De Novo vs. Acquisition Strategy for DSOs
The dental industry has seen significant transformations over the past few years, driven by the consolidation of group practices through de novo vs. acquisition strategies. This consolidation has gained momentum due to various factors:
- Economic efficiency: DSOs can leverage economies of scale to reduce operational costs, negotiate better contracts with suppliers, and invest in advanced technology and marketing.
- Access to capital: Consolidation allows DSOs to access capital more readily. This enables them to expand and improve infrastructure, hire top talent, and invest in modern equipment.
- Streamlined management: DSOs often provide centralized management services, which relieve dentists of administrative burdens. It further allows them to focus on patient care.
- Competitive advantage: DSOs can provide a broader range of services and compete effectively against standalone practices.
Below, we’ll offer DSO owners a breakdown of the two main methods for scaling and which might be right for you.
A version of this article was originally published by Skytale’s Eric Pastan on Group Dentistry Now.
Leveraging a De Novo Strategy
As you probably know, “de novo” is a strategy where a DSO opens new clinics from scratch. When choosing the de novo path, it’s crucial to understand your business model. You need to know who your patients are and identify populations in your footprint that offer the greatest probability of success. Key factors of your population include age bands, financial bands, members of households, and access to care options.
If you haven’t already, consider launching a target market analysis to hone in on your ideal pool of customers. You can also evaluate the native information in your practice management software (PMS), run a patient census through office questionnaires, or hire experts in the field. Improving the patient experience can also help grow your DSO.
Advantages of a de novo growth strategy include:
- Autonomy over the location, branding, culture, and practice management
- Lower initial investment compared to an acquisition
Challenges of a de novo growth strategy include:
- Accumulating your patient base
- Finding associates and administrative teams who are willing to build a practice from scratch
Leveraging an Acquisition Strategy
Acquisition growth strategy involves purchasing existing dental practices to integrate them seamlessly into an existing portfolio. This method provides immediate access to an established patient base and ensures a steady revenue stream.
Nevertheless, acquiring a new dental practice is accompanied by some challenges. When a business is acquired, it requires the assimilation of several components including personnel, reputation, organizational culture, financial liabilities, and other pertinent factors, all of which are necessary to integrate with the DSO’s existing framework. Plus, it’s key to choose the right partner.
Navigating the Landscape
If you’re wanting to scale to multiple locations, it’s important to conduct a thoughtful evaluation of the advantages and disadvantages of de novo vs. acquisition strategies. Furthermore, the strategy should align these strategies with your long-term career aspirations and personal preferences. Once you have a plan in place, you can consider what your new office should look like from an acquisition target or de novo perspective. That way, you’ll can have a thoughtful approach to growth.
Many growth-minded dental organizations and owners seek expert guidance in this process. Engaging industry professionals, including financial advisors like Skytale Group, can offer invaluable insights and steer you toward informed decisions that align with your personal and professional goals.
Finally, whether you decide to build a practice from the ground up or acquire an existing one, you must prioritize due diligence. Rigorous scrutiny of all aspects of the venture, from financial health to operational intricacies, ensures a smooth and prosperous transition.
De novo vs. acquisition strategies offer significant opportunities for growth for practice owners. But the choice should align with your practice goals, resources, and risk tolerance. Regardless of your approach, staying informed about industry trends and seeking expert guidance is essential to find success in the consolidating landscape.
Skytale Group delivers strategic consulting and M&A advisory to dental clients with an appetite for growth. Ready to grow your business with a full-service partner by your side? Contact us today.
