16 Nov 2018
The vet landscape is changing rapidly, and we find the profession, and ourselves, in an economy we wouldn't have imagined 20 years ago. It's a time of great change and opportunity for those looking to sell a practice.
Vicky Robinson
Job Title
Perhaps the opportunities presenting themselves at the moment, combined with recruitment problems, legislation, HR issues, lack of quality time, age, boredom or other factors, have made you consider now is the right time to sell your practice.
If this is you, but you’re not quite sure what to do next, I’d like to suggest a few questions to consider, as selling your practice is a big decision – and settling on who to sell it to is, perhaps, an even bigger one.
A decision such as this could feel much more than just “a business transaction”. As a result, the “who do I sell to?” question is incredibly important to ensure your legacy is passed into safe hands.
If this consideration is more important than the actual monetary value, the first place to look is internally. Perhaps, some individuals within your team would like the opportunity to take on ownership, especially as fewer opportunities are available for younger vets to own practices – but many don’t want to do it on their own.
The ‘who do I sell to?’ question is incredibly important to ensure your legacy is passed into safe hands
Have you got a succession plan? You could consider offering shares to one or multiple team members, retaining some yourself to make the transition more gradual.
If you own the property you could retain ownership and this would make the acquisition value of shares more attainable for some, while also bringing you a regular rental income.
Some smaller practices, say with a turnover of less than £500,000, may be of little interest to corporate buyers because of location or performance. For these, young entrepreneurial vets are out there, frustrated that they are unable to buy into partnerships easily as they can’t compete with corporate pricing.
Many see a “start-up” as their only option, when in fact purchasing an existing smaller business could be much easier for them, with an established client base, a functioning team, equipment and reputation. Their offers will not match corporate money, but the practice stays independent and autonomous.
However, protect your decision for the future. If you decide to sell independently, ensure that you do have an “anti-embarrassment clause” in your sale contract. This gives you an upward adjustment on your sale price should your buyer sell at a higher multiple within a specified period of time.
The corporate market share is set to increase, and predictions are that it will be up to 70% or even 80%, but no one actually knows where it will settle. We’ve been waiting for the bubble to burst for a while now
The corporate market share is set to increase, and predictions are that it will be up to 70% or even 80%, but no one actually knows where it will settle. We’ve been waiting for the bubble to burst for a while now.
We heard some hissing earlier this year, but to everyone’s surprise, heading into 2019, the offers we see coming in for our clients are still extremely healthy and competitive, with maybe just slightly more cautious values.
Currently, by far the most financially rewarding opportunity is to find a corporate buyer, and often it is the best decision for practice stability and the future, regardless of the owner retiring or staying.
The main question is how can you make your practice a more attractive, and valuable, proposition? This comes down to a combination of key factors that can affect the outcome of your sale: turnover, profit, location, management structure and processes, growth potential, clinical team and leadership commitment.
If you are not in a hurry to sell, we would advise you to ideally maximise the potential in these areas prior to selling.
Turnover and profit are obviously very important to the purchaser and every corporate has its own methodology for calculating earnings before interest, tax, depreciation and amortisation (EBITDA). This may differ from your accountant’s view in that corporate buyers will give consideration to other factors, such as the availability of out-of-hours and any referral income they might gain, as well as the restructuring of the practice cost base once they take over.
It’s really important that the practice has accurate, up-to-date and separate monthly management accounts for each business unit, as well as good reporting from your PMS. You need to demonstrate profitability and growth potential for really good valuations.
Corporates love continuity and value your leadership and expertise. If you are prepared to stay in the practice for a reasonable period of time, the team is more likely to stay stable and the business maintain and hopefully grow, therefore making it a more attractive prospect.
If you have been sensible over time and built a sustainable management team that is not dependent on you being in the practice every day, you will have far more flexibility in your role after the sale.
Whenever you are considering a sale or need more information, the first step is to get a market valuation and take advice on current and possible future values from an experienced veterinary broker.
All the corporate buyers have clear geographical boundaries they are concentrating on, though, and these can change over time.
Corporates tend to acquire in a “hub and spoke” pattern, usually around a central hospital or referral centre, and have groups of first opinion practices in a concentrated area to make management and resource sharing easier, as well as referral services and out of hours. If your practice, even a small one, falls within one of these geographical hubs that’s good news for your valuation and sale potential.
If you own the practice buildings, this needs to be considered separately from the “business” transaction if you are going for a corporate sale. A corporate will be a great tenant, offering you between 7% and 8% of the current market value as an annual rental income, and they like long (normally 15 year), self-repairing leases. This can offer a safe and steady return.
If you don’t fancy being a landlord and wish to sell your property as part of the deal, then this can be arranged separately, but would normally only be with the larger deals. A private buyer will be more likely to purchase the property alongside the business, as banks traditionally like to invest in bricks and mortar, although they will lend into the health-care sector much more readily now than in the past.
Selling your practice is a massive decision, and you can only do it once, so it’s important to get it right and not have any regrets. If you are unsure of your next move, financial values, your personal direction, what to do and how to do it, then seek some expert advice.
We have conversations almost every day, with either our independent clients, or owners who aren’t within a community where they can ask for help, wanting to know the value of their practice and learn from our experience as independent brokers, what steps they could take towards a sale.
While, as a company, our focus is to help independent vets improve their quality of life and their businesses, we also like to help them maximise their sale value if that’s the place they find themselves in. It might be the final step in their veterinary career, and for some, it marks new beginnings.
The Veterinary Business Agency (VBA) has been helping owners sell their practices for more than 30 years. Here, owner Malcolm Wright gives his top five tips for selling up at the right time – and for the right price.
1. Plan ahead. You should always look at the exit from your practice as just another stage in your career. By maximising profitability and management delegation, when the time comes to sell you should get that return; increasing profitability from 12% to 17.5% could result in an increase of 30% of the sale price.
2. Take account of the market. Deciding when to sell is about timing. The corporate practices are the major players, purchasing more than 90% of practices with a turnover of £500,000 or more at premium prices. However, that doesn’t mean this will continue. The continued upturn in goodwill values could be at a peak. Similarly, the 10% tax on capital sales could be a risk with a future government.
3. Take control of the sale. Many practices sell from a direct approach, and in doing so they often let the buyer take control of the sale process. It is your practice and you should be the one in control.
4. Present your practice in the best light. Most indicative offers are based purely on the raw financial data. It is essential your sales memorandum is prepared to give every detail of the practice’s strengths – financial, management and clinical.
5. Use professional teams. An experienced commercial lawyer may cost a little more, but can save you a lot. Similarly, using a broker can maximise the sale value and reduce stresses inherent in the sales process.
