By, Joe Stephenson, Simmons Northeast –
If you have any money in the stock market, your heart probably jumped as volatility returned. Historically this would have some, but not a significant, effect on veterinary practice sale prices, but with the emergence of a robust marketplace of consolidators, the rules changed for practices big enough to be targeted. Since the consolidator marketplace is more volatile than the vet-to-vet marketplace, I’ll start with consolidators this article focuses on consolidators.
The rise in the number of consolidators, the prices they pay and the volatility of those prices has created an entirely new, highly complex marketplace in veterinary practice sales. Because of this increased complexity, you can’t expect them to pay consistent prices over time. If you’re considering a sale in the next five years, you should look closely at economic trends to time your sale, or you might miss out on millions of dollars.
Stock prices won’t directly affect the prices consolidators pay, but one of the reasons behind the stock volatility will: interest rates. Interest rates are almost certainly going up this year. Unless we see a major inflation spike, they should continue at a measured pace. Whether it’s fast or slow, though, interest rates are going up. It will take time for increased interest rates to result in lower offers from consolidators, but if you’re not paying attention, you could miss out on the hottest market for veterinary practice sales ever.
Things to watch:
Stock Market Indexes: If stocks start to drop, it indicates that investors are worried about deeper issues that will filter into consolidator practice offers.
Inflation: A spike in inflation will cause interest rates to rise.
Federal Funds Rate: The federal funds rate is closely tied to the rate consolidators pay to get loans to buy your practice. If that goes up, it’s only a matter of time before veterinary practice prices come down.
While it’s valuable to keep an eye on these indicators, you’ll never time the peak perfectly. Interest rates are on the rise and prices are high. It’s better to sell on an upswing than to overshoot the peak and get stuck in a trough. Once prices drop, it could be a decade before the go back up, if they ever do.