Why You Need a Transition Specialist On Your Side
The Seller May Not Receive Full Practice Value
A broker can help their client to achieve full value for the money they’ve placed into their business over the long-term. They can then work to obtain viable selling opportunities and to locate qualified buyers within the marketplace. Without this type of guidance, the seller may find their selling opportunities restricted. They may discover that they can only achieve a small proportion of their total Veterinary practice value in the sale. With corporate buyers in the mix, this can mean losing out on potentially a million dollars or more.
Sellers are unable to Handle the Legal Aspects Alone
The legal aspect of a practice transition is often a critical element within the Veterinary practice sale process. Buyers will have their lawyers review the business’s paperwork and any issues they find must be analyzed closely by experts in the legal field. Brokers often have significant legal experience or have a legal team on their side and can help handle any challenges that arise during the transition process, while keeping the seller’s needs as the foremost consideration. The broker will be available at any time via phone or email to answer the seller’s or buyer’s questions and move the transaction process along. This can help prevent the seller from making poor choices and becoming embroiled in legal challenges.
The Seller Doesn’t Have Marketing Experience
When bringing a Veterinary practice to the marketplace, the seller must be able to highlight the advantages of their business in a way that attracts qualified buyers. Brokers are often experts in this area. They can use their experience to craft compelling marketing materials for the seller and use their experience in the marketplace to build target buyer lists and send out high-value content to these buyer lists.
Sellers Cannot Handle Mediation with Buyers Alone
The buyer will likely have a lawyer driving their purchase process. The lawyer will be negotiating with the seller on all elements of the transaction, including the final price. Having a broker on-hand during this process ensures the broker can handle all mediation, negotiating on the seller’s behalf to get the right price and the ideal structure for the purchase.
Working with a qualified broker can help Veterinary practice sellers reduce their transaction challenges and secure a seamless sale. To learn more, speak with our team at OMNI Veterinary Practice Group at 877.866.6053 or visit our business website at www.omnipg-vet.com.
From the Horse’s Mouth
Each year one of the largest corporate veterinary practice owners holds a one-day conference exclusively for veterinary practice brokers. At the conference, they discuss, amongst many other things, how their company is different than other corporates, how they value veterinary practices, and trends in corporate buying. It’s an interesting meeting to get the “state of the union” from a corporate buyers’ perspective. I wanted to share with you some of the notes I took and give you my thoughts on a few of their points.
- Corporates are continuing to expand. Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
- Some corporates have begun to do de novo practices. They are filling the gaps where they don’t have ownership of a practice with a startup practice. If you can’t buy it, build it!
- The DVM retention rate for the industry is 62%. A particular corporate claimed to retain DVMs at a rate of 82.5%. They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
- There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
- This corporate has three commitments – Wellness Plans, Dentistry, and Fear-Free Clinics.
- They expect the current acquisition trend to continue for the next three to five years.
- Valuations are different among the various corporate buyers. Their add-back for DVM salaries is 20%. Another corporate buyer uses 22%. That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary. That can vary significantly amongst corporate buyers. These are just two of ten examples of the differences they provided.
- Valuations have gone up over the past 5 years. Five years ago, they were buying practices at 4x to 5x EBITDA. They are now acquiring practices at a broader range of 6x to 9x EBITDA.
- They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
- General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices. Corporates currently own 30% of all of these practices. The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically. Corporates then may turn to specialty clinics. Note, we’re already seeing this in the marketplace. They also may focus on de novo practices.
In summary, the presentation confirmed what our thoughts have been:
- Corporates are here to stay.
- Corporate ownership will continue to grow.
- There are some good corporate buyers who treat their staff and DVMs well and there are others that do not.
- Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration.
- Valuations will begin to trend down in the not too distant future.
The number of corporate buyers in the market and the supply of practices corporates want all play into this. Whether good or bad, the corporate veterinary practice is here for the long haul.
This is just meant as an educational document and we are not promoting this or any other corporate buyer.
Influx of Sellers Hitting the Market
I have heard from other practice transition consultants, bankers and attorneys who are telling me they are busier than ever. We, Omni Veterinary Practice group, are experiencing the same thing with more listings and more practices under contract than ever before. So, why are so many veterinarians deciding now is the time to sell? I believe it’s for a number of reasons:
- Interest Rates are rising. Buyers have had the luxury of living through ultra-low interest rates over the past five years. Historically, interest rates on practice acquisitions have been around 7% to 8%. The last five years, we’ve seen them dip down to an average of 3.8% and one bank offering loans at 1.89%! Crazy rates! Buyers are now seeing the rates creep back up. Current rates are around 5% to 5.5%. This is scaring some buyers into acting on their desire to own a practice. They feel if they wait, interest rates will be back to the 7 to 8% rate soon.
- Baby Boomers are reaching their peak. Baby boomers doctors make up the largest portion of the veterinarian population. Approximately 50% of veterinarians are now over the age of 55. The largest portion of the baby boomer population is now hitting their mid-60’s. These doctors are now selling and retiring. Along with this, as we age life events, such as health issues, or even death happens. We are seeing sellers with health challenges where they cannot work at the same pace as they were before, or they cannot work at all.
- Veterinarians tired of being Practice Owners. Several of our current listings are from doctors in their 40’s or 50’s who are just tired of being owners. Managing staff and managing expenses such as rent, employee benefits, etc., have caused owners to rethink their dream of owning a practice.
- Equity Harvesting. Veterinarians at the peak of their production in their practice are deciding to sell their practices and get the equity out before production goes down. Many are selling to either small groups or investor veterinarians who allow the seller to not only harvest their equity but also to work back in the practice. A perfect storm in most situations.
Whether you fit into any of these categories or even if you are in the middle of your career, you owe it to yourself and your family to have a transition plan in place. Life events happen. We meet with veterinarians of all ages to discuss their career plan and look at different options of how to sail into retirement, or even sell and work back. We put customized plans in place and offer solutions in the event the doctor needs to sell quickly.
Maximize Your Practice Value
Freshen up your practice – Buyers like to see a fresh, clean and somewhat updated practice. That does not mean you need to do a complete remodel and spend a $100,000. It does mean you need to take a look at your flooring and your walls. If you have large holes in your wall or your flooring was leftover linoleum from World War II, you should fix the holes and put in new flooring. Talk to your landlord, sometimes they will help with the cost. If you have equipment that is held together by the “fix everything” duct tape, contact your local equipment rep and have it fixed.
Update your technology – We run into an occasional practice owner that considers indoor plumbing as new technology. If you are in that category, or if you have not done any technology updates since Richard Nixon was president, you should look into digital x-rays and other technology that will not only appeal to buyers but will help you increase your production in the practice. Contact your equipment rep for the latest and great technology.
Financial Review – Have a meeting with your financial planner or advisor to see where you currently stand with your retirement portfolio. This will help determine how soon you can possibly retire, how much more you may need to put away to retire and/or how much you need to get out of your practice sale in order to retire.
Practice Valuation – You should get a valuation done on your practice. This will help your financial planner and you see where you stand with your entire portfolio. Some doctors rely heavily on their practice sale to be a piece of their retirement nest-egg, so if you don’t know what your practice may be worth, you don’t know what size of nest-egg you have. Call Omni for a free snapshot valuation.
Clean up your books – If you have been aggressive in running expenses and other items through payroll, you should work on making sure the books are clean. If you have multiple practices, but run all of your income and expenses through one tax id number, you should ensure you can separate the income and expenses of both practices. Meet with your CPA to analyze your numbers and see if you are in line with industry averages.
Grow your practice – One of the worst things you can do is take your foot off of the gas pedal. If you want to maximize the value of your practice, keep production at least level with prior years. A growing practice sells quicker and easier than a dying practice. If you don’t know how to grow your practice and make it more sellable, contact a consultant, or have a practice assessment done.
These are just a few items that you can do to help prepare your practice for a sale. If you work on these items now and over the next 3 years, you will maximize your practice value, enlarge your pool of potential buyers and be able to sell your practice quicker.
Preparing your practice for sale
by Jim Vander Mey
Practice Transition Advisor
- Assess your equipment. Upgraded practices sell faster. If you are more than five years away from retirement, I recommend a few upgrades such as recover your chairs if needed and freshen up the paint. If you want to sell in less than five years, stick to the paint and carpet because you will not get the tax benefit of major upgrades.
- Clean up your accounts receivable. Reimburse patient credits, collect old accounts and keep the A/R current.
- If you have an associate, make sure you have an associate agreement with a non-compete.
- If you have an employment agreement with your corporation and you are a C-Corporation, you may need to terminate yourself a few years before retiring. Consult your tax accountant.
- Consult your financial advisor and tax accountant. How much do you need to retire? How much do you have? What are the tax consequences?
- Get a practice valuation to see what proceeds you will get from the sale.
- Be realistic in the time it takes to sell. In remote areas, it can take a year or two. Metro areas, much less.
- Keep your production up as you near retirement. I see veterinarians slow down all the time in their last few years. Work the same number of days.
- Assess your staff. Do you have too many staff? Do you have one that should have been let go seven years ago?
- Have a practice assessment performed by a qualified consultant. Many will do it for free or a small fee. This may help show you some areas to improve over the next few years.
By focusing on these items in the coming years as you near retirement, you will avoid having your practice production and the price of your practice go down in your later years. Call me for a free consultation. I would be happy to take a look at your practice and give you my thoughts. Or, if you are thinking about transition right now, I have a database of buyers looking in your area. 877-866-6053 ext. 2.