An insider’s view on selling to a corporate group

Congratulations on owning and operating a successful veterinary practice! It has paid well, provided employment for the community, and offered much-needed animal care. Blood, sweat, and tears are etched into its walls, along with numerous thank-you cards from clients. The practice’s fledgling days— when hours were long, margins razor-thin, and staff minimal—have given way to years of multimillion-dollar revenue and healthy profits for the owner. The business has sustained clinicians, their families, and the team as a whole. It’s important to handle the next phase with care.

Headhunters will be knocking at the door, calling nonstop, and sending postcards. They will most likely represent a corporate group that is looking for its next acquisition. They will have titles such as business development or acquisition teams, but make no mistake, they are paid to find veterinary practices of a certain size and with a certain bottom line to buy and add to a corporate group. Although it’s flattering to receive such attention, don’t forget that this interest is purely financial. There is little concern for legacy or hospital culture. Before signing a letter of intent or speaking in depth to any of these groups, one should consider many factors.

There are estimated to be more than 25,000 veterinary hospitals in the US,¹ most of which treat pets and companion animals. Veterinary groups, also known as aggregators or consolidators, own and operate approximately 10%¹ of these practices and they appear to be most interested in companion animal general practice. However, some purchase only specialty hospitals and/or emergency departments. There are also groups that will buy mixed and large animal practices. Since the late 1990s, the aggregator’s prime target has been the practice with 3 or more DVMs, over $1.5 million in gross revenue, and at least a double-digit bottom line.

Most of these corporations are owned or backed by private equity funds.² It is difficult to determine how many of these groups exist, but it is estimated that well over 100 groups own 4 or more veterinary clinics in the US. Although most work to acquire existing practices, some open new facilities, which are built with identical footprints and offer limited services like vaccines, routine in-house labs, treatment of mild illnesses, and some elective surgeries.

Why is the veterinary business suddenly the investors’ delight? For many years, veterinary medicine was seen as a less lucrative medical profession. These days, animal care is a $100 billion³ industry, up from $45 billion⁴ just a decade ago. With medical care representing roughly 30% of this income,³ the industry has attracted the attention of private equity investors and made veterinary practices the darlings of the investment world. Private equity firms are interested in fast growth, high growth margins, quick turnarounds, and recession-proof (and now pandemic-proof) businesses. They’ve found it all in veterinary medicine. So, what should an owner look for when approached by a corporation?

Where does the money come from?

Although it may not matter who the buyer is—money is money, after all—keep in mind that a veterinary practice is a valued part of its community, local economy, and veterinary ecosystem. It requires ownership that will retain this service and culture. A private equity firm may be a family business, an investment company, or a foreign-owned entity. Often, they will have several companies in their portfolio with veterinary practices being but one. Again, the veterinary space is now attractive and the incursion into the profession is based primarily on monetary considerations. These entities come with little or no veterinary management experience. Frequently, none of their board members have ever set foot inside a veterinary facility. Why does this matter? It is important to have veterinarians on the board to make the operational and strategic decisions that will affect the operations of their practices. These individuals should have hospital-level knowledge, a history of leadership within the industry, and business and management acumen. The board will control the business via the CEO. Decisions pertaining to veterinary medicine should be made at least in part by people from the veterinary industry, preferably veterinarians.

Ask lots of questions

Practice owners will be asked a lot of questions during the acquisition process. They should, in turn, ask corporations just as many questions. Typically, the business development team will be the primary contact. However, if they do not give satisfactory answers, ask to meet the chief operating officer. There should be no barriers to accessing the information needed to make an informed decision.

Additional questions may come up; write them down and ask. Remember, the business development team is trying to satisfy its quota, receive a location bonus, and meet the board’s annual growth expectations. Practice owners are selling to realize the equity in their business, secure their retirement, and—most importantly—ensure their legacy of lifelong pet care in the community.

Looking ahead

The veterinary industry is at an inflection point. Will it continue to allow corporations to swallow a profession that for years has been successfully managed by compassionate veterinarians, or will DVMs assert and insert themselves into the process? I believe this is a question that needs to be answered and answered quickly. However, it is important to remember that aggregators and corporations are here to stay and will help veterinary medicine reach more pets. But veterinary professionals must be diligent and deliberate to ensure that the relationship between hospitals and corporate entities is mutually beneficial.

References

1. Nolen RS. The corporatization of veterinary medicine. JAVMA News. December 1, 2018. Accessed November 3, 2021. https://www.avma.org/javma-news/2018-12-01/corporatization-veterinary-medicine
2. Segal T. Understanding private equity. Investopedia. Updated May 20, 2021. Accessed November 3, 2021. https://www.investopedia.com/articles/financial-careers/09/private-equity.asp
3. American Pet Products Association. Pet industry market size, trends & ownership statistics. Accessed November 3, 2021. https://www.americanpetproducts.org/press_industrytrends.asp
4. APPA releases 2010 pet industry spending figures, 2011 pet owners survey. News release. PetFoodIndustry.com. March 18, 2011. Accessed November 3, 2021. https://www.petfoodindustry.com/articles/2188-appa-releases-2010-pet-industry-spending-figures-2011-pet-owners-survey