If you are a dentist, you have no doubt received lots of emails inviting you to DSO seminars all over the United States. I know this because I have been to a number of them. The problem is you live in Canada and what fits in the US does not fit in Canada. But what about Canada? Where are we?
Let’s first define what a “DSO” is because the terminology is not used in exactly the same way in both the US and Canada. DSO stands for Dental Service Organization and in the US, it generally applies to any network of dental offices that have a common ownership. In Canada however, we think of DSO as being the larger corporate owner such as Dental Corporation of Canada, Altima and 123Dentist. We typically think of smaller networks as belonging to “Investor Dentists” (let’s call those the Investor Networks). The term DSO in the US includes both the big corps and the smaller Investor Networks.
Currently about 18% of US practices are corporately owned. The consensus is that within 5 years’ time, 35% to 45% of US practices will be corporately owned. In Canada about 4% of all dental practices are owned by the large corporations; that equates to approximately 880 practices. If, over the next few years, Canada gets to where the US is today, that will result in 3,000 practices changing from private ownership to corporate ownership. Assuming the average corporate practice will be worth $1.5M, that means $4.5 billion (not million) will change hands.
This change will be a disruptive innovation which is an innovation that creates a new market and value network, and eventually disrupts the existing market. It will change the value system, displacing established market-leading firms, products, and alliances. The question is: will you be ready? Most US DSO experts would suggest that you go out, buy a couple dozen practices, hire a CEO and CFO and wait for the pension funds to come calling. This strategy, however, is not likely to be replicated in the Canadian marketplace.
Let’s consider how this change is likely to take place in Canada. To do this I want to use the US expectations as a guide. First, most of the change is going to happen in the Investor Network marketplace. The figure below separates the dental market into three segments: Private Solo Practice, Mid-Market and the Corps. It is easy to see the major growth over the next few years is going to be in the Mid-Market sector. This is the Investor Network sector and it is this area that we will be focusing on over the next year.
This path to growth suggested by most American DSO advisors will not be the best strategy for Canada. We have a scarcity of acquirable practices in Canada and a scarcity of ultimate investment buyers such as life insurance companies and pension funds. What we do have are a few real DSOs, all of whom have and will continue to have a ferocious appetite for good investment grade dental offices. The strategies that we will be focusing on over the next year will be the acquisition, incubation and disposition of Mid-Market networks.