{"id":22143,"date":"2022-08-01T00:00:53","date_gmt":"2022-08-01T00:00:53","guid":{"rendered":"https:\/\/todaysveterinarybusiness.com\/?p=22143"},"modified":"2022-07-26T18:16:14","modified_gmt":"2022-07-26T18:16:14","slug":"veterinary-consolidators-0822","status":"publish","type":"post","link":"https:\/\/navc.sitepreview.app\/todaysveterinarybusiness.com\/veterinary-consolidators-0822\/","title":{"rendered":"Merger Mania"},"content":{"rendered":"

John Volk<\/a> understands the allure of being approached by someone who wants to buy your business. Before becoming a consultant, he owned an ad agency in Chicago in the 1990s, one he\u2019d built from scratch into a thriving business. Volk had no intention of selling until a company offered him an \u201cunbelievable\u201d amount. He sees similarities in what veterinarians have to decide in today\u2019s market, especially older veterinarians.<\/p>\n

\u201cIf you\u2019re a veterinarian who\u2019s 55 to 65 years old, you\u2019ve spent the last several decades building up a good practice, and people come along and want to pay more than you ever in your wildest imagination dreamed that the practice would be worth. It\u2019s really hard to turn down,\u201d said Volk, a senior consultant with Brakke Consulting.<\/p>\n

Indeed, independent veterinarians selling to larger corporations is a trend that\u2019s accelerated over the past few years, said Dan Eisenstadt, the CEO of Terravet Real Estate Solutions.<\/p>\n

\u201cAccording to industry sources, it\u2019s estimated that more than 1,000 practices were sold to corporate groups in 2021,\u201d he said. \u201cSome practices are setting record-high sale prices, selling for more than twice the amount that the same practice would have sold for five years ago. Some industry sources estimate that approximately 50% of veterinary practice revenue comes from practices operated by corporate groups.\u201d<\/p>\n

A Watershed Moment<\/strong><\/h3>\n

When it comes to veterinary practices being acquired, 2021 was a watershed year, Volk said.<\/p>\n

\u201cWe saw values just explode,\u201d he said.<\/p>\n

Before 2021, consolidation was trending up at a steady rate. The earliest consolidations by companies like VCA Animal Hospitals were for five to six times the veterinary practices\u2019 earnings before interest, taxes and amortization (EBITA). Those values gradually climbed to eight to 10 times. But in 2021, consortium consolidators paid as much as 20 times EBITA for healthy, large general practices, said Volk. For good, specialty referral practices, it was even more.<\/p>\n

What\u2019s behind the trend? First, more investors see the resiliency and worth of veterinarians. During the pandemic, most veterinary practices stayed open as essential services.<\/p>\n

\u201cThe resilience and performance of these practices during the shutdown, when even human health care practices were closed, reinforced interest from institutional investors,\u201d Eisenstadt said. \u201cAs we climbed out of the pandemic, veterinary practices continued to demonstrate strong growth, resulting in even more M&A activity by newer corporate groups and ultimately leading many corporate groups to increase their valuations in order to continue to grow through acquisition.\u201d<\/p>\n

Volk said another reason for the rising rate of acquisitions is many consolidators \u201cfelt that maybe they were going to be running out of runway before too long, and so, they wanted to get as many practices in their portfolio as possible.\u201d<\/p>\n

Some consolidators might have been going through recapitalization, which meant they were owned by an investment firm and were looking for a new investor. Volk said they wanted as much revenue in their portfolio as possible and were willing to bid up the prices.<\/p>\n

While consolidations rose in 2021, the number of consolidators might be shrinking through mergers. For example, National Veterinary Associates acquired two smaller owners of specialty referral practices: SAGE Veterinary Centers for a reported $1.25 billion and Ethos Veterinary Health for $1.65 billion. In 2020, PetVet Care Centers bought MAVANA, a group of about 35 equine practices, for an undisclosed price.<\/p>\n

\u201cAcquisitions by the larger consolidators of some of the smaller ones (has been) going on periodically,\u201d Volk said. \u201cWe think there are somewhere between 45 to 50 companies trying to acquire practices.\u201d<\/p>\n

This year has seen a little more de novo activity, where some consolidators are starting practices.<\/p>\n

\u201cThat has not been common in the past,\u201d Volk said. \u201cMost of the large consolidators\u2019 business model is to buy and operate practices, not start new ones, which is a whole different skill set.\u201d<\/p>\n

From Acquisitions to Operations<\/strong><\/h3>\n

Consolidators can make money in two ways, Volk said. One is through arbitrage. When VCA started buying practices and could get one at four or five times EBITA, he said, the practice was worth more than twice as much once in the VCA portfolio.<\/p>\n

When the prices get up to 20 to 24 times EBITA, that arbitrage opportunity goes away fast because it requires one of two things:<\/p>\n