Oct 13, 2026 · 49 min · 11 segments
This episode of *Dental Unfiltered* is a “State of the Market” conversation between Matt Brown and dental-practice transition advisor Justin Klingshern. They discuss how higher interest rates and…
Matt BrownHostTowards the beginning of this year, we were anticipating, you know, almost like two rate cuts, and now it looks like there's a potential for a couple hikes based on both inflation, jobs numbers.
So obviously, those numbers ebb and flow quite a bit, but higher for longer is not great for private equity.
When that money is issued to them at a higher rate, it meets their returns.
A lot of that money then sits on the sidelines, and in fact, it becomes dollars that are lent out as credit itself.
So right now, I mean, that is a major sort of headwind in the industry in that we've seen higher rates, and those rates have remained elevated for longer.
That said, we've seen recaps almost happen a couple times here, and yet still, um, there's a couple very notable large ESO's that are on the verge of recapping, hopefully just days away.
That said, I think the primary difference between the beginning of the year and where we are right now is we're seeing this divergence between the practice that still gets a lot of offers, it's a Class A asset, valuations are still at all-time highs, versus the practice that is a B or a C asset, right? Doctor, you know, single doctor, older doctor, pair mix, might even have some Medicaid.
Um, for that practice, the interest has waned quite a bit, right? So big diversions between your Class A and a Class B or C asset.
So me thinking historically, even a couple years ago, the deals weren't that different between an A and a B.
So when, when Justin says divergence, it's the B has moved now more to the C side, and A is kinda standing on its own.
I mean, they've been operating these businesses now for years and years, and they know what differentiates a good practice from a bad one from a partnership standpoint, right? I mean, they're a partnership organization at their core, and if you are a single doc provider, you're in your upper sixties, right, you have a hygienist that rotates in and out of there, it's tough to keep people, you're in a rural geography, your practice might not integrate, especially long term with the DSO, as another practice with a younger doctor.
Towards the beginning of this year, we were anticipating, you know, almost like two rate cuts, and now it looks like there's a potential for a couple hikes based on both inflation, jobs numbers.
So obviously, those numbers ebb and flow quite a bit, but higher for longer is not great for private equity.
When that money is issued to them at a higher rate, it meets their returns.
A lot of that money then sits on the sidelines, and in fact, it becomes dollars that are lent out as credit itself.
So right now, I mean, that is a major sort of headwind in the industry in that we've seen higher rates, and those rates have remained elevated for longer.
That said, we've seen recaps almost happen a couple times here, and yet still, um, there's a couple very notable large ESO's that are on the verge of recapping, hopefully just days away.
That said, I think the primary difference between the beginning of the year and where we are right now is we're seeing this divergence between the practice that still gets a lot of offers, it's a Class A asset, valuations are still at all-time highs, versus the practice that is a B or a C asset, right? Doctor, you know, single doctor, older doctor, pair mix, might even have some Medicaid.
Um, for that practice, the interest has waned quite a bit, right? So big diversions between your Class A and a Class B or C asset.
So me thinking historically, even a couple years ago, the deals weren't that different between an A and a B.
So when, when Justin says divergence, it's the B has moved now more to the C side, and A is kinda standing on its own.
I mean, they've been operating these businesses now for years and years, and they know what differentiates a good practice from a bad one from a partnership standpoint, right? I mean, they're a partnership organization at their core, and if you are a single doc provider, you're in your upper sixties, right, you have a hygienist that rotates in and out of there, it's tough to keep people, you're in a rural geography, your practice might not integrate, especially long term with the DSO, as another practice with a younger doctor.
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