Private Equity Promised Freedom. Many Dentists Got a Trap.
“As of mid 2025, 23 mid to large-sized DSOs have entered receivership, representing over 1,000 practices now facing operational uncertainty.”
That stat was shared with me by my good friend, Alastair Macdonald. Our conversation was so significant and relevant I am sharing the interview above.
That number is not just symbolic—it’s systemic.
In recent years, many dental professionals have been seduced by the promise of lucrative practice sales backed by private equity. The narrative was simple: build your practice, sell for a high multiple, and enjoy a well-earned exit.
But that narrative—rooted in a unique period of economic conditions—is quickly unraveling. The tides are turning, and for those who aren’t paying attention, the fallout could be significant.
What is happening behind the scenes?
The Illusion of the “Forever Up” Market
For over 40 years—since the early 1980s—we’ve been riding the tailwinds of a declining interest rate environment. That meant cheap capital, rising asset prices, and a system that rewarded even marginal operators with increasing returns. You didn’t have to be great—you just had to be in the game.
But that cycle is over.
Interest rates have risen at the fastest pace in U.S. history, not just in absolute terms but in the speed of the increase. In 2020, the U.S. 2-year Treasury sat at 0.1%. Within two years, it jumped to 4.9%—a 49-fold increase in the cost of capital. The implications of this change are seismic.
This isn’t just a minor adjustment—it’s a regime shift.
Why the DSO Model Is Being Exposed
The traditional private equity-backed DSO model is built on leverage. It relies on the ability to acquire practices at a certain multiple, roll them up, and exit to another buyer at an even higher multiple.
When debt is cheap and equity buyers are plentiful, this works.
When debt becomes expensive and the exit path closes, the model breaks.
We’re seeing this happen in real-time. Promised back-end equity is being walked back or delayed significantly. Debt driven recaps – deals where firms borrow more money against existing assets to pay earlier investors – are replacing true exits. And practices are being burdened with dangerous levels of debt just to keep the illusion going.
5 Red Flags Dentists Can’t Afford to Ignore
Today’s DSO deals often include:
- Retained Equity with No Exit Path
That 30–40% you kept? It's illiquid. You have no say in its value, no control, and often no buyer. You’re trapped. - Clawbacks & Promissory Notes
Some deals include personal guarantees—meaning even if the DSO fails, you may still owe. - Ballooning Recapitalizations
Rather than true exits, many DSOs now “recap” by adding more debt just to pay earlier investors. This increases risk to you. - Brokers Paid on Future Speculation
Some intermediaries get paid today based on your future “recap” value—a clear misalignment of incentives. - Working Commitments Disguised as Freedom
Employment contracts of 3 to 7 years aren’t exits—they’re indentures. You lose autonomy and flexibility.
And perhaps most dangerously, brokers and advisors are getting paid today based on promised future recap values—values that may never materialize. That’s not alignment. That’s exploitation.
Distress Behind the Curtain
Many of the DSOs held up as success stories are, in fact, now rated at distressed levels by credit agencies. Some are taking on new debt at interest rates that are comparable to junk bond levels, just to return capital to their investors.
That’s not a healthy business model. It’s a house of cards. And the practices inside these structures are the ones holding the risk.
Hope Is Not a Strategy
Some cling to the idea that interest rates will fall again, and the good times will return. But even if rates do decline, distressed companies – already carrying mountains of debt – aren’t getting access to the cheap capital of yesteryear. That ship has sailed.
Relying on the Fed to bail out your deal is not a plan—it’s a gamble.
What Should Dentists Be Doing Instead?
Now is the time to return to fundamentals.
- Build a business you want to keep.
- Focus on culture, cash flow, and operational excellence.
- Maintain control over your destiny.
- Avoid signing away your autonomy in exchange for a partial payout.
- Build a flexible & independent lifestyle while still in practice.
Yes, this requires a mindset shift. The era of easy exits is over—for now. But that doesn’t mean opportunity is gone. It simply means the path forward demands more clarity, more discernment, and more intentional design.
More of my thoughts on creating more Freedom of Time in your practice in this article.
Final Thoughts: The DSO Model Isn’t Dead—But It’s Dangerous
Private equity is not inherently evil. But today’s model is misaligned with the values and expectations of most practice owners.
You’re not just selling a business—you’re selling your future autonomy, often for the illusion of freedom.
This is not the time to bury your head in the sand or chase fading promises. This is the time to take back control.
The future still belongs to those who understand the game has changed—and are willing to play smarter.
PS – I approach this topic from another angle in a recent article for Dentistry Today – you can read it here.
