If you own a veterinary practice, you have likely been approached by at least one Corporate Consolidator wanting to talk to you about purchasing your veterinary practice. It seems like almost every day a new group is becoming Veterinary Corporate Consolidators.
For a few years now there has been a lot of corporate activity going on. New Consolidators have come into the market and some “big dogs,” like VCA and NVA, have gotten even bigger by purchasing other smaller companies. This makes for a constantly changing market, so when you hear that your buddy just sold to ABC Corporation for X amount, it doesn’t necessarily mean that ABC Corporation would treat you or anyone else the same way.
First, all Corporate Consolidators (CCs) are not the same and thus no single vet practice would be desired by every one of them. One Consolidator may be interested in practices with $1.0M+ in gross revenues, another may be wanting a certain number of Doctor of Veterinary Medicines (DVMs), and another may only be interested in specialty practices. Also, several Corporate Consolidator Companies are regional and thus will only consider buying practices in their particular market.
What to Expect When Selling to a Corporate Consolidator
Consolidators do not typically pay fair market value, they will pay “Investment Value”.
Fair market value is the value of a practice with a willing seller, buyer, and a fair exposure to the whole market. This is often the value an individual DVM could afford and receive financing to purchase.
Investment value is what it is worth to that particular buyer (either an individual or a CC). Each Consolidator will perceive a practice’s value differently based on their particular “wheelhouse”. Things like profitability and revenue are usually very high on their list, but other aspects like location and local market also come into play.
If your practice is in a market where the Corporate Consolidator needs an anchor practice or there is already another anchor practice that the company owns nearby and they want to expand, they may consider acquiring a nearby practice regardless of size or profitability.
Some Corporate Buyers will offer to buy 100% of the practice and may (or may not) require an employment agreement from the seller. Others may only want to purchase part of the practice, preferring to create a partnership with the owner.
With many differences and nuances among selling to Corporate Consolidators, what should an owner do if approached to sell? First, don’t jump on your first offer too quickly. Take a deep breath and do some research.
Things to Consider When Selling Your Veterinary Practice to a Corporate Consolidator
1. Is the Consolidator offering a fair price or is there still some money on the table?
An owner should know the fair market value of his or her practice and should also know what the current CC market is like in their area. A Consolidator will sometimes offer more than fair market value for a hospital, but this is not always the case. An owner should know these values, knowledge is always power.
2. Why is the Corporate Consolidator interested in my practice? Size, profitability, location, DVMs, all of the above?
This may be difficult to determine unless you have some knowledge about the Corporate Buyer but, depending on the circumstance, there may be value added to the practice if it suits a specific need of the CC.
3. Does the Consolidator want to fundamentally change my practice?
Some sellers are indifferent as to what happens after the keys are handed over, but this is not always the case. A practice is a part of the owner, and many are concerned about what will become of their employees and clients after a handoff. Some Corporate Consolidators will change the practice’s philosophy, while others prefer to improve the practice behind the scenes.
4. Will my employment be a requirement of the purchase? If so, for how long and under what terms?
This is very important to many practice owners, especially those who aren’t ready to retire but want to relieve some of the burdens that come with practice ownership. Many want to start retirement as soon as possible. Often the Consolidator needs to have the previous owner around for some time post-sale to help create a smooth transition with both staff and clients. The terms of employment are negotiable but need to be discussed before accepting any offer.
5. Is this a good Corporation to consider, and what is their reputation like with other sellers?
If possible you should speak with recent sellers as well sellers from years past. Not all Consolidators are the same and unfortunately not all work and play well with others, it’s a good idea to ask around before you spend too much time talking to anyone CC.
6. What terms will the Corporate Consolidators offer when purchasing the practice?
There have been 100% cash deals that many like to leverage with a partial seller note and/or some stock. Stock options have become more and more common in recent years, and now most transactions include some form of cash, stock, and/or a partial buy-out with a resulting partnership.
7. Will the Consolidator buy my real estate?
Some CCs will not purchase your practices real estate (RE) because they need the option to combine practices down the road, and some do not mind owning the RE. There are options regarding whether you want to sell or lease. Therefore, negotiating the RE is just as important as the practice negotiations.
8. Could other Corporate Consolidators be interested in my practice? If so, might there be a better deal out there?
Why would anyone accept the first offer without determining if it is the best offer? If one CC has shown interest in a practice, it is highly likely other offers are available. Another Consolidator may offer more money and/or better terms that might be a better fit for you (the seller). It is important to explore all of your buyer options before selling your veterinary practice.
Practice Owners Don’t Have to Do This on Their Own
Answers to the above questions can be elusive, even knowing where to look is a challenge. Considering this is a constantly changing market, owners would be wise to seek help from a professional with experience in corporate veterinary practice sales.
One size does not fit all, in some cases, selling to a Corporate Consolidator is a perfect fit. It may allow an owner to “cash out”, either completely or partially, and still practice medicine. It may reduce some of the headaches of management and, then again, it may not.
Sometimes, corporate offers are too good not to consider, at least from the financial aspect. This makes it difficult for the DVM buyer (maybe an associate) to compete. Again, the CC is basing its offer on an investment value whereas a DVM must typically pay fair market value. Like it or not, Corporate Consolidator purchases are on the rise with more and more getting into the game. Having up-to-date knowledge helps veterinary owners get the most out of their practice, and Simmon’s network of experienced experts is here to help.