For more than a decade, DSOs and specialty MSOs represented one of private equity’s most consistent growth strategies. Fragmented markets, predictable demand, and inexpensive capital enabled rapid consolidation and expanding multiples.
Between 2010 and 2020, acquisition velocity defined success. Platforms scaled aggressively, often assuming integration could follow once size was achieved. In a zero-interest-rate environment, that approach produced attractive returns.
But the current shift is structural — not cyclical — and it is redefining what creates value.
When Growth Outpaced Infrastructure
During the zero-rate era, inexpensive leverage and abundant deal flow rewarded speed. Platforms prioritized expansion, often assuming integration could follow scale. Underwriting models projected synergies from centralized procurement, integrated revenue cycle management (RCM), and shared services but in many cases, execution lagged acquisition pace.
Beneath the headline growth were fragmented RCM workflows, disconnected practice management systems, decentralized vendor pay structures, and manual finance processes that limited visibility and slowed cash conversion. Complexity compounded with each add-on.
As long as revenue climbed and capital remained inexpensive, those inefficiencies were manageable. Growth masked fragility.
Meanwhile, acquisition multiples in several segments doubled — in some cases, rising from 4x to 8x EBITDA. Platforms paid more for growth while often underinvesting in the infrastructure required to sustain it. Margins compressed, leverage increased, and operating risk quietly expanded.
That imbalance held — until the cost of capital changed.
The Capital Reset
Beginning in 2022, rising interest rates, tighter financing conditions, and escalating labor and supply costs materially altered the risk profile of scaled platforms.
Organizations that once relied on acquisition financing to drive returns found themselves managing liquidity, cash conversion cycles, and margin discipline with far less room for error. The operating model, not just the capital structure, came under scrutiny.
What had been an era of financial engineering transitioned into one of operational execution.
Infrastructure as a Strategic Lever
As capital markets tightened, performance divergence across healthcare platforms became more visible.
Some organizations absorbed the pressure. Others felt it immediately.
The difference was not acquisition pace. It was infrastructure.
The leaders quoted below represent premier platforms that invested early in operational excellence — prioritizing integration, centralization, and systems discipline well before market conditions demanded it.
Mark Young, Operating Partner at Thurston Group and practicing endodontist, explains:
“The difference wasn’t whether we were acquiring — everyone was. The difference was that we invested early in integrating RCM and centralizing back-office workflows. That created real operating leverage.”
Dan Davis, Managing Partner at Thurston Group, reinforces the sponsor’s view:
“Centralization and automation gave us control. When the rate environment shifted, we had visibility into performance and the ability to act decisively.”
Ronny Rowell, President at Specialized Dental observed a similar dynamic:
“Our approach to acquisitions has always been disciplined and people‑centric. Integrating practices and improving operational workflows isn’t something we adopted later — it’s been core to our culture from day one. That alignment allowed us to continue scaling responsibly as market dynamics shifted.”
Jordan DiNola, CEO of SGA Dental, summarizes the shift succinctly:
“Operational discipline became the competitive advantage. Timely, insightful, and actionable data coupled with a deep bench of talented operators gave us the durability and adaptability to thrive in a tighter capital environment.”
The common thread is not growth — it is intentional operational design.
Scale without integration creates vulnerability.
Scale supported by disciplined infrastructure creates durability.
The Structural Shift in Value Creation
Healthcare services remain fundamentally attractive. Demand is stable, and fragmentation continues to present consolidation opportunities.
What has changed is how value is created.
The next chapter will be defined less by acquisition velocity and more by:
- Cash flow optimization
- Centralized shared services
- Integrated RCM platforms
- Vendor rationalization
- Practice management system consolidation
- Real-time margin visibility
Sponsors and operators are increasingly underwriting EBITDA quality — not simply EBITDA growth. In a higher-rate environment, operational maturity directly impacts valuation multiples, refinancing flexibility, and exit timing.
Platforms that invest now in integration, automation, and scalable finance infrastructure will not only protect margin — they will command premium outcomes in the next exit cycle.
E78’s Point of View: Operational Maturity Drives Enterprise Value
At E78 Partners, we believe the next chapter of DSO value creation will be defined not by acquisition velocity, but by operational maturity.
That means:
- Designing integrated RCM environments that improve cash velocity
- Rationalizing vendor ecosystems to protect margin
- Implementing scalable finance and shared services architectures
- Leveraging automation to create durable operating leverage
- Aligning financial visibility with sponsor expectations
In a higher-rate, margin-sensitive environment, EBITDA quality, not just EBITDA growth, determines valuation outcomes.
The platforms that intentionally align infrastructure, finance, and operational design today will command stronger exits tomorrow.
Operational maturity is no longer a differentiator.
It is the foundation of enterprise value.
