12 things a corporate buyer wants in a veterinary practice
Every veterinary practice buyer has different needs and wants, but if you nail these 12 items, yours is a hospital anybodyd love to buy.
Most veterinary practice owners know a colleague or two who've recently sold their hospitals either to a corporate group or to an associate. Associates have always been buying, so now it's the corporate purchases that are getting all the attention. The AVMA estimated in 2017 that there are between 28,000 and 32,000 veterinary practices in the United States, with group or corporate ownership accounting for close to 4,000-nearly 13%. This may seem like a large number until you compare the United States to Britain, where nearly 85% of animal hospitals are part of a chain.
So, what are these corporations and consolidators looking for when it comes to an attractive hospital? As a multi-practice owner over the past two decades, I've seen a whole lot of change in the nature of practice sales. For sure, the days of assuming the value of a practice are long gone. Practice valuations have become more sophisticated, and larger companies can pay for more than a hospital is worth on paper. If you're in the market in the near future for a buyer, corporate or otherwise, here's a list I've crafted from my experience with practice sales over the past five years.
Top 12 things a buyer wants from a veterinary practice seller
2. Good standards of care/high-quality medicine. There's always AAHA accreditation to guarantee it. Is that a no-go? Try some new education on the latest medicine and protocols.
3. Strong growth, with 5% or more revenue increase annually over the past three to five years. Inflow too low? Is it lack of employee motivation? Is it underusing your lab? Is it associate production? Is it you?
4. A strong practice manager, who can run the day-to-day business as well as inspire confidence in a corporate buyer that you'll have a smooth ownership transition. Here are the basics on how a great manager helps, and here's the organization that credentials the best ones around.
5. Moderate to strong profitability, judging by EBITDA (earnings before interest, taxes, depreciation and amortization): 10-15% is moderately good, 15-20% is strong. (What's EBITDA? Practice management legend Dr. Ross Clark explains. Tackle some simple steps to profitability here.)
6. Associate contracts with viable noncompetes in place of five to 15 miles. (Here are some ways they go wrong and here are some ways to get them right.)
7. A seller who plans to stay for a while, often two to three years.
8. No long-term vendor contracts (laboratory, services, etc.) that the buyer is required to honor.
9. Strong associate and support staff. Need to hire associates? Get on it. Need to better utilize your technicians? Make it so. Want strong front-to-back teamwork? You can do it.
10. Modern, well-maintained equipment.Need to figure out how to afford some?
11. More than 20 new clients a month per full-time-equivalent DVM. (Are you unwittingly turning them off?)
12. Positive online reviews. Make it easy for them to do it.
How long till I can sell?
If you've really nailed every item on that list, your next question is: How long till I can exit? This depends on size and location. It's not unusual, in my experience, for it to take six to 12 months to locate the right buyer (but keep in mind that some practices will never sell). As a rule, once you've found your successor, it could take 60 to 120 days to complete the sale, depending on how fast you can move through the due diligence process.
While money and top dollar are important, you want a buyer that you believe will be able to keep the team and clients happy. Take a little time to find a partner that you feel will be a good fit for the clinic culture, and one you feel will best carry out the practice's legacy. You only sell once, so make it a good one!
Dr. Jeff Rothstein, MBA, is a founder of Mission Veterinary Partners (missionvetpartners.com), which currently operates 41 veterinary practices. It's headquartered in Novi, Michigan. Dr. Rothstein can be reached at firstname.lastname@example.org.