The Long Recovery: A 2026 Mid-Year Update

BY BRIAN COLAO
Director, DSO Industry Group at Dykema

Six months into 2026, the DSO industry isn’t stalled. It’s restructuring for what comes next.

In my 2025 year-end article, I described 2025 as the year of the “muted recovery” in that economic conditions clearly improved from 2024 but did not improve nearly as much as the industry had hoped.

This led to the next logical question which is “what can we expect from 2026?” At the time of this publication, 2026 is a little more than half over and so far it seems like a second year of “muted recovery.”

In most weeks I probably have around 30 conversations with DSOs, DSO sponsors and lenders, DSO technology companies, and other members of the DSO community concerning the general state of the industry. By far the question I seem to get the most is the current state of the DSO M&A markets, so I will start there with a few thoughts, then discuss the status of implementation of new technology solutions, and finish with my thoughts for the rest of 2026.

I. Update on DSO M&A Markets

1. The recovery of the DSO M&A markets is mostly predicated upon a) lower interest rates; b) adjusted valuation expectations from the sellers; c) the reduction of global unrest and uncertainty; and d) the ability of DSOs to build premier organizations with high growth potential that sponsors will want to invest in.
2. Through the first half of 2026, interest rates have not decreased in any meaningful way and are unlikely to do so until the current Middle East crisis has subsided and oil prices stabilize.
3. Global unrest and uncertainty has increased with the continuation of the conflict in Ukraine and the addition of brand-new conflicts in the Middle East.
4. Inflation continues to be a material concern due to a significant spike in oil prices.
5. Many DSOs are still in the process of restructuring their debt, lowering their overhead, and implementing new technology solutions, and these efforts are expected to continue throughout 2026 and 2027.
6. As a result of the above issues, there has not been a significant recovery in the DSO M&A markets; although, there is a steady amount of modest activity occurring.

II. Update on Technology Adaptation

1. One of the keys to mitigating the challenging economic conditions such as labor shortages, high costs of labor, and lowering overhead is the adaptation of new technology solutions.
2. While there are many innovative solutions in the market, the DSO industry has faced a number of challenges to the implementation of new technology such as a) lack of education; b) lack of integration with PMS systems; c) lack of a solid implementation plan across the DSO’s platform; and d) too many solutions in the market to choose from.
3. Education and PMS system integration have significantly improved from 2024 and 2025, but many DSOs still struggle to develop implementation plans and in choosing the best options with the highest ROI.
4. Nevertheless, technology is steadily being implemented throughout DSOs, with one recent DSO poll identifying diagnostic AI and RCM solutions as the most common solutions in use.

“The question for many organizations is no longer whether capital returns, but whether they will be positioned to capitalize on it when it does.”

III. Thoughts for Second Half of 2026

1. I am optimistic but not certain that we will see a significant uptick in DSO M&A activity by the fourth quarter provided that the new Fed chairman is able to lower the interest rates.
2. I expect the slow and steady implementation of technology solutions to continue for the rest of this year, and I expect to see a significant and measurable ROI for many technologies by the end of the year, which should include significant reductions in overhead and material increases in EBITDA for many DSOs.
3. DSOs that can differentiate themselves in terms of culture, integration of specialty, and and value added through the implementation of technology will significantly increase their enterprise value over organizations that fail to do so.
4. The DSO industry is filled with significant opportunities for those that take the time to learn and understand the business or dentistry and are thoughtful and disciplined in their approach to M&A and the implementation of technology.