Trump vs Harris: The US election will affect dental mergers

Dental Tribune International

Tue. 8. October 2024

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With less than 30 days until candidates Donald Trump and Kamala Harris face off to become the 47^th US president, there is a sense that the country, and indeed much of the world, is holding its collective breath. Many consider the election to be the most important in modern US history, and there is speculation that dental mergers and acquisitions (M&A) may slow down until after the transition of power. We spoke with Kyle Francis, founder and president of M&A advisory firm Professional Transition Strategies, about how uncertainty relating to new regulations and their effect on economic policy may influence dental M&A and consolidation in the industry.

Mr Francis, what impact do you anticipate the election results will have on market sentiment? Could we see a slowdown or acceleration in deals?
The dental M&A market has consistently shown resilience, regardless of political cycles, inflation, increases in interest rates and even a pandemic. While some may speculate about potential slowdowns—and use fear mongering tactics to spark urgency—our experience indicates that the fundamental drivers of dental practice value remain strong.

Based on the data our team has and the transactions we have facilitated this year, there is no indication that M&A within dentistry are slowing down because of the election year. Conversely, according to Harvard Business Review’s research on consolidation, we are at the height of the industry’s consolidation wave. This means that we expect practice values and private equity interest to remain consistent—but only for a few more years.

We anticipate continued robust activity in dental M&A throughout the election period and beyond. Smart investors and dental support organisations (DSOs) recognise the enduring value of quality dental practices and are likely to maintain their acquisition strategies irrespective of short-term political fluctuations.

Kyle Francis is the founder of mergers and acquisitions advisory firm Professional Transition Strategies. (Image: Professional Transition Strategies)

How would you advise dental practice owners considering a transition?
My advice remains consistent: focus on what you can control. Continue to build value in your practice through strong operations, optimal patient care and team development. These are the fundamentals that truly drive practice value, regardless of external factors, and they are what prospective private equity-backed DSO buyers and individual buyers are most keen to know about a practice.

When considering a sale, I always recommend that owners start the process sooner rather than later in order to test the market and evaluate a range of strategies and buyers to find the best option without having to rush through the process. I recommend that they engage with experienced M&A advisers who can help them understand their options and maximise their practice’s value. A well-run practice will always be attractive to buyers, no matter the political climate.

Do you think that the election outcome will have different effects on small, independent dental practices and larger DSOs in terms of M&A opportunities?
Both individual buyers and larger DSOs have different financing structures that enable them to navigate tumultuous political and economic climates. Individual buyers get their financing from banks, which have shown no slowdown in lending. In fact, how much they are willing to lend a dental entrepreneur who is in the market for a practice has remained consistent over the years.

DSOs are often backed by private equity, so they are less limited by the financial rules of banks and can often offer way more for a dental practice. That includes strategic deal structures that capitalise on once-in-a-lifetime equity arbitrage events, such as a joint venture model or equity rolls.

Investors are continuing to pour money into the dental industry, indicating that they believe this industry is attractive and worth investing in. What does this mean for sellers? If they want to explore options for selling to either an individual buyer or a DSO, now is still just as good of a time as ever.

Are there any potential tax policies that could affect the valuation and structure of dental practice transactions?
Tax policies are constantly evolving, and there is always the risk that they could change to the benefit or detriment of the practice owner. For instance, it is likely that the capital gains rate, which is the rate charged on investment income, will go up over time, as it has been sitting at historic lows for over 20 years. However, it is nearly impossible to predict such changes, and increasing the rate would create a backlash from many industries and lobbyists.

That being said, it is always wise for practice owners to work closely with their brokers, financial advisers and tax professionals to structure transactions in the most advantageous way possible under current laws. The core value of a dental practice lies in its ability to provide quality care and generate sustainable revenue, and these factors remain constant regardless of tax policy fluctuations.

The election could influence economic policies. How might changes in interest rates or access to financing affect the dental M&A landscape?
The dental industry has proved its resilience through various economic cycles, including periods of fluctuating interest rates. While changes like increases or decreases in rates by the Federal Reserve System can influence transition strategies, they rarely fundamentally alter the attractiveness of quality dental practices to buyers.

Low interest rates can sometimes accelerate deal activity, but even in higher-rate environments, we have seen continued strong interest in dental acquisitions. This is because investors recognise the stable, recession-resistant nature of dental practices that can help bring balance to their investment portfolios.

Regardless of rate environments, there are always financing options available for well-structured deals involving quality practices. Practice owners should focus on maintaining strong operations and financials, as these will make their practices attractive acquisition targets in any economic climate.