Buy or Build? What DSOs Should Know About Acquisitions vs. De Novo Growth
For roughly 15 years, growing a dental group meant one thing: buy an existing practice. Money was cheap, sellers were plentiful, and acquisition became the default playbook almost by habit. That math has changed. Rates are higher, multiples are stickier, and the tools available to launch a practice from scratch have improved dramatically. So which path actually makes sense for a growing DSO today?
That's the question at the center of our most recent episode of Dinosaurs vs. Disruptors. Dr. Ryan Hungate, Chief Strategy and Clinical Officer, and Ali Hyatt, Chief Commercial Officer, argued opposite sides of the acquisitions-versus-de novo debate, then handed the verdict to Anna Timmerman, a transactional healthcare partner at McGuireWoods who structures DSO and MSO deals for a living.
Here are the key takeaways.
Acquisitions still win, but not by default anymore
Timmerman's answer, delivered with the caveat that "it depends" is the honest lawyer answer to almost everything, still came down firmly on one side when pushed.
"If I have to be pushed one way or the other, I would say acquisitions are still the king right now, because there is an element of, okay, can your balance sheet really support running at a deficit for potentially up to 24 months?"
The reasoning isn't nostalgia for the old playbook. It's cash flow. An acquisition generates revenue on day one. A de novo location typically requires a group to fund two years of build-out, staffing, and ramp before it breaks even, and not every balance sheet can absorb that.
De novo's real advantage is designing the playbook, not avoiding problems
Hyatt argued the disruptor side, and her strongest point wasn't about cost, it was about control. Starting from scratch means a DSO isn't inheriting years of informal workflows, sticky-note processes, and staff resistant to change.
"You get to start that process from the beginning. You spend a little bit of time beforehand planning, you bring in your staff, you train them, you have all your technology set up and they're ready to go and you don't spend those years unraveling."
The catch, as Hungate pushed back throughout the debate, is that a well-designed empty room still doesn't have patients in it. A de novo trades inherited problems for an entirely different set of risks: unpredictable construction timelines, unproven demographics, and zero existing trust with the local patient base.
Billing and coding problems are what surprise buyers most in diligence
When asked what most often surprises buyers during acquisition due diligence, Timmerman didn't hesitate.
"Billing and coding is one of the biggest ones. If it turns out that they have not been billing things correctly, that's probably one of the biggest ones."
The other recurring surprise: regulatory ground shifting mid-deal. State-level transaction review laws and non-compete regulations are changing fast enough, in some cases monthly, that a deal structured six months ago in a given state may not be able to look the same today.
Retention, not revenue, is the risk buyers most consistently underestimate
Beyond billing, Timmerman pointed to provider and staff retention as the category buyers most often underweight.
"That is something that I think all of these providers are being very careful about. Is this someone who can really have an ongoing partnership with, because that's what's really going to continue to make that location successful."
It's a risk that mirrors the de novo problem from the other direction: an acquisition can inherit a great patient base and immediately lose it if the provider isn't a long-term partner, or if hygienists and staff leave shortly after close. Culture, more than process, is what Timmerman sees separating acquisitions that stick from ones that don't.
The market is slowing down, and that's a feature, not a bug
Timmerman described a real shift in how deals get done compared to a few years ago, when cheap capital pushed groups to move fast and skip steps.
"As the market is changing and it's becoming perhaps a little bit more of a buyer's market, I see a lot of companies that are really taking their time... they're being very intentional, and I'm seeing that across the board."
Concretely, that means quality-of-earnings review now typically happens before legal documents get drafted, rather than running in parallel with them, a sequencing change that gives buyers a real off-ramp if the financial picture doesn't hold up.
Many groups are doing both, deliberately
Neither Hungate nor Hyatt treated this as a binary choice by the end of the conversation. Hyatt pointed to DSOs using de novo locations specifically to test and refine a playbook before scaling it through acquisition.
"The de novos... can be really helpful for honing your strategy. So you might learn a lot from that clean slate rollout and then you take it actually into your acquisitions."
Timmerman agreed that market maturity, specialty type, and local competition all factor into which model, or which mix, makes sense for a given location, rather than a single company-wide rule.
The bottom line
Acquisitions remain the more capital-efficient default for most growing DSOs, largely because few balance sheets can tolerate the 18-24 month runway a de novo typically requires before generating positive cash flow. But de novo growth has a real, specific role: markets that are underserved or growing, specialties where referral relationships are hard to inherit anyway, and organizations mature enough to use new locations to refine their own playbook. The groups getting this right, per Timmerman, aren't choosing a side once and sticking with it forever. They're matching the model to the market, and getting more disciplined about diligence either way.