September  2017    
Volume 9, Issue 9    

Will a Corporate Buyer Be Interested In My Practice?

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"Will a corporate buyer be interested in my practice?  If so, will they offer a high price? Will they change my practice or can I trust that the legacy I have developed be maintained?" These are tricky questions to answer, and honestly, "it depends".  Why do some practices receive high prices while others do not? Let's start to answer these questions by using the example of buying a home.

Some homes are finished beautifully, in a great location and are perfectly maintained.  These houses generally command a high sales price and as long as you maintain the quality of the home, they will typically retain their value over time. 

Now consider a home that might also be in the same good location, but is dated and needs some maintenance and updating. As a result, this house sells for less than the home in the first example.  Eventually, this "fixer upper" home can also be worth a high price, but only with significant work that will ultimately change its overall feel and character. 

A business is not a home, but the example above still serves as a useful illustration when we consider the sale of a veterinary practice.  Just like the first home example, a veterinary practice that is already highly profitable and well-run will command a high price and very little needs to be done to maintain that value.  It is for precisely that reason that corporate buyers are willing to pay high multiples for these practices.  They can realize cost savings and increased profitability because of consolidation of administrative costs as well as reductions in cost of goods sold.  In other words, they don't need to change anything related to the practice of medicine or the staff/doctor compensation in order for this to be an excellent investment.

Conversely, some practices are "fixer-uppers" and a lot of work needs to be done to make them valuable.  While these practices may have a lot of potential, they will not realize the high multiples that the high-performing practices do.  Furthermore, a lot of changes will need to be made after the sale in order to make the practice profitable.  This may include changes to the practice of medicine as well as doctor and staff compensation and benefit structures.

If you want to leave a legacy in place when you sell, it is more important than ever to run your practice profitably before you sell. This doesn't mean that you need to focus solely on money, but it does mean that you and other practice leaders must pay attention to product mark-ups, to minimizing overtime, and to keeping the practice up to date. You don't need to have all the new technology, but you do need to have equipment in good working order.   If the exam rooms need a new coat of paint, paint them. If one of the fluid pumps is quirky, replace it. Make small investments to keep the practice running smoothly. Many practice owners believe that keeping expenses to a minimum is the best way to receive a high purchase price, but scrimping on needed repairs will work to your disadvantage in the long term, regardless of who buys your practice.

The bottom line is that corporate buyers are very active in the market and most practices with at least 3 doctors and over $1.5 million in revenues are considered targets for these buyers.  However, not all practices will be valued the same and not all practices will remain the same after the sale. 

There are some corporate groups that have a lot of experience in the veterinary industry.  They can work with a practice to streamline operations and improve profitability, while still focusing on the quality of care and the culture of the practice.  They will pay a fair market rate for your practice, just as a private buyer would, but they would likely still be interested, if they feel there is significant potential for improvement.  There are other corporate groups, however, that don't have a lot of background in veterinary medicine.  These are groups that are more focused on the financial investment and their goal is to purchase enough practices that they can then "flip them" and sell to another group for a higher multiple.  These types of corporate buyers have little to no interest in running a veterinary practice.  They will generally not even consider purchasing a practice that does not have profitability in the "double digits" and preferably in the mid-teens. 

If you care about the culture of your practice and you are hesitant to sell if there are going to be wholesale changes to your practice after the sale, then it behooves you to have a practice that is already well-managed and profitable.  Furthermore, if your practice does not have high enough profit, there will be far fewer corporate buyers interested.  If your practice financial performance is not where you need it to be, please consider Summit Veterinary Advisors as a partner in your path to better practice health.  

What stage are you at in the Practice Lifecycle?