Considering a Practice Sale to Corporate Volume 2 – Prospective Corporate Buyers

Considering a Practice Sale to Corporate Volume 2 – Prospective Corporate Buyers

Kara Cobb

Veterinary Business Advisors, Inc.

1 Washington Drive

Whitehouse Station, NJ 08889

www.veterinarybusinessadvisors.com

 

In our last article, we discussed how to prepare your veterinary practice for an acquisition by a corporate buyer. We recommended that you first gather your team of professionals and have them review your financials and practice entity documents. We explained that you will need to set aside time to devote to the process for tasks such as digging up documents and having introductory meetings with the buyers. When you have all your ducks in a row and have decided that you are ready to begin, you will then need to determine which corporate buyers would be interested in your veterinary practice.

How Corporate Buyers Choose Veterinary Practices

Many corporate consolidators base their acquisition criteria on a number of factors, starting with geographic location. While the big dogs are nationwide, there are also some smaller corporates popping up all over the country that are specific to a particular geographic region. Their pockets may not be as deep as the larger, older companies; however, they may have a strong infrastructure in your area and may be able to provide you with better support. They may also offer you a future career opportunity in their local corporate office.

Location also matters because as the smaller companies grow, they strategically pick the next market where they are potentially expanding. If your practice is located in that market, they may be willing to pay top dollar to acquire you.

Your pool of prospective buyers can vary depending on the size of your practice. A few factors that buyers take into consideration are the following:

  • Number of veterinarians employed at the practice
  • The practice’s gross revenue for the previous year
  • The presence of year-over-year growth

The size of the hospital building can also influence buyers such as:

  • Number of exam rooms
  • Extra space that can be converted into additional exam rooms
  • Multiple floors in the building
  • Space on the property that could accommodate expansion of the building and future growth

The type of hospital will also determine who is interested in your practice. Some buyers are interested in acquiring specialty and emergency hospitals, while others only want general practices. There are corporates that are in the market for equine and mixed animal practices, but many only acquire small animal hospitals. If you are the owner of an equine facility, make sure the buyer you are entertaining has experience and is able to support your practice. It can be risky to sell to a “newbie” who is just dipping their toes in the water and wants to start with you.

How Practice Owners Choose Corporate Buyers

Once you reach out to the various corporate buyers and determine who is interested in reviewing your practice, you can then begin getting to know them while asking yourself the next question: which of these buyers would be a good fit for your veterinary practice?

Consider the type of management style you would prefer in a buyer. Some practice owners need to have more control and may want to continue running the show after the sale, while others have had enough of the business side and would prefer to step back. Would you like a company that is highly involved and takes over all of the management duties so you can just focus on medicine or would you prefer a company that is a generally hands off?

You can also ask the buyers for a list of references. They should be able to provide you with contact information for practices they have recently acquired in your region. Be sure to speak with both the former owners as well as the practice managers to get the inside scoop on what it’s like to interact with the company on a day-to-day basis. Talk to someone who closed a few years ago to see how they are doing today. Did all of their doctors quit? Is the majority of the staff happy? It’s also helpful to speak with someone who closed more recently and is still going through the transition process today.

Corporate buyers offer different types and levels of employee benefits. Some buyers say that they will keep your staff whole by making adjustments to their hourly rate/salary if their benefits are not as good as what you are currently offering your staff. You certainly don’t want your employees to have to take a pay cut or pay more for insurance after the sale. That would not be good for employee morale. You may want to ask the buyers what kind of discounts they offer the employees. You could provide the buyers with a copy of your employee manual to confirm that their company would offer similar perks and benefits.

Another aspect to consider is how you may feel about the buyer making changes after closing. Some will show up on closing day and immediately switch your practice management software over to their system. They could also change vendors including the reference laboratory or even your in-house lab equipment. It’s something to consider because your employees would then have to learn how to use all new machines. Other corporate buyers choose to continue using all of your current vendors and don’t really change a thing, or at least wait until the dust settles.

The best way to determine whether a corporate buyer would be a good match for your practice is to get to know them. Through phone calls, zoom meetings or in-person meetings, practice owners gain the opportunity to ask questions and get to know the culture of each company. Keep in mind, that most owners continue to work after the closing and their buyer becomes their future employer. Ultimately, you should ask yourself if you would want to work for this company.

In the end, the decision to choose a buyer often comes down to the purchase price. Many, if not most owners are counting on the funds from their sale to enable them to retire down the road, so the final number is important. However, it’s good to do your homework because if you have two similar offers, you will be giving the other factors some serious consideration.

If you are fortunate enough to receive multiple offers on your veterinary practice from corporate buyers, you will be faced with making one of the most important decisions of your veterinary career. In our next article, we will explore the various types of offers and sale structures.

Considering a Practice Sale to Corporate: Helpful Tips to Prepare for the Process Volume 1 – Are You Ready to Sell?

Considering a Practice Sale to Corporate:
Helpful Tips to Prepare for the Process

Volume 1 – Are You Ready to Sell?

Veterinary Business Advisors, Inc.

Many young veterinarians have a clear vision that one day they will become a practice owner. What they may not plan for, is what will happen later in life, when they are older and in need of an exit strategy. Ownership consumes a great deal of time and energy at a level that can be difficult to maintain year after year. Many veterinarians reach a point in their career when they are ready for a change. They have been working their tail off at their practice for the past 15, 25, or even 30 years, and they are getting burned out. Some owners are ready to retire from veterinary medicine altogether. Others may want to continue working, but they are tired of the business responsibilities and just want to focus on practicing medicine.

There are also practice owners who had plans that did not pan out. Some may have intended to pass on their practice to a son or daughter, but that child grew up to live out a unique dream of their own. Others were hoping that one of their associates would be interested in buying, but not everyone wants that kind of responsibility or the burden of a business loan. Some owners work with a broker to find a private buyer and that can lead to a successful sale, but they may be leaving money on the table. An alternative that is becoming more and more commonly attainable to all of these owners is the acquisition of their business by a corporate consolidator. The purchase prices on corporate transactions tend to be much higher than many sellers ever dreamt of receiving.

Things to Consider

There are many things to consider when entertaining the sale of a business and this applies to the veterinary industry as well. For starters, you should realize how time-consuming the sale of a business can be, especially if you are bidding to multiple corporate buyers, and consider whether you have that kind of time and energy.

Consider the following questions:

  • How much free time would you have over the course of a week to correspond with prospective buyers via email, phone calls, video meetings or in-person/onsite meetings?
  • Are you ready to take the leap now, or will you have more free time in another 3 months when your associate returns from maternity leave or when that new hire gets onboarded?

There are numerous financial documents to be located, organized, and sent for review before a buyer is willing to show you the money! The last thing you want is to hook a buyer’s interest but then be unable to deliver and have them walk away.

Additionally, you should take a look at your numbers. If you’ve recently lost a doctor and your production reports are showing a drop in revenue, then now may not be a good time to sell. If your COGs are suddenly way up, or your payroll expense is higher than most practices, these are things that are not going to look good on paper when the financial analysts begin crunching your numbers. It may be worth consulting with a CPA or a financial advisor with veterinary expertise to find ways to make your practice more profitable and “clean up your books” before you put it on the market.

In order to sell the assets of your practice, you will also need to confirm that the business entity that owns it is in good standing. Similar to how you need a clean title in order to sell your car, the same applies to selling your veterinary practice. Many owners are not aware of their state’s corporate law requirements such as filing an annual report for an LLC entity or holding annual meetings for a corporation. If you have not been keeping records properly over the years, then you should work with a corporate attorney to bring your business entity into compliance before moving forward.

If you own your facility, the same applies for the landlord entity that owns your real estate. It should also have the required documentation on file. After the sale, that entity will become the landlord of the corporate buyer (unless you plan to sell the real estate at the same time as the practice sale).

The A-Team

Once you decide that you are ready to move forward with the sale, you will need to bring in a team of professionals to help you minimize your risk and get to the finish line. There are various transaction documents that will need to be reviewed. You will be making representations about your practice in those documents and you should have a legal professional explain them to you.  It would be ideal to speak with a consultant who has expertise within the veterinary industry to determine if the terms of your sale are in-line with the current industry standards. This includes the purchase price, the terms of the facility lease (if owned) and the terms of your employment agreement with the buyer. The other thing to consider is whether the level of risk for you as the seller in those documents is what is typical and acceptable for a veterinary practice sale.

As mentioned earlier, your team should include a local attorney. If your practice is owned by a corporation or an LLC entity, the attorney should confirm that all of your corporate documents are in full compliance. If you own the practice facility personally, you may want to discuss the idea of transferring that ownership to an LLC entity to lower your personal risk before entering into a lease agreement with the corporate buyer. The local attorney can also review your transaction documents to confirm they are compliant with your state’s employment and real estate laws.

A tax accountant will be needed to review the financial and tax sections of the purchase agreement, to allocate the purchase price, and to pay the taxes associated with the sale. A financial advisor is also helpful to have on hand when you receive the funds from the sale to determine where you want to move the large lump sum. Additionally, if you are considering a rollover investment with the buyer, you will want to consult with a financial advisor on those documents.

Conclusion

Before moving forward with the corporate acquisition process, have a team of professionals ready to help you get the best sale terms possible and minimize your risk. Set aside time to devote to the process and give some thought as to what you want to do after the sale and how a non-compete could affect your future. A little preparation and organization will go a long way as you begin the next chapter of your professional (or retired) life. 

This article is the first in a four part series. Next month, we will talk about the various corporate buyers and how to determine which could be interested in your veterinary practice.