Despite last year’s slowdown in private equity investment and acquisition, deals are still occurring. I’ve been watching which DSOs get the highest valuations and why.
It’s clear to me that DSOs can compete in a high-scrutiny environment when they position their organizations on their unique strengths and financial performance.
Private equity may be seeking a turnaround play with an underperforming practice or a specialized organization to round out PE portfolios, or a data-driven, technology-enriched DSO.
In this article, I’ll review different perspectives that may sound like your organization below. PE investors look for the option that most closely matches their needs.
Which advantage or identity will you leverage to attract today’s selective PE investors?
What Types of DSOs will Entice Private Equity?
We’ve seen DSOs with a practice portfolio that reflects one of the following enticements rise above the competition.
Great Value
PE firms want to see that your DSO can actually grow, whether that’s bringing in more patients, adding profitable procedures, and opening new locations. But don’t just talk about growth; back it up with hard data.
Great Value Indicators
- Healthy patient volume and retention exist but collections are below average due to outdated billing systems or manual receivables management.
- Competitive fee structure and service mix.
- Strong market presence and positive patient reviews that aren’t leveraged enough through marketing.
- Loyal, capable staff who could thrive with better training, incentive plans, or new workflows.
- Underutilized practice assets such as operatories, advanced equipment, or extended hours.
- Historical profitability that lags area benchmarks, which a new owner can remedy.
For example, a DSO that has strong patient demand, modern facilities, and a loyal long-term team, but consistently collects below peer benchmarks. The buyer suspects collections are low due to fragmented AR workflows and manual claims follow-up. A private equity acquirer implements claims automation software and engages the team with new efficiency incentives.
Pitfalls PE Looks For:
- Overestimating the ease of operational fixes. Look closely at issues like cultural resistance, weak leadership, or local market saturation. It’s tough to access value when these exist.
- Collections or overhead that might indicate insufficient clinical quality, community reputation, or leadership.
- Assumptions that outdated technology can be swapped overnight, when real integrations and training may take months and create workflow disruptions.
Clear Growth Potential
Private equity likes to see the potential to grow the patient base, add high-value procedures, extend hours, or scale into new locations or specialties. At the same time, they expect you to support your claims of potential with actionable data, not just wishful thinking.
Strong Growth Potential Indicators
- Year-over-year increases in new patient volume and retention, ideally outpacing competitors.
- Space, staffing, and operational systems to expand into new specialties, add locations, or increase procedure volume without hitting bottlenecks.
- Location in areas with favorable demographics—population growth, employer health benefits, or underserved segments.
- Track record of successful add-on acquisitions or “de novo” growth.
- Use of digital marketing tools like SEO, Google Maps, and social media.
- Make sure your tech and billing tools can keep up as you grow—don’t let complicated processes hold you back.
For example, a regional DSO operates 10 practices with consistent double-digit patient growth over the past three years. The organization leverages advanced patient engagement technology, has invested ahead in scalable billing and scheduling systems, and has recruited a pipeline of new providers ready for onboarding.
Pitfalls PE Looks For
- Promises of growth forecasts that market demand or historical data can’t back up.
- Patient acquisition bottlenecks, such as outdated marketing, poor reputation, or high local competition.
- Provider capacity limits, such as too few clinicians, space constraints, or inability to recruit talent.
- High dependence on discount-driven volume that may erode margins as the practice scales.
For example, a mid-sized DSO launches aggressive plans to double its patient volume by expanding offices and acquiring new locations. But expanding too fast in crowded markets may backfire. Suddenly, it’s harder to find great providers, and new patients just don’t show up.
Low-risk Investment Opportunity
To qualify as a low-risk opportunity, you need to show steady, reliable financials, a loyal patient base, long-tenured staff, and proven protocols that deliver consistent results.
Indicators of Low Risk
Want to show buyers your DSO is a safe bet? Follow these guidelines:
- Prove your numbers are steady year after year.
- Show you’re getting paid by multiple insurers.
- Share your up-to-date licenses, lack of pending lawsuits, and your history of passing audits.
- Get your positive testimonials to show high patient satisfaction.
Potential Pitfalls PE Looks For
- Limited payers and referers.
- Inaccurate, disorganized paperwork.
- Signs of lax compliance practices.
- Culture, staff, or leadership instability.
For example, a multi-location DSO consistently delivers steady profits, has diversified revenue streams, long-tenured staff with below-average turnover, and meticulous records on compliance and contracts. When PE acquires the company, post-transition revenue and patient flow remain steady. A compliance review reveals just minor improvements needed, with no surprises.
Specialty-focus
Private equity just might be looking to round out its portfolio with a specialized DSO like yours. I’ve seen several acquisitions made on this factor alone.
Indicators of Specialty Focus
- Superior margin profiles supported by specialty procedures.
- Proven referral network or strong patient demand.
- Investments in specialty-specific technology, continuing education, and marketing.
- Strong partnerships with referring providers.
Pitfalls PE looks for:
- Over-dependence on referral streams from general dentists.
- Regulatory risk from higher billing scrutiny and fraud potential (especially in areas such as sedation dentistry and orthodontics).
- Difficulty in scaling niche services across diverse markets.
Multi-Regional DSOs
I’ve noticed that private equity views DSOs with multiple locations across different regions or states as a powerful springboard for future growth. Platform DSOs often have established HR, IT, and compliance infrastructure, making it easier for acquirers to add practices efficiently.
Indicators of a Stable Multi-Regional DSO
- Standardized systems for HR, compliance, IT, finance, and billing, ensuring consistency and efficiency across all regions and locations.
- Real-time dashboards, data management, and analytics that allow leadership to monitor practice performance.
- Consistently high level of service, branding, and clean environments across all locations.
- An experienced management team with a proven track record of onboarding new locations.
- A diversified geographic footprint.
Pitfalls PE Looks For
- A mix of different team cultures, systems, and state rules that are proving to be a real headache. If you’re not careful, this chaos eats into your profits after the deal.
- Overpaying for rollups or loosely affiliated practices. PE knows that if it pays too much for scattered practices without solid controls, margins shrink fast as locations get added.
- Debt or banking constraints. If you’re carrying a lot of debt, lenders can slam the brakes on your borrowing—which means less room to grow.
For example, a DSO expanding into new states can run into all kinds of headaches when offices have different regulations. Getting everyone on the same page isn’t cheap—the PE firm may have to implement new IT and team training. They also face and hiring for compliance and HR just to keep records straight and payroll running correctly. These fixes slow down the benefits they were counting on, driving up costs and cutting into profits.
Data-Driven and Technology-Enabled DSOs
DSOs that leverage advanced data analytics, integrated revenue cycle management platforms, AI for claims, and digital patient engagement solutions appeal to private equity. PE firms view tech-enabled DSOs as better positioned to control costs, improve margins, and manage regulatory risks.
Pitfalls PE Looks For
- Poor integration of billing platforms, PMS, and RCM tools. These lead to denied claims, inefficient workflows, and revenue leakage.
- Cybersecurity risk and regulatory exposures if digital platforms aren’t fully compliant with HIPAA and other regulations.
For example, DSO acquisitions that underestimated integration costs for RCM or patient engagement tools saw delayed ROI and lower profit margins than forecast, as with multi-practice groups rushing tech transitions after consolidation.
Niche Community or Demographic DSOs
DSOs built around serving specific demographics or local communities can stand out. These DSOs often address underserved markets and have distinct, loyal patient bases that insulate against competition and reimbursement pressures.
Indicators of a Profitable Niche Community
- You serve a specific demographic with unique clinical services that directly address their needs.
- Your organization enjoys a loyal, repeat patient base because it aligns with community values, traditions, or languages.
- Staff and providers drawn from the community being served, offering not just language fluency but cultural understanding.
- Extended hours, payment plans, telehealth, transportation, or other adaptations exist that overcome common access barriers typical for the population.
- The organization collaborates with local agencies, schools, non-profits, or religious institutions to provide outreach or health education.
For example, Medicaid-optimized, military populations, or immigrant-friendly practices offer opportunities for consistent patient flow, reliable reimbursements, and insulation from competitive pressures.
Pitfalls PE looks for in a Niche Community
- If you’re counting on just one type of patient or one payer, you could get burned if things change. Spread out your risk.
- Outsiders who misunderstand community-specific needs or values leading to poor patient retention.
- Success in one demographic market or community does not always translate to others. Expansion is riskier if the model isn’t easily adapted to new locales.
- Potential for regulatory scrutiny - serving unique populations can increase compliance risk, audit frequency, or exposure to fraud investigations.
How can you present your DSO as one of these enticing opportunities?
InsideDesk Helps Position Your DSO for PE Acquisition
Seven years ago, private equity drove valuations to record highs, creating unprecedented opportunities for practice owners and DSOs looking to sell.
Recently, rising interest rates, macroeconomic uncertainty, and tighter lending standards have led PE firms seeking DSO partnerships to scrutinize deals more carefully.
Still, well-positioned DSOs can attract strong offers by focusing on disciplined operations. They should leverage technology to drive efficiency and prioritize high-quality, reliable revenue streams.
InsideDesk helps organizations streamline claims management and in‑depth payer AR reporting and benchmarking tailored for DSOs. Using InsideDesk’s revenue cycle management platform, our DSO clients turn raw data into actionable insights that help them improve key financial metrics, including collections, profit margins, and EBITDA.
Schedule a demo to see how InsideDesk can help your DSO standardize and optimize your revenue cycle.
