Last year, I asked a newly acquainted colleague why he and his partners had decided to enter the veterinary profession and invest tens of millions of dollars acquiring veterinary practices. His answer was simple.
“Like the Mars family, we are interested in investing our money in safe, cash-flowing businesses,” he told me. “While owning veterinary practices may not be the sexiest investment we’ve ever made, it’s safe and likely to generate a much higher return than investing in the stock market.”
This colleague took notice of the veterinary profession just like the other 20 or so corporate groups that have popped up over the last few years, when transactions like Catterton made headline news in the Wall Street Journal.
Here’s the run-down on Catterton:
- In 2012, Catterton invested $40 million into PetVet Care Centers.
- From 2012 to January 2015, PetVet acquired 25 veterinary hospitals—a mix of specialty, emergency, and general practices.
- In 2015, Catterton sold PetVet to the Ontario Teacher’s Pension Plan for $440 million, which was valued at 11 times EBITDA (earnings before interest, tax, depreciation, and amortization).
- Previously, it was believed that 9 times EBITDA was the appropriate valuation for a network.
- Now, private equity firms are flocking to the veterinary profession to acquire practices so they can duplicate the Catterton deal and sell to the highest bidder.
There has been a lot of recent discussion and press about corporate consolidation in the veterinary profession. It appears we’re currently in a “bubble” reminiscent of the dot.com era of the 90’s or the real estate boom of 2002 to 2005.
As I discussed in a previous blog post, if you’re a veterinary practice owner, your practice is probably like your baby. And, whether you’re hoping for a corporate buyout, or you plan to hold on to your baby for as long as you can, you should always be ready for interest from a potential buyer. Here are a few ways to be prepared:
- Don’t wait—keep great records now
Whether you’re ready to sell your practice this year or 10 years from now, your data plays a critical role in determining your practice’s value and the purchase price. Will a potential buyer be willing to pay top dollar for your practice?Too often, I see practice owners getting their practice’s data, facility, and operations “in order” just before they are ready to sell. This is a big mistake. Most savvy buyers and their advisors want to see a minimum of 3 years of financial and practice performance data when considering a practice purchase.
- Determine what is most important to you
What do you want? For your practice to fetch the highest price? To ensure your clients and employees are well taken care of? For your practice’s legacy to live on? For your practice’s reputation in the community to stay intact?The price that a buyer is willing to pay for your practice is determined by many factors. Some buyers may be willing to pay a premium for your practice because they’re planning to make significant changes after the acquisition, which is fine if your goal is to fetch the highest price. But, if you’re more concerned about your practice’s culture, philosophy, reputation, or employees, you might want to consider a different buyer. You cannot have it both ways.
- Do your homework on potential buyers
When choosing a buyer, consider the following:
- Is the corporate group backed by private equity? What is the expectation of their investors? Is the group planning to sell/flip the practice within 3 to 7 years?
- Will the group require the practice to purchase drugs and supplies from contracted vendors? Will they change reference lab providers or your practice information management software?
- What compensation and benefit plans will be offered to your team?
- Will the practice’s name be changed?
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Manage Your Practice With Metrics