Overview
Over the past decade, Private Equity (PE) funds have scaled their platform and add-on expansions in healthcare, deploying over $1 trillion worth of capital. In 2021 alone, the sector saw over $200 billion in acquisitions. Low interest rates fueled PE expansions during the pandemic. After this “golden period,” when rates began to normalize, firms began searching for secure investments with stable cash flows, even in economic recessions. The necessity for acquisitions that provide steady cash flow and offer opportunities for consolidation have led the biggest players in the industry to focus on dental practices. The large firms typically do not invest in single offices; instead, they acquire Dental Service Organizations (DSOs), creating conglomerate networks of dental practices. Dental practices are unique among other businesses due to their abnormally high margins and categorization as essential healthcare workers. No matter what economic events occur, people of all ages are encouraged to routinely see dentists. Routine bi-annual checkups/cleanings for every family member have become a consistent source of cash flow for dental practices. Most of these PE funds have agreed to a 3-month SOFR +4.5% to fund 50% of dental acquisitions, and the remaining 50% is backed by equity. With the Fed rates expected to drop by the end of 2025, acquisitions are set to remain constant until the Fed begins to cut rates. As rates fall, we expect acquisitions to rise increasingly as the funds capitalize on the variable interest rates of their loans.
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The Healthcare Snapshot
Stocks
IPOs
Private Equity M&A
Healthcare Facilities M&A