Today's Veterinary Business

FEB 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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22 Today's Veterinary Business Business Many hospital owners, whether or not they are of retirement age, are cashing out and selling their practices to the highest bidder. And who can blame them? Sales prices are the highest in recent memory. Multiples of four and five times earnings have morphed into multiples of seven or eight, with reports of higher multiples for standout practices. Practice owners have expressed genuine concern about whether we're in a price bubble and when it will burst. Does it make sense to sell now, assuming a high sales price, or is it better to hold on for several more years and hope that high values will be in effect still? Value judgments As consolidators hover and prices spike, the decision to sell your practice comes down to more than dollars and cents. Business MONEY MATTERS Multiples Defined What are multiples and what is being multiplied? Addressing these in reverse order, practice earnings, sometimes defined as profits, are multiplied. Earnings refer to the money available to the business owners after all appropriate expenses have been paid. (For more on how to calculate prac- tice earnings, check the VetPartners report "The No-Lo Practice: Avoiding a Practice Worth Less" at ers, like the local economy, reflect the general environment in which the business operates. Sales prices increase with higher earnings, high- er multiples or both. Consolidators have their own formulas for calculating earnings and assessing risk. The high multiples that some corporates are willing to pay are related to internal strategies, economies of scale and other factors that are proprietary and difficult for us to predict. Not all veterinary prac- tices will rate these higher multiples; there must be a real strategic benefit to the corporate buyer to lead them to offer a generous price. Sell Now or Hold? It is easy to be caught up in the idea that the practice may com- mand a higher price now than it would later when the owners are truly ready to sell. But is that true? There has been a lot of buzz lately about the so-called corporate practice-buying frenzy and how long it might last. What started with VCA, National Veterinary Associates and VetCor is now a market flooded with consoli- dators from within and outside the industry. More than 30 consolidators of various sizes are active in the veterinary market, each with its own criteria for identifying practices of interest. By Leslie A. Mamalis, MBA, MSIT, CVA If earnings are multiplied by "X," how is X defined? X, or the multiple, reflects the risk or uncertainty re- lated to generating similar levels of earnings in the future, with higher multiples indicative of lower levels of risk. This means that the better shape the hospital is in, the more confident the buyer can be that the hospital is a good investment. Some elements of risk, such as employee training and turnover, can be controlled by the business, while oth- For owners with no immediate plans to sell but who are worried about missing a potential financial windfall, the decision is a little more complex.

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