The Business Cycle and DSO Consolidation: What Every Phase Means for Dental Owners, DSOs and Investors

By Dr. Hendrik Lai, Managing Partner, Viturtal Consulting

The short answer

Dental demand follows the business cycle loosely. Dental consolidation follows the credit cycle closely. The pattern isn't new: the economist Friedrich Hayek described it nearly a century ago, and it helps explain what is happening to DSOs in 2026.

When the economy weakens, patients put off elective work first: orthodontics, implants and cosmetic cases. Hygiene, exams and emergency care hold up far better. Revenue at a well-run practice dips; it rarely collapses ^[1][2].

Consolidation behaves differently. DSOs and their private equity sponsors buy practices with borrowed money, so the pace of deals, the multiples paid and the survival of over-leveraged platforms depend on the cost and availability of credit. The past six years show it plainly:

• 2020–2021: near-zero rates, a record pace of new DSO platforms ^[5][6].
• 2022–2023: the fastest rate increases in decades, and healthcare private equity deal counts fall from their 2021 peak ^[5][7].
• 2026: lenders take control of two large DSOs, a third faces about $3 billion of loans coming due, and the Fed raises rates again ^{[10][11][12][13]}.

For a practice owner, the practical lesson is that the best time to sell is decided less by how busy your schedule is and more by what buyers are paying to borrow. For a DSO, the lesson is that leverage chosen in an expansion gets tested in the contraction that follows.

For the current state of the market, see our State of Dental Industry Consolidation 2026.

How the business cycle reaches a dental practice

Dentistry is often called recession-resistant. That is half true: it depends on which line of the practice you look at.

The recovery is the part owners underestimate. After 2008, utilization did not snap back. The ADA Health Policy Institute described a "new normal" of flatter dental spending growth that persisted years after the recession ended ^[3].

Today's numbers carry the same warning. In the second quarter of 2026, consumer sentiment sat at a historic low of 48.0, consumer dental spending was up just 1% from a year earlier, and over ten years inflation-adjusted dental spending grew 24% against 39% for health care overall ^[2]. Same-store production still grew 4.0% in 2025 across more than 3,000 practices, but the spread between practices is widening: 37% did not grow at all ^[4].

The takeaway: the business cycle sets the volume of dentistry. It does not, on its own, set the price of a dental practice. Credit does that.

Dental consolidation through the cycles, 2008–2026

Each phase pairs the credit conditions of the time with what consolidation did. Sources: rates ^[5][9][13]; DSO formation and deal counts ^[6][7]; DSO affiliation ^[14]; demand ^[1]; 2026 events ^[10][11][12].

Three patterns repeat across the cycles:

1. Platforms are built when money is cheap. The surge of new DSO platforms came in 2019–2021, when policy rates sat at zero ^[5][6]. Cheap debt made it possible to buy practices at one multiple and sell the combined platform at a higher one.
2. Volume slows before demand does. When rates rose in 2022–2023, patients kept coming, but healthcare private equity deal counts fell two years running ^[7]. Dental stayed active, with 146 deals in 2023, second only to one other healthcare sector ^[7]. Buyers didn't stop; they became more selective.
3. The stress shows up years later. Platforms financed at the peak carry that debt into the next phase. The 2026 restructurings are, in large part, 2020–2021 balance sheets meeting 2026 interest costs ^[10][11][12].

Why the pattern repeats: Hayek's business cycle

The timeline above isn't a coincidence. Nearly a century ago, the economist Friedrich Hayek described the same pattern. He shared the 1974 Nobel Prize in economics "for pioneering work in the theory of money and economic fluctuations," and he was one of the few economists to warn of a crisis before the 1929 crash ^[17].

His idea, in four steps:

1. Money gets cheap. Interest rates are held below what savings alone would support, so lending outruns saving ^[17][18].
2. Investors make long bets. Cheap credit makes long-term, borrowed-money projects look better than they are ^[18].
3. A boom follows wherever the cheap money flows.
4. The bust corrects it. When credit tightens, projects that only worked at low rates have to be sold off or restructured. Hayek's advice: avoid the busts by avoiding the booms that cause them ^[18].

Now put dentistry into that frame. A practice's hygiene schedule hardly notices interest rates. A platform roll-up is the opposite: it borrows today to buy practices, betting that the combined group will sell at a higher multiple years later. The 2020–2021 platform boom ran on near-zero rates, and the 2026 restructurings look a lot like the correction Hayek described.

Hayek's theory is a lens, not a forecast. Most economists concluded that Keynes won their debate in the 1930s ^[18], and not every downturn is a credit bust: the 2020 recession came from a pandemic. But for an industry that consolidates with borrowed money, his question is worth asking every year: which of today's deals only make sense at today's interest rates?

Where the cycle stands in 2026

2026 doesn't fit neatly into one phase. Demand is soft but growing, capital is plentiful but more selective, and credit got more expensive in September. Read together, the signals point to a market that rewards quality and punishes leverage.

The pattern resembles the late stage of an expansion: plenty of capital chasing a short supply of good assets, while the weakest balance sheets crack under higher interest costs. That is not a forecast of a recession, and it is not a reason to panic. It is a reason to be precise about which part of the market you're in.

What each phase means for owners, DSOs and investors

The right move depends on who you are and where the cycle sits. The table summarizes the playbook; the guidance below it applies to 2026.

If you own a practice in 2026

• Treat rollover equity as an investment in the buyer, not as part of your price. Ask how much debt the platform carries and when it matures. Rollover in a platform that restructures sits behind its lenders ^[10][11].
• Don't wait for a better market to fix weaknesses. Owner dependence, provider concentration and weak hygiene cost more in a selective market than in a hot one.
• If you plan to sell within two years, start now. Operational fixes take 18–24 months to show up in the financials a buyer underwrites.

If you run a DSO

• Look at your debt maturity schedule against a higher-for-longer rate path. Aspen's 2027 maturities are a reminder that refinancing risk arrives on a fixed date ^[12].
• Same-store growth is the cheapest growth available when credit tightens. Collections, case acceptance and hygiene retention do not need a lender's approval.
• Expect diligence to get tougher. Lenders are applying stricter underwriting to DSO capital requests ^[16].

If you invest in dental

• The 2026 restructurings create entry points: practices and regions that lender-owned platforms may sell.
• Underwrite the operating case, not multiple expansion. The spread between buying practices and selling a platform narrows when rates rise.
• Back platforms with operating discipline over size. The market is rewarding quality, not volume ^[4][15].

Signals to watch over the next 12 months: the next Fed decisions, any further DSO restructurings or missed refinancings, consumer sentiment and dental spending in the ADA's quarterly reports, and whether the multiples paid for average practices keep slipping while premium ones hold.

Frequently asked questions

Is dentistry recession-proof?

No, but it is recession-resistant. In the 2008–2010 recession, general dental visits declined slowly while orthodontic visits fell to an all-time low before recovering ^[1]. Preventive and emergency care holds up; elective, cosmetic and orthodontic work is deferred first.

How does the business cycle affect DSO consolidation?

Mostly through credit. DSOs and private equity sponsors finance acquisitions with debt, so deal volume and multiples rise when rates are low and slow when rates rise. New PE-backed DSO platforms peaked in 2019–2021, when rates were near zero, and healthcare PE deal counts fell after the 2022–2023 rate increases ^[5][6][7].

Why are DSOs restructuring in 2026?

Several platforms took on debt when borrowing was cheap and now face higher interest costs and slower earnings. Lenders took control of Affordable Care and Dental Care Alliance in 2026, and Aspen Group has about $3 billion of loans due in 2027 ^[10][11][12].

Is 2026 a good time to sell a dental practice?

For well-prepared practices, yes: demand from DSOs remains strong and premium practices still command top-of-range multiples ^[15][16]. Average practices face tougher diligence and more deal structure. Check the buyer's balance sheet before accepting rollover equity.

What happens to dental practice values if rates keep rising?

Higher rates make leveraged acquisitions more expensive, which tends to pressure multiples for average practices first. Practices with low owner dependence, strong hygiene and clean financials tend to hold their value better, because buyers compete for them in every phase.

What percentage of dentists are affiliated with a DSO?

About 16.1% of US dentists were DSO-affiliated in 2024, more than double the 2015 share, according to the ADA Health Policy Institute ^[14].

What is Hayek's business cycle theory, and does it apply to dentistry?

Friedrich Hayek argued that interest rates held artificially low encourage long-term, borrowed-money investments that only pay off while credit stays cheap; when rates rise, those investments have to be corrected ^[17][18]. In dentistry, DSO platform roll-ups financed with debt fit that description far better than individual practices do, which is why the 2026 restructurings followed the near-zero-rate boom of 2020–2021.

Next step

Where your practice or platform sits in the cycle matters less than how ready it is for the next phase. For current benchmarks, see our Dental Practice & DSO Valuation Multiples: 2026 Benchmarks and What Private Equity Looks for in a Dental Platform Investment.

This article is for general information only and is not investment, legal, tax or financial advice. Market conditions change; figures are as of the dates of the sources below.

References

All sources accessed October 9, 2026.

1. Guay A, et al. The effect of the Great Recession on the demand for general oral health care and orthodontic care. Journal of the American Dental Association 150(4), April 2019.
2. American Dental Association, Health Policy Institute. The State of the U.S. Dental Economy: 2nd Quarter 2026 Update. 2026.
3. Munson B, Vujicic M. Dentist Earnings Were Stable in 2015. ADA Health Policy Institute, December 2016.
4. Planet DDS. 2026 Dental Industry Outlook. May 2026.
5. Board of Governors of the Federal Reserve System. Open Market Operations: federal funds target range history.
6. FOCUS Investment Banking. 2025 Dental Transactions Update. June 30, 2025.
7. Private Equity Stakeholder Project. Private Equity in U.S. Healthcare: Trends in 2023 Deal Activity. 2024.
8. Bain & Company. Global healthcare private equity hits record $190 billion deal value in 2025. January 8, 2026.
9. Advisor Perspectives. Fed's Interest Rate Decision: September 16, 2026. September 16, 2026.
10. Becker's Dental Review. Lenders to assume control of Affordable Care as part of restructuring deal. May 15, 2026.
11. Dental Economics. Dental Care Alliance's restructuring signals a new era for DSOs. July 2026.
12. insightsZ. Aspen Group Seeks New Investors Amid Debt Concerns and Weak Earnings. June 15, 2026. Summarizing Bloomberg reporting of May 19, 2026.
13. Board of Governors of the Federal Reserve System. FOMC statement. September 16, 2026.
14. American Dental Association, Health Policy Institute. The U.S. Dentist Workforce: 2025 Update. 2025.
15. McLerran & Associates. 2026 DSO Dental Practice Valuation Multiples Explained. July 2026.
16. Healthcare Growth Strategies. Dental M&A 2026: Ten Shifts DSO Leaders Must Understand Now. June 2026. (Summarizing TUSK Practice Sales survey data.)
17. The Royal Swedish Academy of Sciences. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974: press release. October 9, 1974.
18. The Concise Encyclopedia of Economics. Friedrich August Hayek. Library of Economics and Liberty.