You Asked, We Answered!
Dr. King and Nikki Nitz answer the questions you are asking about the impact of COVID19 on the value of your veterinary practice! Have more questions? Contact your regional Simmons advisor, we are happy to discuss your practice and answer your questions.
Over a month into the pandemic shutdown, have you seen changes in the current value of veterinary practices?
No, not yet. Most valuation dates for veterinary practices have an “as of date” of 12/31/xxxx. So the valuations I am doing now are “as of 12-31-2019” before all this mess started. Rarely will a mid-year valuation be done. If one was required, then the economic slowdown might play a role, but it would be highly dependent on the practice and the actual impact seen on the numbers.
What advice do you have for an owner who still wants to sell in the next 5 years?
If an owner is looking to exit within the next five years and could potentially be a corporate target then I would strongly suggest testing that market now. Currently, corporations are paying well above fair market value for certain veterinary practices and that may not last for 5 more years. You may get more now than you would get keeping the profits for five years then selling at a fair market price. Sell now to a corporate, cash in on the high market, and then run your clock out as an employed DVM until retirement.
Otherwise, the advice to anyone selling in the near future is the same. First, get a practice valuation. You need to know where you are before you can figure where you want to be in 5 years. Work on any issues that the valuation uncovers and keep your eye on the bottom line. The bigger you can get that number the more valuable the practice will be.
In the last 6 years, we have seen a large increase in corporate sales. Do you think that is going to change at all moving forward?
I think corporate sales will still be a major portion of the sales/acquisitions in our market. I don’t feel at this point they will slow down. In my recent conversations with many of the corporate purchasers, they are moving full steam ahead in practice acquisitions. I do think the corporate buyers are going to be more selective and strategic about which hospitals they want to invest in. I also believe they may offer lower multiples if they think it’s necessary to stay competitive or if they can use the crisis as a reason to get away with it.
I am currently selling my practice. Will current economic changes affect my sale?
I think it is too early to tell. If I am a buyer, the risk of uncertainty is very high right now. When the risk goes up, the price someone is willing to pay for investment goes down. I also believe it depends on the current performance of the hospital being sold. I have clients who have continued to grow their revenues during this crisis. These hospitals should continue to sell well. If a hospital has experienced a significant decline in revenue and profit, they likely won’t receive the same price as it would have prior to this crisis.
Do you think buyers will enter the ownership market as a career preservation move?
Yes. I believe there are going to be many unemployed people looking for jobs. This includes veterinarians. I believe the difficulties we have seen in the past few years of finding people to hire will no longer be an issue. Unemployed veterinarians are going to be looking for ways to find income and hospital ownership can fill this need. I also think this is going to force buyers to expand the parameters on their criteria for buying hospitals. They are going to be less picky than before.
Will the shutdown from COVID19 affect the future value of my practice?
Too soon to know for sure. If it all gets behind us and practice revenues return to where they were pre-COVID19, I believe it will have no impact on practice value. Appraisers will most likely treat 2020 as an anomaly and not a good indicator of future behavior. However, we will need to see that turnaround. So again, it is too soon to tell. It may take some time to see how everything shakes out.
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