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The Advisor Advantage: 2023 M&A market predictions

Jan. 18, 2023
Advisor Kevin Cumbus has some advice for those looking to sell in 2023: act now. The market is frothy with buyers and Q1 of 2023 promises to be a buying frenzy.

As we get into the year, I want to share a summary of conversations I’ve had in recent months with IDSO/DSO leadership nationwide, as well as our insights on the dental mergers and acquisitions (M&A) markets.

Valuations remain high, for now 

2022 was one of our busiest years. Our clients enjoyed rich multiples and favorable deal structures with the best DSOs in the nation. We currently have more deals in the market than ever, and we’re consistently seeing bidding wars and multiple offers. Buyers are complaining that they cannot keep paying these rich multiples much longer and that they must be selective in how they spend their money, but for every buyer that bows out, two new buyers appear. There were at least 20 private equity- (PE) backed DSOs formed in 2022, and they must buy practices to grow and meet the needs of their investors.

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Q1 is always a fascinating time in M&A markets: fresh off the busiest M&A closing season, there are never enough sellers to meet buyer demand. Each year this results in bidding wars and premiums paid by buyers through the first four to five months of the year. The first half of 2023 will be fast-paced, resulting in excellent deals for sellers.

Debt financing running out 

DSOs rely on debt to make deals. In any given transaction, the cash that a seller receives is from the buyer’s lender (sometimes up to 100%) not the PE company or DSO’s balance sheet. Lenders limit the amount of debt they provide DSOs based on the amount of earnings before interest, taxes, depreciation, and amortization (EBITDA) in any given acquisition and the total EBITDA inside of the DSO (aka, the DSCR or debt service coverage ratio). As the cost of debt goes up, lenders’ appetite to fund deals drops. Most DSOs will be in great shape to get deals done for the first half of 2023, but there is uncertainty around the second half of the year. If you are considering selling in 2023, you need to act now to be on the front end.

Returns for rolled equity in DSOs varied widely 

Several DSOs recapped in 2022 and some did not provide dentists who rolled equity the returns they expected. We know from some dentists who made deals in 2019 that when the deals were done and the wires hit, they were only offered their money back on their equity roll—meaning no return on the money they invested. On the other hand, there are DSOs that returned 2.5–3.0x cash on cash return to their dentists who rolled equity in their DSOs. As we all know, there are no guarantees on the value of stock (remember ENRON?) but don’t take any deal with rolled equity without speaking to an expert who knows the facts around the historical returns. It is critical that you fully understand the value of the shares you’re rolling your proceeds into.

IPOs of DSOs are coming

Most elite groups (i.e., groups with 250+ locations) have been talking about taking their businesses public for years. With the markets plummeting in 2022, those dreams were put on hold (the number of IPOs in 2022 was at a six-year low). Why would they consider going public? Valuations for publicly traded DSOs are likely to trade at 20–30x future earnings compared to private-market valuations of 12–14x trailing 12 months earnings for similarly sized assets. In short, they can more than double the value of their business with an IPO. If you are considering a sale, it could be a good time to hitch your wagon to some of the groups considering an IPO in the next 24 months. Warning: Not all DSOs are going to make this transition smoothly.


If you are considering selling your practice or group, act soon. The market is frothy with buyers and Q1 of 2023 promises to be a buying frenzy. There are signs of a cooling market during the second half of the year. This slowdown would be offset by an improving US economy and a decline in interest rates. If we do face a slower second half of the year, expect to see DSOs get creative with deal structure as they must grow to meet investor demands.

Editor's note: This article appeared in the January 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

About the Author

Kevin Cumbus, MBA, CEO of TUSK Practice Sales | CEO of TUSK Practice Sales

Kevin Cumbus, MBA, CEO of Tusk Practice Sales, has over a decade of experience in the dental industry. He has valued and sold more than 150 dental practices, managed over $100 million of revenue in a DSO, and is co-owner of a start-up dental practice, Mundo Dentistry. Today, as the founder of Tusk Practice Sales, Kevin and his team help dental practice owners sell their practices at the highest possible price with the deal terms they desire.

Updated January 26, 2024

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