Are Companies and Individuals Still Buying Animal Hospitals?

Absolutely!

The veterinary practice market remains vibrant, with strong demand from consolidators and individual buyers in the first half of 2024.  Valuations are competitive, providing veterinarians looking to sell their hospitals with significant opportunities.  This is especially true if hospitals are located in desirable markets, as recruiting continues to be a key component in an animal clinic’s long-term success.  Interest rates have recently declined slightly and are expected to settle at between 4% and 5% for borrowers, which helps on both corporate and private transactions. Though it may seem that most clinics have sold to corporations, our research at Monarch shows consolidation of veterinary hospitals at ~30% in the United States. What keeps this number down is the continuous increase in new private ownership across the country.

Veterinary Consolidators – Are they all the same?

The simple answer is, No.  Veterinary consolidators have evolved quite a bit since the early years when corporate buy outs first began.  Today, these corporations vary significantly in their business models, support offered, and most of all, culture and management styles.  The Monarch Team has summarized a few of these distinctions below for reference.

1. Business Models

Full Ownership: Some corporate consolidators acquire 100% ownership of the veterinary practice, taking complete control of operations, finances, and decision making. Though they own 100%, most prefer to have a Medical Director in each hospital from the original team to provide guidance of medical protocols at the local level.

It is important to note that corporations who choose this model in today’s market will not pay 100% of total enterprise value at closing. Groups will typically pay between 75-90% cash at closing with the remainder paid over a pre-determined timeframe based on various targets.   Some will offer investment in the parent company or “TopCo”.

Joint Venture Partnership: A more popular approach with consolidators recently has been a joint venture model, where a practice owner retains minority ownership at the hospital level, while the consolidator purchases a majority portion of the clinic providing operational support, resources and capital.  This model keeps the original owner invested and involved in his/her hospital which helps to retain the clinic’s culture and staff.  Investors feel that this model has significantly less risk than the “100% Cash” model. The JV model provides additional income to the original owner through regular profit distributions based on the percentage retained.  Some consolidators will even allow and/or encourage shared ownership with other associates at the clinic and even non-veterinary staff members in certain states. This is a great option for those hospitals with growth potential.

Most consolidators will pay the full percentage of their portion of the JV partnership at closing. However, many will encourage or dictate that the seller invest a percentage of the purchase price in the parent company (“TopCo”) of the organization as well. The payout on that TopCo is not provided until the consolidator recapitalizes. The payout on the minority portion of the JV partnership is paid at either recap or at a pre-negotiated time.  The multiple of that payout can range greatly based on the group and the pre-negotiated terms.

A Few “Not-So-Obvious” Considerations for Future Corporate Sellers

1. Start Now
If you are considering some sort of exit in the next 5-10 years, begin the process of reviewing your financials.
– Be sure all the expenses are categorized correctly and accounted for.
– Be sure production is tracked correctly in your PIMS
– Be sure you have raised prices in accordance with vendor price increases.

2. Get a Valuation
Hire a professional team like Monarch to run your numbers.  You will be asked for the last three years and trailing twelve months of Profit and Loss Reports, Production Reports, payroll registries and property documents such as taxes, property appraisals or rental agreements.  You will also be asked for any non-recurring expenses and documentation to back up this information. It must be on your P&L in order to be calculated into the figures.

3. Prepare your team
Veterinary Associates: Talk to your associates.  Are any of them interested in ownership or partial partnership?  It is imperative to include the key staff members on your team when considering a sale.  If you are able to secure even a small percentage of  ownership for your associate(s), it will give you a strong starting point in the market.  Associates with ownership will stick by your side through the process because they will gain from the transaction as well. There is no better wait to retain them!  Monarch can advise you and assist in this process with your associates.

Practice Manager: This is one of the most important roles in a veterinary hospital when a clinic is sold to a corporation. The transition in ownership can be a great career stepping stone for a strong PM or a very difficult one if the right person is not in place.  They should be a strong leader with the non-doctor staff members. Your Practice Manager will be the primary liaison between the clinic and the corporation.

Raises: Try to remain steady when planning your exit strategy.  Do not give large bonuses or raises right before considering a sale as it will hurt your profitability. Keep consistent with the market on wages and raises. Your teams’ labor and benefits (including veterinarians) should account for between 40-45% of your gross income.

4. Contracts
Do not enter into any long-term contracts with vendors which would lock your clinic into a minimum monthly or annual spend. You should avoid this even if the company is providing you with “free” equipment.  It is always better to get lower pricing from these groups without locking yourself into a multi-year contract.

Understand your dynamics- If you want to be out of your animal hospital on a boat fishing in Florida or hiking somewhere in the Rockies in two years or less you may be too late. Most corporations will want you to stay on for a minimum of three years. It may sound counter intuitive, but the more your hospital can function without you, the better off you are

**Important note: The more evenly revenue is produced amongst your associates, the  less risky your hospital is to a buyer.

Outlook and Recommendations

With market conditions favorable, veterinarians considering selling should explore their list of options now. Proper preparation and the right professional advice can lead to a successful transition that maximizes value while preserving the practice’s legacy.  It takes a minimum of six to eight months to complete a valuation, go to the market and close on a transaction. So if you are in a five year or less window to retirement, please call our team today!  We will be happy to guide you in the right direction.-