of adaptability and forward-thinking strategies as dental support organizations (DSOs) address both challenges and opportunities in the coming year.
Market Optimism with a Cautious Approach
Reflecting on market conditions, Colao noted that the dental industry is on an upward trajectory, though the pace is slower than anticipated. “There’s optimism,” Colao explained, “but it’s guarded or cautious optimism.” Interest rate decisions by the Federal Reserve have tempered market enthusiasm, with inflation remaining above the 2% target. While this has led to a slower start to 2025, Colao believes the latter half of the year will see more significant activity.
M&A: Larger Deals Taking Longer to Close
Larger M&A deals will likely gain momentum by the third or fourth quarter of 2025. “Even deals that might have taken three months to close in 2021 could now take six to seven months,” Colao said. However, smaller deals involving one to five offices are already moving forward, demonstrating resilience in this segment of the market.
For sellers with one or two offices, acquisitions by established DSOs remain the most common scenario. Colao emphasized that despite the slower pace, “deals are getting done, and there’s still strong interest from various investor groups.”
The Role of Same-Store Growth
DSOs are focusing on same-store growth to boost EBITDA (earnings before interest, taxes, depreciation, and amortization). Tools like AI-powered diagnostics, patient finance platforms, and membership plans have played a significant role in improving practice performance. However, Colao pointed out that many organizations held back on implementing these tools in 2024 due to budget constraints. “This year,” he said, “practices are better positioned to invest in technologies that drive growth.”
The Importance of Practice Management System Consolidation
One critical factor for operational efficiency is consolidating to a single practice management system (PMS). Colao remarked that the market has largely moved away from operating on multiple PMS platforms, a strategy some DSOs experimented with in the past. “Having three or four different PMS systems is too inefficient,” he explained. “Consolidation is now the standard, whether it’s PMS systems, AI tools, or other applications.”
Trends in Specialty Integration
Another growth strategy for DSOs involves integrating specialty services such as orthodontics, oral surgery, and endodontics into their practices. Colao highlighted that this approach can significantly enhance practice value. “Incorporating specialty services is not just about adding capabilities,” he said. “It’s about maximizing the overall value of your organization.”
Shifting Expectations for EBITDA and Multiples
The disconnect between seller expectations and market reality continues to be a challenge. Colao noted that many sellers remain anchored to valuations from 2021, which are no longer realistic. “My mission is to educate sellers on what the market is bearing now,” he said. While some sellers may feel disappointed, aligning expectations is crucial for successful transactions.
Young Dentists and Evolving Career Paths
The dental industry is seeing a generational shift in career priorities. Colao observed two distinct groups among younger dentists: entrepreneurial professionals who want to build their own practices and lifestyle-focused dentists who prefer employment with DSOs. “The entrepreneurial dentists are either starting their own offices or partnering with DSOs through joint ventures,” he explained. “Meanwhile, lifestyle dentists are gravitating toward DSOs for stable employment and flexible work options.”
Maximize Growth Opportunities in 2025
Looking ahead, Colao expressed optimism about the dental industry’s ability to adapt and thrive. “This year, practices are in a better position to invest in technology and tools,” he said. While the market may not return to the red-hot conditions of 2021, he expects to see more M&A deals and significant advancements in operational efficiency.
For practices looking to maximize value or explore partnerships, Colao’s advice is clear: focus on operational consolidation, invest in growth-driving technologies, and align expectations with current market conditions.
