What is a Veterinary Practice Acquisition?
A veterinary practice acquisition is when one party (e.g., another veterinary practice, private equity group, etc.) buys a veterinary practice from its current owners. The transaction may include the purchase of assets (e.g., equipment, supplies, etc.), client lists, real estate, and even hiring the current staff of the practice to keep operations up and running.
The purpose of a veterinary practice is for the acquirer to buy and grow a profitable practice to add value to their current operations. Purchasing another practice can create value by increasing the client list, offering new services to current customers, and creating operational efficiency by consolidating vendors, software, and staff.
Legally, finding a good lawyer to help with the transaction is key. This lawyer should have experience in similar transactions (e.g., vet practices, dental practice, medical practice, etc.) so that they know the important terms to negotiate and address when conducting due diligence and drafting the purchase agreement and other closing documents.
Steps to Undertake a Veterinary Practice Acquisition
Here are some of the steps to explain how veterinary practice acquisition works:
- Perform the Initial Step. Given how competitive the market is, it is highly likely that a company—or several—have already contacted you about purchasing your practice. However, let us say that particular business does not seem like a good fit.
- Make Connections with Other Veterinarians. It is a good idea to get in touch with other veterinarians if you are sincere about wanting to sell your clinic. Find out how their practices compare to yours and what their value is. Ask a veterinarian you know who recently sold their practice about the experience and the lessons they took away.
- Examine Various Veterinary Partners. Selecting a business that values your practice fairly and shares your beliefs is critical. Give yourself enough time to figure out your options, and exercise caution when choosing who to pitch your practice to.
- Draft a Letter of Intent. To find out more about a consolidator's background and interest in your clinic, you may decide to have an in-person meeting. This initial phase of developing a relationship may take several months. However, the process will formally begin when they draft a Letter of Intent ( LOI ) outlining the acquisition's preliminary terms. Although a letter of intent (LOI) does not have legal status, it has restrictions that prevent you from discussing the terms of the deal with third parties and looking into other possible partners.
- Evaluate the Veterinary Practice. An official contract will begin to be drafted following the settlement of the LOI. To ascertain the specifics of the agreement, the purchaser must examine your practice in greater detail. They will investigate your accounts, personnel, state of the facilities and equipment, and other aspects of your company.
- Notify Your Group Members. Informing your staff of the news will be one of the most difficult steps in the process. Given how closely you have worked together, these people have probably become like family. How you present the sale and how it will impact your employees is crucial. Once the sale is finalized, you want your staff to be at peace with the decision and, ideally, still be employed by the clinic.
- Execute the Agreement. Usually, a contract is signed prior to the closing date of the sale. This is because the business may be buying your clinic with funds from a bank or venture capitalist. Before disbursing the funds, banks and venture capitalists require confirmation that the deal is finalized.
- Close the Deal. Prior to the deal's official closing, a contract frequently stipulates a number of requirements. One possible request for the staff would be to provide a written commitment to work at your clinic for a specific amount of time. Alternatively, you might need to cooperate with your landlord to make sure the lease is current. Once everything is finished, your attorneys will email each other the signed contracts.
The US veterinary practice industry is expected to grow at a compound annual growth rate of 6.16% from 2022 to 2027, faster than the overall economy's growth, according to Interindustry Economic Research Fund, Inc.
Trends and Insights in Veterinary Practice Acquisitions
Large veterinary groups that buy out smaller practices to form more resource-efficient, more effective organizations are known as veterinary consolidators. This enables them to provide lower prices and draw in a wider clientele. There has been a resurgence of industry consolidation in recent years. These consolidators can reduce expenses while increasing revenue and client satisfaction. These consolidators have the potential to make money in the process.
Veterinary practices Acquisitions are rising and at an all-time high. There has been a resurgence of industry consolidation in recent years. These consolidators can increase revenue and satisfy customers while reducing expenses, and they have the potential to make money in the process. A new report from the American Veterinary Medical Association states that, up from 36% in the previous year, 45% of American households own dogs of some kind. This trend increases the need for veterinary services and opens doors for businesses looking to purchase veterinary clinics.
The market for veterinarians in the United States was estimated to be worth USD 11.92 billion in 2022. Between 2023 and 2030, it is projected to expand at a compound annual growth rate (CAGR) of 8.7%. The primary market drivers are the increasing number of animals, the adoption of pet insurance, and the cost of providing for the welfare of pets.
For instance, many people consider their pets to be members of the family, and treating them differently from humans should not be an option; this means taking them to the vet more frequently. Also, they are expecting more from their veterinarians, which is driving up the demand for internal services. Additionally, pet owners have demonstrated that they are willing to pay for first-rate veterinary care in the event that their animals become ill.
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Kinds of Veterinary Practice Acquisition Consolidators
Like in any other industry, some consolidators preserve and honor each veterinarian's unique brand and company culture, while others merge the practice into their bigger organization. Keep this in mind when deciding which kind of consolidator you would like to partner with.
- Veterinary Clinics and Hospitals: Over time, many veterinary clinics and animal hospitals have experienced organic business growth. Some decide to affiliate with other providers who share their values to fortify their general practice. These mergers usually take longer to grow, giving them the time and room to prioritize patient care and establish reliable business practices.
- Private Equity (PE) Firms: They are searching for a secure and lucrative investment. This is because the veterinary industry is so stable that private equity firms have been interested in buying and funding veterinary practices for a long time. PE interests have also grown as a result of the pandemic's growth in veterinary clinics. The objective of a PE firm is to leverage its resources and business acumen to boost a clinic's earnings with the eventual goal of reselling the company. A clinic can see a large increase in revenue in a comparatively short period with the support of a PE firm.
- Entrepreneurs: Entrepreneurs view veterinarian specializations as business opportunities. Pet stores now have veterinary clinics, which helps lower the cost and increase accessibility to veterinary care.
Key Terms for Veterinary Practice Acquisitions
- EBITDA: The full form of EBITDA is earnings before interest, tax, depreciation, and amortization. It is an alternative to calculating net income profitability.
- Letter of Intent: A letter of intent or ILO is a document that specifies certain terms and conditions of the acquisitions. It does not have any legal implications, but certain restrictions are imposed on the parties.
- Unreasonable Restriction: Any provision within the business contract deemed excessive. It also goes beyond what is necessary to protect the party’s legitimate business interests.
- Indemnity : Indemnity means to protect the parties to the contract by preventing the other party from holding the other responsible for damage and losses that may arise in the future.
Final Thoughts on Veterinary Practice Acquisitions
In the current market, purchasing veterinary practices is a very profitable and successful business venture. The COVID-19 pandemic and the improvement in owner-pet relationships have been major factors in driving up demand for veterinary services. However, there are also numerous legal procedures and documents. Thus, it is always a good idea to seek the assistance of an experienced advocate with expertise in acquisitions.
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