2025 will be remembered throughout the DSO industry as The Year of the Muted Recovery. At the beginning of the year, optimism was high that the M&A drought and challenging conditions that began in mid-2022, causing over 50 significant DSO sales processes to be abandoned, would finally subside. A succession of interest rate cuts in late 2024, the inauguration of a new presidential administration promising pro-business reforms, and signals of economic stabilization, along with the promise of an end to several global military conflicts, gave rise to expectations that the DSO M&A markets would make a robust rebound.

Critical conditions necessary for a true market revival include sustained interest rate reductions, moderation of inflation, resolution of global unrest, and a regulatory environment that fosters business growth. Unfortunately, virtually none of the foundational pillars for recovery materialized. In 2025, interest rates remained stubbornly high; inflation— though improved—never fell below the key 2% threshold; economically crippling tariffs were introduced against most of the developed world, and still much uncertainty remains as litigation over the validity of tariffs appears headed to the U.S. Supreme Court for a decision sometime in 2026. Additionally, the military conflicts in Ukraine and the Middle East have not concluded and continue to exert downward pressure on global markets.

The administration, despite its business-friendly posture, has aggressively targeted healthcare fraud, fueling a notable spike in federal enforcement actions and creating further headwinds for DSO deal-making. Dykema attorney Leigha Simonton, who is also a former high-level DOJ Official and Leader of the Investigation and Defense Practice for Dykema’s DSO Industry Group stated, “June 2025 saw the largest healthcare fraud takedown in American history, with criminal charges brought against 324 defendants—including nearly 100 licensed medical professionals—for allegedly orchestrating $14.6 billion in fraudulent activity. Notably, this crackdown involved coordination with 12 State Attorneys General’s Offices and extended beyond federal payor fraud to include wire and mail fraud charges associated with private payors, demonstrating a wide net of enforcement. Given this aggressive climate, industry participants must maintain rigorous compliance and seek experienced counsel with deep knowledge of the DSO industry, government agency processes, and the structuring of advertising, marketing, business development, patient incentive, and compliance programs—and certainly at the earliest indication of possible scrutiny or an internal concern. The government’s sophisticated investigative approach means that even seemingly minor abnormalities can escalate quickly, and the risks of proceeding without expert guidance have never been greater.” Approved As a result, M&A volume remained extremely limited, valuations were pressured, and many groups opted to focus inward, delaying growth decisions and focusing on operational efficiency.

Despite these frustrations, several positive signals have emerged, setting the stage for potential improvement in 2026:

• The Federal Reserve, at its Sept. 16^thmeeting, reduced interest rates by a quarter point. Currently, there is optimism that additional rate cuts will occur in 2025 and into 2026, as it will take several more rate cuts to create truly favorable economic conditions for the M&A markets.
• Preliminary peace talks in Ukraine and calls for resolution in the Middle East offer guarded optimism regarding global stability.
• Legal challenges to tariffs may result in their invalidation, potentially easing supply costs and reducing inflation.
• Sellers are increasingly adopting pragmatic valuation standards, acknowledging the need to turn investments amid evolving market conditions.
• At least two significant transactions have closed, several potential transactions are under Letter of Intent (LOI), and there is cautious optimism that several closings will be announced before year-end, which represents at least a muted recovery with the chance for a full-blown recovery in 2026.

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“I anticipate an uptick in M&A activity beginning in the second half of 2026, with the potential for momentum to accelerate should economic circumstances and policy frameworks finally align.” Brian A. Colao Dykema Member

 

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“While the pace of deals has slowed due to interest rates and inflation, transactions involving one to five offices are progressing steadily and larger deals are expected to pick up. DSOs are focusing on same-store growth and integrating specialty services to boost EBITDA. Technologies like AI diagnostics and patient finance platforms are becoming central to performance.” Eric L. White Dykema Member

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