In an article appearing in the June 2021 issue of Mergers & Acquisitions, Rod Simmons discusses the increase in activity in veterinarian practice M&A through the Covid-19 pandemic. Like most industries, the pandemic introduced new challenges for veterinary care providers, but it also introduced new opportunities that, along with other factors, are contributing to increased activity in practice transactions.
Pet ownership rose throughout 2020, as “pandemic pets” became a measurable phenomenon. Many veterinary practices saw an increase in revenue, a trend that seems to be continuing into the post-pandemic environment with pet owners are increasingly willing to pay for premium products and services for their animals. This stability appeals to buyers looking for turnkey returns, along with low interest rates and capital-rich PE firms driving a large market place for practice sellers to consider.
Among the motivation for practice owners to sell: the sheer stress of owning a business during an unprecedented event like Covid-19, the resulting desire to diversify investment risk, the continued pressure of competing with industry consolidators and the record high valuations of veterinarian practices. Further, concerns about the possible repeal of capital gains taxes under the Biden administration could drive more sell-side interest.
With interest high on both the buy- and sell-side, Simmons offers some key considerations for buyers looking to capitalize on the veterinarian boom, including:
- Performance during the pandemic: Consider how pandemic-era performance might indicate future success – strong performers will likely remain strong, but even weak performers could be great investment opportunities if there are identifiable changes that can be made to improve financial performance.
- Associate veterinarians: Associate veterinarians often drive future success, so enhanced compensation or benefits to retain these doctors could help drive value. Reasonable non-compete or non-solicit agreements are also important to help ensure today’s associate vets don’t suddenly become tomorrow’s competition.
- Lab services and equipment agreements: Thoroughly review agreements with lab service providers and equipment lessors to understand your bargaining leverage and financial position.
- Real estate: While buyers typically prefer to lease practice space, it’s important to ensure the practice can remain in the space for as long as needed with a long-term lease or a shorter lease with renewal options. If the seller owns the real estate, the buyer should consider obtaining the first refusal to acquire the property in the event the veterinarian decides to sell.
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Luis F. Ruiz