An expert explains what to look for and what to ask before the sale.
Congratulations on owning and operating a successful veterinary practice! He paid well, provided jobs for the community, and provided much-needed animal care. Blood, sweat and tears are etched on its walls, along with numerous thank you cards from customers. The early days of the practice—when hours were long, margins were thin, and staff was minimal—gave way to years of multimillion-dollar revenue and healthy profits for the owner. The company supported clinicians, their families and the team as a whole. It is important to manage the next phase carefully.
Headhunters will knock on the door, call constantly and send postcards. They will most likely represent a group of companies looking for their next acquisition. They will have titles such as business development or acquisition teams, but make no mistake, they get paid to find vet practices of a certain size and with a certain bottom line to buy and add to a group of companies. While it’s flattering to receive such attention, remember that this interest is purely financial. There is little concern for heritage or hospitality culture. Before signing a letter of intent or speaking in depth to one of these groups, there are many factors to consider.
It is estimated that there are over 25,000 veterinary hospitals in the United States,1 most of which treat pets and pets. Veterinary groups, also known as aggregators or consolidators, own and operate approximately 10%1 of these practices and they seem to be the most interested in general companion animal medicine. However, some only buy from specialty hospitals and/or emergency departments. There are also groups that will buy mixed practices and large animals. Since the late 1990s, the aggregator’s primary target has been practices with 3 or more DVMs, over $1.5 million in gross revenue, and at least double-digit net income.
Most of these companies are owned or backed by private equity funds.2 It is difficult to determine how many of these groups exist, but it is estimated that over 100 groups have 4 or more veterinary clinics in the United States. While most strive to acquire existing practices, some are opening new facilities, which are built with identical footprints and offer limited services like vaccines, routine in-house labs, treatment of minor illnesses, and some surgeries. electives.
Why is the veterinary sector suddenly making investors happy? For many years, veterinary medicine was considered a less lucrative medical profession. Animal care is worth $100 billion these days.3 industry, up $45 billion4 barely a decade ago. Medical care representing approximately 30% of this income,3 the industry has captured the attention of private investors and made veterinary practices the darlings of the investment world. Private equity firms are interested in fast growth, high growth margins, fast turnaround times, and recession-proof (and now pandemic-proof) companies. They found everything in veterinary medicine. So what should an owner look for when approached by a company?
Where does the money come from?
Although it doesn’t matter who the buyer is – money is money, after all – keep in mind that a veterinary practice is an important part of its community, local economy and veterinary ecosystem. It requires ownership that will retain that service and culture. A private equity firm can be a family business, an investment company or a foreign entity. Often they will have multiple businesses in their portfolio, veterinary practices being just one. Here again, the veterinary space is now attractive and the incursion into the profession is based above all on monetary considerations. These entities come with little or no experience in veterinary management. Often none of their board members have ever set foot in a veterinary facility. Why is this important? It is important to have veterinarians on the board to make operational and strategic decisions that will affect the operations of their practices. These individuals should have hospital-level knowledge, a track record of industry leadership, and strong business and management acumen. The board will control the company through the CEO. Decisions relating to veterinary medicine should be made at least in part by people in the veterinary industry, preferably veterinarians.
Ask lots of questions
Practice owners will be asked many questions during the acquisition process. They should, in turn, ask companies as many questions. Typically, the business development team will be the primary contact. However, if they don’t give satisfactory answers, ask to meet with the COO. There should be no barriers to accessing the information needed to make an informed decision.
Additional questions may arise; write them down and ask. Remember that the business development team tries to meet its quota, receive a location bonus, and meet the board’s annual growth expectations. Practice owners sell to realize their business equity, secure their retirement, and most importantly, secure their legacy of lifelong pet care in the community.
The veterinary industry is at an inflection point. Will he continue to allow corporations to swallow a profession that for years has been successfully run by compassionate vets, or will DVMs step up and insert themselves into the process? I believe this is a question that needs to be answered and answered quickly. However, it is important to remember that aggregators and companies are here to stay and will help veterinary medicine reach more pets. But veterinary professionals must be diligent and deliberate in ensuring that the relationship between hospitals and corporations is mutually beneficial.
- Nolen RS. The corporatization of veterinary medicine. JAVMA News. December 1, 2018. Accessed November 3, 2021. https://www.avma.org/javma-news/2018-12-01/corporatization-veterinary-medicine
- Segal T. Understanding Private Equity. Investopedia. Updated May 20, 2021. Accessed November 3, 2021. https://www.investopedia.com/articles/financial-careers/09/private-equity.asp
- American Pet Products Association. Pet industry market size, trends and ownership statistics. Accessed November 3, 2021. https://www.americanpetproducts.org/press_industrytrends.asp
- APPA Releases 2010 Pet Industry Spending Figures and 2011 Pet Owner Survey. Press release. PetFoodIndustry.com. March 18, 2011. Accessed November 3, 2021. https://www.petfoodindustry.com/articles/2188-appa-releases-2010-pet-industry-spending-figures-2011-pet-owners-survey