The Great DSO Pause: Why Practice Owners Hold More Cards Than They Think

Dr. Sarah Chen had three different DSOs courting her suburban Phoenix practice last year. By October 2026, two had gone radio silent, and the third cut their initial offer by 30%. Sound familiar?

The dental service organization acquisition frenzy that defined the early 2020s has hit a wall—and that wall is built from rising interest rates, tightened lending standards, and a sobering reassessment of what dental practices are actually worth. But here's the twist that most industry observers are missing: this slowdown might be the best thing that's happened to private practice owners in years.

"We're seeing a fundamental reset in how DSOs approach acquisitions," says Dr. Michael Rodriguez, a practice transition consultant who's brokered over 200 DSO deals in his career. "The spray-and-pray approach of 2021 and 2022 is dead. But for practice owners who understand the new landscape, there are actually more opportunities now than there were during the height of the buying spree."

The numbers tell a stark story. According to the latest data from the ADA Practice Transitions Institute, DSO acquisitions dropped 42% in 2025 compared to their 2022 peak, with average practice valuations falling from 1.2x revenue to 0.85x revenue for general practices. Meanwhile, the Federal Reserve's benchmark rate sitting at 5.25% has made the debt-fueled expansion model that powered DSO growth significantly more expensive.

When Easy Money Dries Up

The DSO boom was built on cheap capital. Private equity firms could borrow at near-zero rates, roll up dental practices, and bet that economies of scale would eventually justify valuations that seemed astronomical even by healthcare standards. Heartland Dental, Aspen Dental, and Pacific Dental Services led the charge, with dozens of smaller DSOs following their playbook.

But easy money has a way of hiding operational inefficiencies—and when borrowing costs triple, those inefficiencies become impossible to ignore. "A lot of these DSOs discovered they were paying premium prices for practices that weren't actually generating the margins they projected," explains Jennifer Walsh, CPA and managing partner at Dental Practice Valuations LLC. "When you can't refinance debt cheaply anymore, suddenly a practice that looked like a goldmine starts looking like an expensive headache."

The result? A wave of DSO consolidation that's still playing out. Regional players are being absorbed by larger organizations, expansion plans are being shelved, and acquisition teams that once competed fiercely for the same practices are now sitting on the sidelines.

This might sound like bad news for practice owners who were counting on a DSO payday to fund their retirement. And yes, if you were planning to cash out at 2022 valuations, you're probably disappointed. But the market correction has created opportunities that didn't exist during the feeding frenzy.

The Hidden Advantage of Fewer Buyers

Counterintuitively, having fewer DSOs actively acquiring practices has strengthened the negotiating position of the right sellers. With less competition for their acquisition dollars, DSOs are being far more selective—but they're also more willing to structure creative deals for practices that meet their criteria.

"The DSOs that are still buying aren't just looking for warm bodies anymore," notes Rodriguez. "They want established practices with strong patient bases, efficient operations, and doctors who can help them refine their systems. If you fit that profile, you're not competing against 50 other practices for their attention."

Take the case of Dr. Lisa Patel, whose three-location group practice in suburban Denver attracted interest from four different DSOs in late 2025. Instead of a straight buyout, she negotiated a partnership structure that gave her 40% ownership in a new regional platform, along with equity participation in future acquisitions. Her total compensation package—including base salary, performance bonuses, and equity upside—actually exceeded what she would have received from the highest cash offer she'd received in 2022.

"I realized I didn't just want to sell and retire," Patel explains. "I wanted to be part of building something bigger. The DSOs that are thriving now are the ones that understand they need experienced operators as partners, not just as employees."

What's Really Driving DSO Decisions Now

The criteria that DSOs use to evaluate potential acquisitions have fundamentally shifted. Where once they might have paid premium multiples for practices in high-growth markets, they're now laser-focused on operational metrics that directly impact profitability.

Cash flow consistency has become paramount. DSOs are analyzing three to five years of financial data, looking for practices that maintained stable revenue streams even during the COVID-19 disruption. They're particularly interested in practices that demonstrated pricing discipline—those that raised fees appropriately and maintained healthy margins without sacrificing patient volume.

Location matters more than ever, but not in the way you might expect. Instead of chasing practices in the hottest suburban markets, many DSOs are now targeting "boring" locations with stable demographics and limited competition. "We've learned that a practice in a mature suburb with minimal turnover often outperforms one in a high-growth area where you're constantly fighting for market share," admits one regional DSO executive who requested anonymity.

Staffing stability has emerged as a crucial factor. Practices that retained their teams through the workforce disruptions of recent years are commanding premium valuations, while those dealing with high turnover are being heavily discounted or passed over entirely.

"The DSOs that are still buying aren't just looking for warm bodies anymore. They want established practices with strong patient bases, efficient operations, and doctors who can help them refine their systems."

The New Deal Structures

Perhaps the most significant change in the DSO acquisition landscape is the shift away from simple cash buyouts toward more complex partnership arrangements. These structures often provide better long-term returns for practice owners, even if the upfront cash is lower than what they might have received during peak valuations.

Earn-out provisions have become standard, typically tied to revenue maintenance and patient retention metrics over two to three years. Equity participation in the acquiring DSO's growth is increasingly common, especially for larger practices or multi-location groups. Some DSOs are even offering profit-sharing arrangements that can result in ongoing income streams for selling doctors.

"We're seeing deals where the practice owner ends up making more money in years three through seven than they would have in a traditional sale," says Walsh. "But it requires a different mindset. You're not just cashing out—you're becoming a stakeholder in a larger organization."

The key is understanding what these new structures actually mean for your financial future. A deal that looks less attractive on paper might actually provide better long-term returns when you factor in performance bonuses, equity appreciation, and reduced operational headaches.

Positioning Your Practice for the New Reality

If you're considering a DSO partnership in this environment, the preparation process looks different than it did just a few years ago. Financial documentation needs to be more comprehensive, with particular attention paid to demonstrating operational efficiency and patient satisfaction metrics.

DSOs are now conducting more thorough due diligence, often including patient surveys and staff interviews as part of their evaluation process. They want to understand not just your numbers, but your culture and systems. Practices that have invested in technology integration, standardized protocols, and staff training programs are significantly more attractive than those relying on the owner's personal relationships to drive results.

But perhaps most importantly, practice owners need to clearly articulate their post-sale goals. Are you looking for a clean exit, or do you want to remain involved in building something larger? Are you interested in helping the DSO expand in your market, or do you prefer a hands-off role? The most successful deals happen when there's alignment between what the practice owner wants and what the DSO needs.

The Long Game

The DSO market slowdown of 2025-2026 isn't likely to be permanent. Interest rates will eventually stabilize, private equity will find new sources of capital, and the fundamental drivers of DSO growth—aging dentists, increasing practice complexity, and economies of scale—remain intact.

But the market that emerges from this correction will be more mature and selective. DSOs that survive and thrive will be those that focused on operational excellence rather than just growth for growth's sake. Practice owners who understand this shift and position themselves accordingly will find opportunities that may be even more attractive than the quick cash deals of the recent past.

The question isn't whether DSO acquisition activity will recover—it's whether practice owners will be ready to capitalize when it does. And for those willing to think beyond the traditional sale model, the current environment might just offer the best of both worlds: reduced competition for DSO attention and partnership structures that provide long-term upside.

For Dr. Chen in Phoenix, the initial disappointment of lower offers has given way to a more strategic approach. She's spent the past six months strengthening her practice's systems and exploring partnership opportunities rather than straight sales. "I realized I was thinking about this all wrong," she reflects. "Instead of trying to time the market, I should be building something that's valuable regardless of what DSOs are willing to pay."

That mindset shift might be the most important lesson of the DSO slowdown: the best time to position for a partnership isn't when everyone else is selling—it's when you have the time and space to do it right.