Selling a veterinary practice: Retirement boom or bust?
Veterinary owners looking to sell in the next decade face unprecedented levels of market competition from fellow baby boomers. Here's how to position your practice to sell to a new generation of buyers.
The demographic impact of the post-World War II "baby boom" has been well-chronicled over the years. This generation constitutes an enormous population peak—or wave, actually—that has taken on a life of its own in the U.S. culture and economy. The baby boom introduced into the marketplace a large group of individuals, each with similar objectives, all around the same time.
This demographic tidal wave that is the baby boom generation will dramatically impact veterinarians who want to sell their practices in the next decade. My office gets calls from practitioners trying to sell their offices all the time, and the vast majority are in that renowned group born between 1946 and 1964.
GETTY IMAGES/KUTAY TANIR
Boomers are changing the market
Most people—veterinarians included—don't want to work until they become incapacitated or pass away. Consequently, an increasing number of private practices are coming on the market for sale. And practice owners who haven't committed to selling are seriously considering it. If you haven't cultivated a family member or favored associate as part of an exit strategy, you have to go to the public marketplace.
When it comes to the baby boom generation and the veterinary practice market, it's all about supply and demand. With an increase in supply of any commodity and no corresponding increase in demand, prices for that commodity fall. That means veterinary practice sellers compete against each other for a finite number of potential buyers. And with a glut of practices available for purchase, sellers become increasingly willing to lower their asking price. Thoughts of retirement create in these practice sellers a laser-like focus on doing whatever is necessary to ensure a sale. This is especially true when sale revenue is key to providing a retirement income.
Post-boomers have an impact too
Here's another important wrinkle that can force practice prices even lower: The fundamental characteristics of today's prospective practice buyers have changed. Post-boomers are different from boomers. They aren't necessarily looking for the same thing from work life that their boomer parents or their grandparents were seeking. And veterinarians in this younger group are not necessarily interested in buying a clinic merely to make a lot of money. There are plenty of new lifestyle preferences out there; here are a few important ones that could impact your sale:
Young veterinarians often are reluctant to work solo. Many grads take their first job at a clinic that's associated with a corporate hospital group. In doing so, they've had other doctors around to consult with and bounce ideas off. Also, many younger veterinarians want to be sure that a heavy clinical workload will be shared and less stressful.
Young veterinarians often want a lifetime of flexible scheduling. Owning a solo practice often leaves little leeway for a maternity leave, a research hiatus or a four-week break to hike in Nepal. While some doctors simply remain associates in order to preserve their flexibility and ensure that vacation time is available, those who do seek practice ownership have a certain lifestyle in mind while shopping for a practice.
Young veterinarians are mobile and headed south and west. It's no mystery that the weather in much of the United States can be miserable. The idea of going "back to where I grew up" to practice is giving way to a desire for mobility and opportunity. For example, kids emerge from Cornell University nowadays with the knowledge that there's a world outside frigid upstate New York. Armed with a first-class education and a $99 Southwest Airlines ticket, they can check out practices in Dallas, Atlanta and Los Angeles. Seriously, why would a newly minted DVM necessarily fall in love with some practice for sale 30 miles from Rochester, N.Y.? Or Rochester, Minn., for that matter? There are similar practices offering jobs and buyouts in states where taxes are low and temperatures are high.
Young veterinarians often don't want to do emergencies. Thirty years ago, it didn't matter what a new graduate thought of emergency cases—he or she had to see them. Now with specialty hospitals and emergency clinics becoming commonplace, purchasing a clinic that sees anything and everything—at any hour—can sound pretty unappealing.
Pricing a practice is like selling a car
As veterinarians approach potential retirement, they need to look at their practice's market value the same way they would look at pricing a used vehicle. This is an analogy I sometimes use when helping veterinarians plan their estates, and the comparison is valid.
Before going to a dealer or placing an ad in the paper, folks often go on valuation websites such as kbb.com to assess the demand for their make and model relative to the car's specific amenities and drawbacks. For example, a small 2005 Mercedes might have a higher "theoretical" value than a small 2005 Chevrolet merely because of the brand's reputation. However, if the Chevrolet has low mileage and a lot of options, it might appeal to more younger buyers who really like heated seats, a killer sound system or alloy wheels. That means the humble Chevrolet will sell more quickly and for a better price than the highly engineered German car. Animal hospital prices work the same way. Today it isn't so much about "inherent quality" (a cold, ugly practice that virtually mints money); it's about how many buyers are interested given the nature of the clinic for sale.
In the same way that a used-car seller often thinks his model is the best-looking and fastest on the road, it's easy for a practice owner to see his veterinary hospital as the greatest one ever built. But the actual price a hospital will fetch is completely independent of its owner's subjective opinion.
So given the significant differences between today's generation of veterinarians and longtime practice owners, is it possible to predict who will have trouble selling for a good price and who will have trouble even getting buyers to look? I think it is.
Urban will probably sell faster than rural. Veterinary medicine is a demanding career requiring long work hours. During off time, younger doctors want access to plenty of recreational events, cultural activities and the opportunity to develop a social life. They want to work when they are at work and have something interesting to do when they are off.
Multiple-veterinarian practices tend to sell better than solo practices. Boomer veterinarians had fewer options than DVMs coming out of school today. Decades back, veterinarians graduated, worked for a practice for a few years then got their own place and worked like a dog six or seven days a week with no certainty of relief help to make vacations predictable. More recent graduates prefer working with other doctors who can provide coverage when they want time off for family or to pursue outside interests. And they certainly think about this when they are clinic-shopping.
Practices that handle emergencies are at a competitive disadvantage. You know the old saying: If you can marry a handsome rich man or a handsome poor man, why would you marry the poor one? Young veterinarians can get financing for practices that see emergencies—and for those practices that don't.
Modern-looking, well-equipped practices sell better. In the veterinary practice sale game, only very astute buyers can perceive a diamond in the rough. Most doctors who look at a poorly equipped and maintained office see a nonstarter, no matter how much money it may be churning out.
If your practice doesn't fit the above criteria, don't despair—you'll just have to work harder to set yourself apart from other sellers and lure the right buyer in a crowded market. Plus, if you have a few years before you sell, you can take steps to position yourself for a whole new generation of buyers. Whatever you do, don't let any outdated expectations lead you to a retirement bust.
Dr. Christopher Allen is president of Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians. Call (607) 754-1510 or e-mail firstname.lastname@example.org.