Why Corporations Are Buying Veterinary Practices (New)
Corporate Veterinary Ownership Is Surging
Veterinary practice acquisitions are at an all-time high and trending. The deal makers are hard at work.
An entire industry wants to buy your practice—an industry filled with investors, bankers, and private equity firms all fighting for a piece of the pie.
Does that surprise you?
Don’t worry—this isn’t a scene from the next Shark Tank episode.
Everywhere you look, there’s an acquisition in progress or practice being sold. It’s no wonder the number of buyouts has veterinarians and staff alike scratching their heads trying to figure out who’s next and, most importantly, why?
The reason for this is simple: it’s a wise business decision for them.
They see an opportunity to make money from the practice itself and its clientele, and they know that enough veterinarians are willing to sell out to make their investment worthwhile.
Let’s explore this discussion further:
Premium Valuations: The Fuel Powering The Trend
Business for private veterinary practice owners who want to sell their clinics/hospitals has been buoyed by the recent tendency for valuations to soar as investors seek long-term interest, stability, and security.
The way we figure it, it comes down to one main reason: private equity firms are buying the consolidators at a premium.
“Private equity firms?”
Don’t be confused. Let us explain…
Private equity firms are “investment management” companies that raise money from wealthy investors and use it to buy out new or existing companies, often to make profits for their investors.
A “consolidator” specializes in acquiring multiple businesses within one industry or sector. Because they’re so focused on one particular field, they can make rapid changes when necessary. In this case, veterinary consolidators are larger veterinary business groups that buy out individual practices or smaller vet groups to flip them for profit.
Consolidators typically offer more resources than an independent practice can provide, which allows them to attract more clients and leverage economies of scale than would otherwise be possible for a single practice on its own.
This is where it gets interesting:
Recent years have seen a resurgence of consolidation in the industry. These consolidators can cut costs while maximizing profits and customer satisfaction. In the process, these consolidators can generate profit.
Here’s what’s impressive:
In the past – until recently – consolidators would sell for approximately 12 times EBITDA or profits. Today, however, they sell for double that amount at 22 to 25 times profits.
Let’s do the math:
(EBITDA) = (Earnings Before Interest, Taxes, Depreciation, and Amortization).
So, if $1 million were the profit a consolidator made in 2011, they would have a multiple of 12x$1 million, which equals $12 million. If it were today, that same deal would have fetched them up to $25 million.
What to make of it?
Rising Valuations: Good News For Veterinary Practice Sellers
The success of consolidators has led to massive growth in the market. A private veterinary practitioner looking to sell their business and focus on another passion finds themselves with many consolidators roaming around, excited to take over their business and pay top dollar for it.
Caveat: If you’re considering selling your practice, make sure you’re selling it for what it’s worth. Don’t be tempted by the fact that it’s challenging to get your hands on the first offer that comes your way; you should be able to get a good price for your practice.
At the heart of a good sale is the valuation of your veterinary practice – i.e., knowing what your business is worth and then figuring out who will pay the most for it.
Make no mistake; valuation will impact the price you can receive for it.
Unfortunately, this can be quite a complicated process for veterinary practices because many factors can affect the sale price. This is why you need experience and expertise in your corner to ensure that everything goes according to plan and get as much money as possible on the deal.
Luckily, we can assist you from start to finish: like a recent seller, we helped more than double what they initially thought was a fair value, and we can do the same for you. To get started, get in touch for your Practice Value Estimate and Practice Value Maximizer Checklist right away!
Sound too good? The skeptic amongst us would have considered the question already:
Why Are Veterinary Practices Fetching Such High Valuations?
More people own pets than ever before.
According to a recent American Veterinary Medical Association publication, 45% of American households have at least one dog, up from 36%. This trend drives demand for veterinary services and creates opportunities for corporations to buy vet practices.
People and their pets are getting closer than ever.
For many, pets are part of the family; as such, their care should not be treated any differently than the healthcare of a human — and that translates to taking them to the vet more often. They’re also demanding more from their vets, increasing the need for more in-house services.
And in the event pets get sick, pet owners have shown that they are ready to pay for high-quality veterinary care services.
Resilient nature of the industry.
Veterinary practices have proven to be less sensitive to recessionary fluctuations and are more resilient to pandemic outbreaks of diseases.
The Covid-19 Pandemic Brought With It Some Unexpected Benefits
While the global Covid-19 pandemic was a bummer for most of us, it was a kind of “blessing in disguise” for the veterinary industry.
As mentioned earlier, the human-pet bond grew stronger – more and more people had the opportunity to spend time with their furry friends indoors. Plus, people are adopting more than ever before, giving a second (or third or fourth) chance to animals that might otherwise be homeless.
The result? You guessed it: more care and spending. And the business corporations have noticed.
Bottom line: More investors find the veterinary industry resilient and thus a safer option to place their funds in, coupled with its strong growth potential and less volatile returns. Hence funding options continue to increase.
As more large corporations buy up small independent practices and convert them into corporate-owned facilities, veterinarians have been presented with an opportunity to take advantage of the trend. Many previous vet practice owners have sold their practices to these corporations for huge sums, and it is not surprising that many practice owners are looking to sell too.
Where does that leave you?
If you are a vet practice owner, this trend is probably a bit of a concern. You may have invested years building up your business, and now you are faced with the prospect of selling it to an outside company.
However, there are many benefits to selling your practice to one of these private equity buyers.
“Private Equity” buying your practice means they’ll assume the financial responsibility of your veterinary practice, but they are hands-off with everything else. In our years of experience, this path holds a lot of promise for the selling practice owner-a win-win situation.
It can be very lucrative and allow you to open plenty of opportunities for your vet practice – and by extension, do more for the patients and clients. Remember, you can negotiate specific conditions that will allow you to retain control over the future of your practice.
So if you’ve decided to sell your practice, naturally, you have a pressing question you need an answer to:
How do I find the best “non-corporate” buyers in the industry who pay top dollar AND are hands-off?
One that would ensure the legacy of the Practice Owner and team remain in place and succeed for years to come.
We can help!
We have extensive experience with “non-corporate buyers” and have a proven track record of success. We will work closely with you to understand everything about your practice and objectives, then create a plan of transitioning your practice to an “owner-controlled model”.
The process involves thoroughly analyzing all aspects of your practice, including financials, management structure, staff performance, marketing strategy, and more. Once we have this information, we can help you determine the best option for your situation.
Our goal is to help you transition into an owner-controlled model that allows you to focus on what’s most important – providing high quality patient care without distraction.
Learn how Transitions Elite was able to create competition for Dr. Graeff’s practice and ensure he received more for the sale of his practice than he could have ever imagined.
Speak with Tom for your Practice Value Estimate and Practice Value Maximizer Checklist!