The veterinary landscape continues its significant transformation, with the mergers and acquisitions (M&A) market reflecting this dynamic shift. While the past few years have witnessed a surge in activity with high valuation multiples, recent trends suggest a maturing market presenting both opportunities and challenges for veterinary practice owners contemplating a sale. Do you need help with navigating the current market or have questions specific to your veterinary practice? Book time on our President and M&A Advisor's calendar or email Gary at gary@evergreenforfounders.com.
A Look Back: The Rise and Stabilization of the Veterinary M&A Market
Prior to 2015, the veterinary M&A landscape was dominated by independent practices. However, several factors fueled its evolution into consolidation:
- Growing Pet Ownership: Increasing pet ownership rates over the last 10 years, highlighted by the large increase in adoption and ownership during the pandemic, translated into rising demand for veterinary services.
- Rising Practice Valuations: This growing demand, coupled with the resilience shown during the challenges of the pandemic, pushed valuations upwards, making strategic sales an attractive exit option for veterinary practice owners.
- Consolidation and Platform Emergence: Over the past decade, the prevalence of national and regional corporate entities along with private equity-backed platforms has grown, which has helped drive up the multiples for acquisitions.
These factors culminated in a boom in 2021, with multiples reaching record highs. In the second half of 2022 and in the first part of 2023, multiples were down comparatively while the market has begun to stabilize in Q4 2023 and early on in 2024. Some key changes:
- Shifting Buyer Landscape: Consolidation among some buying groups has reduced competition, impacting offer multiples.
- Strategic Shifts: Some buyers are focusing on building new practices instead of acquisitions.
- Focus on Integration: Existing buyers are prioritizing integrating recent acquisitions into their operations.
Current Market Multiples and Valuation Considerations
While multiples have generally declined compared to 2021's peak, opportunities still exist for veterinary practice owners.
Here's what you need to know:
- Market Multiples: Expect multiples in the range of 5x to 12x EBITDA, and read on to learn how Evergreen M&A was able to secure a 12x multiple for a client.
- Individual Practice Factors: This range is a starting point, and several factors influence your practice's specific valuation, including:
- Financial Performance: Strong profitability and consistent revenue growth command higher multiples.
- Location and Client Base: Urban/suburban locations with loyal clients typically fetch higher valuations, especially in areas of population growth with limited competition.
- Specialization and Services Offered: Specialization in high-demand areas can enhance your practice's value. We are seeing favorable demand for emergency practices as well.
- Growth Potential: Demonstrating a clear path for future growth increases appeal.
- Number of Veterinarians: Having a strong team of care providers reduces the risk for buyers, allowing practices with more doctors to fetch higher multiples.
Beyond Multiples: Considerations for Veterinary Practice Owners
The decision to sell involves more than just financial gain. Here are additional factors to consider:
- Strategic Fit: Look to choose a buyer who aligns with your vision for the practice and prioritizes patient care. Entering year 5 of veterinary practice consolidation, many buyers now have track records and references they can provide, further, our President Gary Behler has been deeply involved in the veterinary space for the last 15 years.
- Legacy and Culture: Ensure the buyer values your practice culture and continues the legacy you've built. Are they focused on staff retention and recruiting? Do they prioritize care standards? These are just some of the important questions to consider as you're meeting with potential buyers.
- Your Future Involvement: Discuss options for remaining involved post-sale, if desired. Many platforms require you to stay on at a minimum of 2-3 years to help with the transition and maintain client care standards, however there are some newer buyers coming on the market that have veterinarians in place to transition your leadership role immediately, if needed. Perhaps you want to continue to grow your practice with the support of a platform. These are considerations we'll walk through with you from our very first introductory conversation.
- Deal Structures: Where 2021 saw a lot of all cash offers, you can expect M&A transactions to be heavily structured with earnouts a standard practice. Some important questions to ask as you're negotiating a sale: If earnouts are in place, are they attainable and do they align with your plans? Further, what is the buyer's role in helping you achieve those earnouts? An experienced advisor like Gary, our president at Evergreen M&A has consulted on nearly 100 veterinary practice transactions and knows first hand the ins and outs of various deal structures to guide you in your best interest.
- Returns on Rolled Equity: Part of the deal structure will often include an opportunity to roll a piece of your equity, or ownership in the practice, into the buyer's larger platform. This can serve as a lucrative opportunity for you when the platform recapitalizes or has a liquidity event. It's good to know that the platform has a well thought out strategy to continue growth, and effective leadership with a reputable track record. We are deeply familiar with buyers in the space and can be quite effective in providing you the entire context for the various buyers and what it can mean for your future returns.
Partnering with an M&A Advisor for a Successful Sale
Navigating the complexities of the M&A process requires specialized expertise. An experienced M&A advisor like Evergreen M&A can be your most valuable asset, offering:
- Guidance through the M&A process: Ensuring a smooth and efficient transaction from initial valuation to due diligence and negotiation.
- Identifying the right buyers: Leveraging our network and market knowledge to find the most suitable strategic or financial buyer for your practice and to reach your goals.
- Maximizing your deal value: Our negotiation expertise helps you receive the best possible offer and terms.
A Case Study: Achieving Optimal Outcomes in a Changing Market
Our recent experience demonstrates the importance of strategic guidance in navigating the evolving M&A landscape. We secured a 12x EBITDA offer for a client, exceeding offers they received independently. This success hinged on several key factors:
- Deep Financial Analysis: We conducted a thorough assessment of their financials, understanding their business past, present, and future potential.
- True EBITDA Calculation: We employed our deep understanding of what corporate buyers value to calculate a true EBITDA, maximizing their perceived value and getting a handful of offers in the same range which we can effectively negotiate.
- Targeted Buyer Selection: We identified a select group of highly-interested buyers based on the practice's unique characteristics, attracting serious offers.
- Streamlined Process: By pre-qualifying buyers and performing calculations, we saved the client time and reduced stress. We set and keep deadlines to keep the transaction progressing with minimal risk - as the old adage says "time kills all deals."
Conclusion
While the veterinary M&A market is evolving, significant opportunities remain for savvy practice owners. By partnering with an experienced M&A advisor who understands the current market dynamics and can navigate its complexities, you can secure a successful sale that meets your financial goals while preserving your legacy and ensuring the continued success of your practice.
We invite you to an introductory conversation so that we can see if we are a good fit to help you. Book time directly on Gary Behler's calendar, or complete the form and we will be in touch to schedule a call.
SCHEDULE A CALL WITH PRESIDENT, GARY BEHLER