Veterinary Clinics A Growth Industry
The practice of veterinary medicine is a growth industry. Today there are about 126,000 practicing veterinarians in the U.S., and an estimated 41,000 more veterinarians will be needed by 2030 to care for our beloved pets. The veterinary industry is also recession resistant, as seen during the Great Recession of 2007-2009 when the veterinary industry saw no slowdown. The sound economic characteristics of the veterinarian industry has attracted the interest of private equity groups and large corporations. About 40% of veterinary clinics are now owned by large corporate chains, and their interest in acquiring more veterinary clinics are driving up valuations.
Valuing Veterinary Clinics
- The value of veterinary clinics is ultimately a function of its adjusted owner benefit, or the true economic profit derived by the owner.
- Most small veterinary clinics are valued for around 3-4 x the adjusted owner benefit, with larger and more established clinics receiving higher valuations.
- The adjusted owner benefit is calculated by first determining the annual EBITDA (Earnings Before Interests, Taxes, Depreciation, and Amortization) from the most recent tax return or profit and loss statement.
- Looking at the EBITDA ensures that costs associated with debt (which are not applicable to the buyer) and non-cash charges for depreciation are not included in the analysis.
- Then one must add-back the owner’s salary as well as any personal expenses of the owner that flowed through the financial statement in order to derive the adjusted owner benefit.
- One must be sure to carefully analyze the role of the owner in each individual clinic.
- In a clinic with a working owner-veterinarian, one must deduct the fair market value of replacing the owner (with a veterinarian) when adjusting the owner benefit.
- Many acquirers of veterinary practices are corporate chains or private equity groups which will need to replace a working owner-veterinarian after the sale.
- Although their cost to replace the owner will reduce the adjusted owner benefit, the purchase price should reflect a premium valuation.
- Many factors will affect the valuation multiple of owner benefit that buyers are willing to pay.
- This includes the longevity and reputation of the clinic, the physical equipment included in the sale, and the trained staff members who will stay after the sale.
Physical Equipment Affects Valuation
Many veterinary clinics perform ancillary medical services on animals such as x-rays, surgeries, or diagnostics. Some veterinary clinics specialize in performing such services. Equipment value for such veterinary clinics often amount to hundreds of thousand of dollars, and greatly affect the valuation in two ways. First, a veterinarian clinic with substantial tangible asset value will provide a strong degree of comfort and security for a buyer. If something goes wrong, a buyer will always know they can realize some value by salvaging the equipment. Second, a veterinarian clinic will be more easily to qualify for external financing (backed by the SBA or Small Business Administration) with large physical assets. Banks are simply more likely to lend when the business includes hard assets.
Reputation of Veterinary Clinic Affects Valuation
A well established veterinary clinic with a strong reputation for customer service will greatly enhance its goodwill or intangible asset value. Many customers of veterinary clinics are repeat clients, who go to the clinic on a regular basis for check-ups and repeat health issues for their pets. While location and pricing are also relevant factors in deciding where customers go for their animals’ veterinary needs, reputation for quality care is of paramount importance. Online reviews and testimonials often serve as the best way for a veterinarian practice to gain new customers. Eventually, the customer goodwill will be reflected in the company’s financials and adjusted owner benefit, which serves as the primary driver of valuing veterinary clinics.
Staff of Veterinary Clinic Affects Valuation
A trained and competent staff that will stay on after the sale will significantly enhance the value of a veterinary clinic. Whether the buyer of the clinic is a large corporate chain or an individual veterinarian, they will want to have a trained staff in place after the sale. It is a costly and lengthy process to recruit, train, and employ the many types of staff members (office managers, technicians, medical assistants, groomers, and DVMs) needed for a successful veterinary clinic. The more absentee and less involved the owner is in the operations of the clinic, then the higher the valuation. Buyers do not want to train or replace (with their own labor) a veterinarian owner who is working 80 hours per week. Rather, they wish to inherit a trained staff with many years of experience working in the clinic.
Keep Sale of Veterinary Clinics Confidential
Most owners of veterinarian clinics care deeply about their patients, clients, and staff. The last thing they want to see happen is the stability of their clinic disrupted by word ‘leaking out’ that their practice is for sale. For this reason, the sale of veterinarian clinics must be conducted in a confidential manner. Every potential buyer should be qualified and made to sign and complete a Non-Disclosure Agreement which serves to protect the seller’s confidentiality during the sales process. All advertisements placed online should be ‘blind’ in the sense that they do not in any way disclose the actual identity of the veterinarian clinic being offered for sale.
The valuation of veterinary clinics may be affected by many different factors including the growth and stability of its sales and profits over time, the possible cost to replace the veterinarian-owner, the overall reputation and customer goodwill in the local community, the lease and location of the clinic, the physical equipment included in the sale, and the quality of staff willing to stay after the sale. With the assistance of a professional business broker, veterinary clinic owners should always maximize their purchase price when it comes time to sell.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.