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How to avoid pre-sale remorse when selling your practice
It’s wisely been said that one cannot chart a route until their destination is known. For many long-time veterinary practice owners who are considering a sale, there is a good deal of obsessing over the route and precious little hard thought about the destination.
Many veterinarians dreaming of selling their practice focus on whether they should court private buyers, corporations or both. They wonder what their spouse or children will think if they decide to sell out and retire. Sometimes they fear they may end up being bored. And, naturally, they wonder how much their business would bring in the current torrid veterinary hospital market.
Then, once concrete steps are taken toward a sale and the ultimate disposition of the clinic becomes clear, many practice owners who have engaged in mental gymnastics about prospective buyers suddenly realize that they never seriously considered their reasons for selling in the first place. And they often haven’t thought about the objectives of the buyer who will own the business into which they have poured their heart and soul for many years.
Once the realization hits that signing a contract for sale means imminent sayonara to the clinic, many sellers experience a sort of “pre-sale remorse,” second-guessing themselves and wondering if they will end up questioning the wisdom of the sale—perhaps indefinitely.
Putting the cart behind the horse
To avoid doubt about an imagined or pending practice sale, we recommend that our clients engage in some meaningful self-evaluation. Often private veterinary practitioners are so fully engaged in day-to-day clinical and management duties that they deny themselves a genuine opportunity to ponder how they would like to live five, 10 or 20 years hence.
After giving the future good and realistic consideration, it is time for the selling veterinarian to begin evaluating all the options and routes to that future life. But this is precisely the opposite of what is so commonly done.
Of course, your future self and future life can’t be imagined fully without considering those around you. Does your spouse want to stay near family in the East while you want to move to the Rockies? Has your nephew decided for certain that he doesn’t want to become a veterinarian and take over your clinic? Is that daughter of yours who’s in her third year of vet school sure that she wants to take over your hospital, or does she have indominable wanderlust?
Then there’s the money. Once your post-ownership plans are in focus, have you done enough research regarding your finances and the anticipated payout on your clinic sale that you know you can afford to live in the Rockies?
Remember that the veterinary clinic market of the new millennium is far different than in the past. Prices are higher. Ownership options are wider. The availability of private buyers is more uncertain than it was back when the cost of veterinary school was rational.
But once you have thoroughly—and I do mean thoroughly—considered your objectives for selling (and yes, simply being sick of it is a rational and fair reason to want out), then it’s time to look into the ways those goals might be met. Trust me: This order of operations beats leaving the closing table with a seven-figure check and then wondering “what now?”
Let’s have a look at the numerous new options, other than the obvious immediate and total cash sale of their hospital, that are available to meet practice owners’ well-considered goals.
Locate/cultivate an ambitious, hungry associate
For some long-time practice owners, it is very difficult to imagine suddenly losing control over the business that has taken them years to establish and nurture. It’s really tough. But also tough is graduating from veterinary school and wanting to be a practice owner but having such an overwhelming debt burden that no traditional lender will consider loaning the full price of a solid practice.
For practice sellers who are willing to accept some degree of risk in exchange for realizing their dream of keeping their “baby” in private hands, one answer may be aggressive associate recruitment. Corporate hospital chains, of course, have entire departments dedicated to locating associates for their clinics. But what their headhunters cannot offer is something that might be just the ticket for some practice sellers: a practice buyout over time, with a “sweat equity” investment by the ownership-hungry associate that plays out over several years.
If the right associate is recruited—and savvy recruitment is key—the seller can eventually walk away with a payout. In this scenario the seller receives a sort of annuity that has a far better return than the historical investment in stocks or bonds. All this occurs while not losing immediate control and having a chance to mold the new “eventual owner” into the kind of boss to which a dedicated, hard-working staff can be devoted.
Creative sale to corporate
As more and more practices are sold to consolidators, the number of quality practices available for acquisition continues to diminish. As a result, corporate buyers are becoming more flexible with their buyout options, offering a number of heretofore unavailable choices for sellers who want to retain some degree of input into the clinic culture. Owners who participate in one of these creative sale arrangements can often “ease out” of the ownership role instead of bailing out immediately.
- Limited time majority/minority ownership split. Under this arrangement, the purchasing corporation may buy a controlling interest in the hospital while leaving the seller still substantially invested, say, by retaining 40% to 45% ownership. Simultaneously there is a contractual obligation for the seller to part with their remaining interest three to seven years down the road.
- Associate minority interest upon sale. Some corporate chains are allowing well-qualified associates to purchase from the seller a minority stake in the clinic to be sold. Depending on the management skill of the corporation, this can allow the associate to influence clinic culture during years of transition and also to be financially incentivized to help keep the clinic “the kind of place it’s always been.” For many sellers, this continuity is emotionally important.
- Seller accepting consolidator stock. In some instances, if a seller is convinced that the practice will thrive under corporate ownership, the buyer/consolidator will be willing to pay the seller partially in pre-IPO (initial public offering) or “pre-sale to a bigger consolidator” stock in the acquiring entity. This can permit the seller to feel as if they still are experiencing upside profit potential in the acquired shares and in some way remain somewhat ‘involved’ in the former practice’s health and wellbeing.
Christopher J. Allen, DVM, JD is president of the Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He can be reached via e-mail at email@example.com. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.