BY BRIAN COLAO
Director, DSO Industry Group at Dykema
Five Years of Unprecedented Challenges
The last five years have brought unprecedented challenges to the DSO industry including the great lockdown, the great reopening, the great recovery, the great resignation of dental professionals, record levels of inflation and interest rates, and a great uncertainty which continued throughout 2025 and the first part of 2026 as a result of trade wars and continued global unrest. Over the last five years, the dental industry has existed in an unnatural state with almost all expenses including labor, supplies and equipment, and the cost of money going up, while reimbursement rates remained flat or only slightly increased. This has significantly shrunk profit margins, and from 2022 to 2025, caused a number of DSOs to completely restructure their operations to reduce expenses and increase same-store growth by attempting to implement a variety of technology solutions while eliminating or significantly decreasing M&A and de novo activity.
Unfortunately, many innovative samestore growth strategies were hindered by fear and uncertainty, lack of education regarding how to properly use the technology, lack of integration with existing practice management systems (PMSs), lack of a strong plan of implementation, difficulty sorting through the surplus of options, and lack of support from affiliated dentists and staff. Going into 2026, many organizations find themselves in an environment with very little to no M&A and an unclear path to the creation of significant same-store growth through the implementation of innovative technology solutions. But as detailed below, there is reason for optimism as many of these challenges are slowly being solved, and the obstacles blocking the path forward are beginning to slowly clear. These are my thoughts for 2026 and beyond.
Current State of M&A Markets
From June 2022 until the end of 2025, there has been a great M&A drought. Nearly 75 DSO sale processes have been abandoned with only around eight transactions occurring at fairly modest multiples. But going into 2026, interest rates are steadily being lowered. The new federal chairman that will be taking office in 2026 is widely believed to be an aggressive advocate of lowering interest rates. There is a huge amount of money on the sidelines, and almost every organization in the current DSO marketplace is overdue for a recapitalization event, all of which provides the necessary momentum for a gradual market recovery. During the first quarter of 2026, it appears likely that several significant DSO transactions will occur. Other large DSOs are taking steps to position themselves to go public in the future. With respect to smaller transactions: 1) Sellers are beginning to adjust their expectations to more realistic valuations that reflect the 2026 market conditions; 2) Buyers are utilizing more creative acquisition structures that derisk the transactions including earnouts, holdbacks, post-closing purchase price true-ups, and joint ventures. As a result, we are beginning to see a significant uptick in small- to mid-size acquisitions that will likely accelerate even further by the second, third, and fourth quarters of 2026. Therefore, I am cautiously optimistic that the DSO M&A markets will experience a material rebound in 2026, but the volumes will still be much lower than the market highs of 2021. The scope of the rebound will of course depend on how low the interest rates ultimately go, the degree to which sellers adjust their expectations on valuations, and whether or not some of the more global issues such as trade wars and military conflicts subside.
Current State of Innovation and Technology
Most DSOs are well on their way to working through their plans of restructuring and cost and overhead reductions and are now very well poised to implement new innovative technology solutions to improve same-store growth, which means doing more with existing patients, acquiring new patients, and lowering overhead. Over the last two to three years, the DSO industry has learned a lot of valuable lessons from the trial-and-error process with new technology including:
- There must be standardization of systems across an organization. Attempting to operate with multiple PMSs or multiple technology solutions that serve the same function undermines the efficiency, profitability, and success of the DSO organization.
- There must be proper education throughout the organization as to how to properly use the technology; otherwise, it likely won’t be used or will be incorrectly used.
- The technology must integrate with the DSO’s PMS or else it likely won’t be used.
- There must be a highly organized implementation plan or else the technology will not be consistently adopted.
- There must be strong collaboration between the technology partner (vendor), DSO leadership, affiliated practice dentists, and affiliated practice staff or else the technology will not reach its maximum value.
- Not every solution will work for every organization, and time and research must be spent analyzing which solutions will have the greatest ROI for a particular DSO.
- There is a surplus of solutions in the market, and time and research must be spent determining which solutions are truly a value add and which solutions are “shiny objects” that ultimately do not impact the bottom line in a material way.
My predictions for 2026 are that many organizations will crack the elusive code on properly implementing new technology through education, integration, and collaboration between technology partners, DSO leadership, dentists, and staff. I also predict that we will see a gradual reduction in the number of technology solutions in the market as the weaker, less valueadded solutions are forced to exit the marketplace, and the stronger solutions rightly gain market share.
Final Thoughts
I have been asked many times (after 31 years in the DSO industry) to give my thoughts as to the characteristics of a successful DSO and set forth below are my thoughts for success in 2026. A successful 2026 DSO will do the following:
