Lending, not recession, governs practice sales

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Veterinary practice sales endure despite a weakened economy. Although geographic location and lender availability play heavily into practice sales, the recession barely registers.

Veterinary practice sales endure despite a weakened economy.

Although geographic location and lender availability play heavily intopractice sales, the recession barely registers.

"I don't know if the story is the recession," says MichaelKovsky, DVM, who brokers veterinary practices in the greater Portland, Ore.,area. Its only bearing on buyers, he says, was limited to the nation's attackslast September.

"When we had the terrorist incident, and then the recession thatfollowed, a lot of buyers who were actively looking got nervous about thefuture," says Kovsky, who has brokered practices for 12 years. "Theypulled back temporarily and kept their jobs, but are starting to call again."

Dr. David Gerber, a Coeur D'Alene, Idaho-based practice broker for Simmonsand Associates, concurs.

"I don't see the doom and gloom others are experiencing.

"I just talked to a buyer, who said 'the economy doesn't scare me.I'm looking to buy a practice.' I'm still getting calls on a regular basisfrom buyers looking for practices. They're not worried about (the economy)in the long haul," he says.

Buyer prototype

The typical veterinary buyer has been practicing medicine under someoneelse's roof for anywhere from three to 10 years and is usually in his orher mid-30s.

"After (several) years, veterinarians realize they don't have asmuch control over their career or income as they would as an owner,"says Kovsky, who owned a practice in Oregon until 1985.

But because of their young status, "They're still dealing with avery substantial student debt," adds Gerber. "Consequently theydon't have any money to buy a practice."

But banks do, and thanks to the ethical reputation of veterinarians,are lending on a frequent basis.

Banking on buyer

The availability of third-party financing (lenders) is "one of themost influential factors" in selling a practice, says Gerber, who operateda veterinary practice in Idaho from 1979-1993. Lending has become a necessitybecause an estimated 80 percent of buyers reportedly have little or no downpayment (under $20,000).

The lending situation remains optimistic for 2002, according to an easternseaboard-based broker.

"As we enter 2002, the commercial lending rates are lower than Ihave ever seen and the buyer and seller market is active, albeit with caution,"says Doyle Watson, DVM, independent Simmons and Associate broker in Georgia.

Pretty simple

Lending today is nearly as simple as applying for a new credit card,but it wasn't always so easy.

"In 1993, when I sold my practice, we didn't even bother talkingto a bank, because at that point banks weren't interested in financing veterinarypractices," Gerber recalls.

Now veterinarians' reputations are such that even the Small BusinessAssociation has labeled veterinarians as the lowest default profession theyhandle.

"Lenders have finally caught on and are saying this is a prettysafe loan, because they're not going to default," says Gerber.

Buyer's rules of thumb

First, avoid areas that are stagnant in growth, advises Kovsky.

Second, evaluate the value of real estate in the area you choose.

"Real estate value should be about 6-8 percent of the gross as anexpense. If that gets too high, those practices become too expensive tosell," he says.

Third, inquire about the equipment at the practice, so that you don'timmediately incur large expenses replacing it.

Watson of Georgia adds, "All buyers should enter into the processwith a desire to remain knowledgeable as to negotiation and contract terms.He's watched buyers miss a golden opportunity because they didn't know themarket. "One must listen to advice but make one's own decisions."

Sage selling advice

The No. 1 recommendation to sellers: plan ahead - at least three to fiveyears in advance to get the facility, equipment and financials up to standard,Gerber advises, to maximize value.

"By proper preparation for an exit strategy, it can make an incredibledifference in the value and desirability of the practice."

Adds Watson, "The easy part (about selling is to get the practiceappraised and on the market or to find a suitable practice to buy. The workbegins at the point to get the transaction into contract, financed, contingenciessatisfied and to the closing table."

Watson adds, sellers should be aware "profitability and growth areprobably the two major factors directly affecting practice value."

Then comes location.

Location sells

Once you have executed proper planning, just as in the home-buyers' market,location can mean the difference between a quick sale and a desperate one.

"Practices in desirable locations - suburbs where there are emergencyclinics and good profit, and places where people want to live - can sellpretty quickly," says Gerber of the Northwest.

On the eastern seaboard, Watson says suburbia or nearby quaint communitiesare attracting more practice owners. "The combination of small townfamily life and city amenities is attractive to many."

Adds Kovsky, "How veterinary medicine has changed over the last10 years as far as the sale of practices and who is buying them largelydepends on where the practice is located.

"There are usually plenty of buyers for practices within a givenmetro area. It's harder to find buyers for practices in rural settings.(What happens with) rural practices is they end up selling for less valuethan a practice in a more desirable area."

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