The $583 Billion Opportunity: Why Texas and Arizona Are Prime for DSO Investments

The Dental Support Organization (DSO) market is experiencing unprecedented growth, fueled by private equity (PE) investments that continue to reshape the dental industry. With a compound annual growth rate (CAGR) of 17.4%, the market is projected to reach $583.68 billion by 2032.

This explosive expansion presents a massive opportunity for investors seeking scalable, high-margin businesses. Among the hottest regions for DSO-backed acquisitions, Texas and Arizona stand out.

Both states offer strong demographic trends, business-friendly policies, and increasing DSO penetration, yet they differ in market maturity, regulatory frameworks, and competitive landscapes.

Texas

Texas is one of the most active states for DSO acquisitions, attracting both large-scale national DSOs and smaller, emerging groups looking to scale operations. The combination of economic growth, a large and diverse patient base, and a strong healthcare infrastructure makes it a highly desirable market.

Key Trends in Texas:

• High DSO Penetration: 21% of dentists in Texas are affiliated with a DSO, significantly higher than the 15% national average.
• Valuation Premiums: Due to high competition, dental practices in Texas command premium valuations, especially in metropolitan areas like Houston and Dallas.
• Market Maturity: With consolidation ongoing for years, Texas is a well-established market for PE-backed DSOs, making entry more difficult but potentially more lucrative for those who can compete.

Regulatory Considerations:

Texas enforces strict corporate ownership laws that impact DSO structures. The Texas State Board of Dental Examiners (TSBDE) prohibits non-dentists from owning dental practices outright, requiring DSOs to operate under a management services model rather than direct ownership.

While this creates legal complexities, experienced PE firms and DSOs have successfully navigated these hurdles, leveraging management service agreements (MSAs) to maintain operational control while keeping dentists as the legal owners.

Arizona

Unlike Texas, Arizona presents an earlier-stage market with substantial growth potential. The percentage of DSO-affiliated dentists (21%) mirrors Texas, but lower saturation and a more flexible regulatory environment make it highly attractive for PE firms looking for scalable expansion opportunities.

Key Trends in Arizona:

• Lower Market Saturation: Despite its rapid population growth, Arizona still offers a less competitive landscape than Texas, making it easier for new DSOs to establish a foothold.
• Strong PE Interest: National DSOs such as Smile Brands, Dental Care Alliance, and MB2 Dental have already expanded into Arizona, signaling confidence in the market.
• More Favorable Regulations: Unlike Texas, Arizona does not have stringent Corporate Practice of Dentistry restrictions, making acquisitions and operations more straightforward.

Valuation Trends in Arizona:

While Arizona valuations are rising, they remain below those in Texas, offering a window of opportunity for investors. As more DSOs enter the market, valuation multiples will likely increase, meaning early movers stand to benefit the most.

Where Should PE Investors Focus?

Both Texas and Arizona offer strong opportunities for DSO-backed investments, but they cater to different strategies. As PE-backed DSOs reshape the dental industry, investors must decide between Texas’ established market and Arizona’s untapped potential.

With the DSO market projected to reach $583 billion, the time to invest is now. Will you bet on the high-stakes Texas market or capitalize on Arizona’s rising opportunities?