BUSINESS OF PRACTICE
Now, Later, or Never: Evaluating Your Practice for Sale or Other Options By Cath Paulhamus Business has been booming for equine veterinary practices during the pandemic, according to Mike Pownall, DVM, MBA, a partner at McKee-Pownall Equine Services. Working from home and unable to vacation, clients are spending more time with (and money on) their horses, Dr. Pownall said at the 67th AAEP Annual Convention. The profession is busier than normal, but
often working with fewer staff—and not enough graduating veterinarians are joining practices. In this environment, older or long-term practice owners are facing burnout as they work to keep up with the demands of treating patients and running a business. At the same time, corporate groups have stepped up their offers to acquire equine practices. As Dr. Pownall explained, these groups have been making exceptionally high offers, sometimes in the range of 15 times EBITDA (earnings before interest, taxes, depreciation, and amortization). These attractive offers are prompting practice owners to consider exit strategies earlier than they planned. Would it be better to sell to a corporate consolidator now, in this market, before these opportunities pass? If the owner is not ready, what are some alternative business models that can help ease workload, improve cash flow and ensure the practice (and its reputation) will endure?
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Issue 3/2022 | ModernEquineVet.com
When considering the financial impact of selling (or merging) one’s practice, it’s critical to understand how veterinary practices are valued—and how to prepare for it. Sometimes it’s a better strategy to postpone a few years with the goal of positioning the practice for a higher valuation. Dr. Pownall explained that offers are usually based on multiples of EBITDA. In the past, it was usually 4 or 5 times, but in the current competitive market, it’s now up to 10- or 15-times EBITDA. A higher multiple indicates a lower perceived risk for the buyer. Before selling, owners can improve their position, not only by increasing their EBIDTA, but also by ameliorating aspects of the practice that appear “risky.”
WAYS TO INCREASE THE VALUE OF YOUR PRACTICE
The greater the cash flow, the greater the value. If possible, practice owners should work to increase EBITDA and reduce debt before selling by: 1. INCREASING REVENUE (for example, raising fees) 2. LOWERING EXPENSES by controlling inventory, employee turnover, etc. 3. AVOIDING CASH PAYMENTS or bartering from clients (which reduces the documented revenue of the practice) 4. CONTROLLING owner’s expenses.
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Valuation Factors
