The Potential Impact Of Lower Interest Rates On DSO Dental Practice Acquisitions
Author: Darren Sardoff, President & Chief Investment Officer:
Lower interest rates are on the way: What impact will that have on the market for DSOs to acquire dental practices?
With all indications pointing to the Federal Reserve commencing an interest rate reduction program starting this month, we thought we would share our thoughts on the potential impact on the dental practice sales market.
Dental Service Organizations (DSOs) have been a driving force in the dental industry, acquiring practices rapidly. Years of lower interest rates played a significant role in fueling these acquisitions, making it more affordable for DSOs to borrow money to finance purchases. The last few years have seen a slowdown in DSO activity as rates increased steadily, but that seems to be coming to an end, and interest rate reductions seem imminent. This should provide benefits to dental practices that are looking to sell to a DSO.
Benefits of Lower Interest Rates for DSOs
• Increased Borrowing Capacity: Lower interest rates allow DSOs to borrow more money at a lower cost, enabling them to acquire larger practices and/or pay a premium for desirable practices.
• Higher Returns on Investment: With lower interest rates, DSOs can generate higher returns on their investments, making them more attractive to investors.
• Increased Competition: As DSOs become more aggressive buyers, competition for dental practices intensifies, potentially leading to higher valuations.
Benefits for Dental Practices Looking to Sell
• Higher Valuation Multiples: Increased competition among DSOs can lead to higher valuation multiples, meaning dental practices can receive more money for their businesses and more favorable terms.
• Faster Transaction Process: Lower rates allow DSOs to boost their internal resources to close deals more quickly, providing a faster exit for dental practice owners.
• Access to Strategic Resources: DSOs will be able to offer dental practices access to even a wider range of resources, such as tech upgrades, increased administrative support, marketing, and group purchasing power.
Potential Risks and Challenges
While lower interest rates present opportunities for dental practices interested in selling and for DSOs, it's important to note that there are also potential risks:
• Interest Rate Volatility: If interest rates rise unexpectedly, DSOs may face higher debt servicing costs, which could impact their appetite for acquisitions.
• Economic Downturn: A recession could lead to a decline in dental services, affecting the revenue and profitability of practices, and thus lower valuations.
If you have any questions about this article or are interested in learning more about selling your practice, please contact David Kingsdale at david@kingsransomgroup.com and visit www.dentyval.com for a FREE Estimate of Your Dental Practice's Valuation.
About King’s Ransom Group
King’s Ransom Group (“KRG”) is a private investment firm and M&A advisor, working with companies across the business services, healthcare, and marketing industries. KRG’s healthcare group advises dental practices nationwide in all facets of their sales process to help practices find the best and right investors and partners. KRG’s team has decades of experience founding and operating businesses across various sectors as well as financial expertise, having worked at some of the largest firms on Wall Street. For more information, please visit www.kingsransomgroup.com.
About DentyVal
Thinking of selling your practice, or perhaps you've already received an offer? DentyVal’s innovative technology gives you a confidential and unbiased estimate of its value within minutes. Developed by the dental industry's most trusted financial experts, DentyVal gives you the confidence that you're getting the highest value for your practice.
DentyVal is 100% confidential, and the information you provide is solely used for generating your valuation. You'll also have the opportunity to have a no-obligation conversation with one of our dental market experts to discuss your valuation and/or learn how we can help you get the best sale deal possible.
Whether you're interested in selling now or in the future, it's not too early to be well-informed! Try DentyVal now!
