How Has the COVID-19 Pandemic Affected the Market for Veterinary Practices?
It is obvious that there is a lot of uncertainty right now regarding what the near future will look like, much less what things will look like a year or more down the road. It is also apparent that veterinary medicine in, most geographical areas of the US, showed a good bit of resiliency over the past 5 months. That said, however, there are areas of the country in which veterinary clinics took bigger hits to their revenue streams than others.
I would need a crystal ball to forecast how all this will play out and exactly how the many factors that will come into play will ultimately affect the veterinary practice market. However, in this article I will focus on providing some insight into what we do know right now, based on questions we are being asked as national leaders in the veterinary practice sales and appraisal industry.
If I’m trying to sell my practice, how have the current circumstances affected the availability and cost of capital for buyers?
The primary lenders that lend specifically in health care are still actively taking new applications and closing loans. One of the major lenders in this space did take a pause since late March to assess the situation and to focus on providing PPP loans to their Veterinary clients. But they have announced that they will be open to accept new loan applications the last week in July.
You can bet that interest rates will be commensurate with the level of risk the bank is taking on and that can translate to higher interest rates in some parts of the country.
Are there buyers actively pursuing acquiring Practices now?
The good news is yes, we are seeing a steady stream of Veterinarians that are interested in purchasing independent Practices. We are seeing consistent activity by Corporate Consolidators as well.
Will Corporate Groups be more conservative on price and deal structure in the future?
I have talked to several key leaders for some of the corporate groups and the input I have gotten back is that they will still be focusing on 2 or more DVM practices with revenues of a minimum of $1.3 million. They will likely be a little more conservative in the multiples they will offer, but may still offer strong multiples if owners are more willing and open to considering hold backs, retaining equity shares (either A or C shares), seller notes, or earn-outs.
Will the pandemic have a significant impact on the Valuation/Appraisal of my practice?
Again, a crystal ball would be nice, but here is what we are seeing in the geographical areas that were able to stay open and operating:
- A 15 to 20% dip in revenue for March and April
- A flattening out of the revenue drop in May
- A growth back to pre-COVID levels in June and July, with some practices actually exceeding their July 2019 numbers.
If this was your scenario then there is probably little impact to your overall market value. If you had to shut down your business for 2-3 weeks or more due to staff positives, etc. and your July or upcoming August revenue does not get back to pre-COVID levels then you may see an impact on your market value and the desirability of your practice to a potential buyer.
What steps can I take as a Practice owner to protect my business and minimize the impact on my Market Value?
Our primary focus at TPSG is not day to day operational consulting. But I believe these following tips would go a long way to help you operate at a level that can protect your business:
- Follow and adhere stringently to all CDC safety and cleanliness protocols to protect you, your staff and your clients.
- Stay focused on quality medicine. Don’t assume that because times are tough that clients will not pay for the services their pets need.
- Spend some time on past due reminders to get those pets back in the office for the services they are due and assure clients that you have protocols in place for their safety.
- Focus on services and procedures that pets may need in the next 90 days while they are in the office and do them during that visit. This helps clients from making another trip out.
- Protect your staff’s mental wellbeing. This is a stressful time for all and it is important to be cognizant of how they are coping with the added stress.
All of our Total Practice Solutions Group Brokers are here to help guide you and answer your questions, whether you are in the middle of selling, thinking about selling, or considering buying a Practice during these uncertain times. The past 4 months have validated that Veterinary Practices are still a solid investment for those Veterinarians looking for an independent practice and consolidators looking for those practices that fit their profile.
Richard Alker, DVM
Total Practice Solutions Group