4Ps of a Practice Transition
Your Advisors and your Buyer
The sale or transition of your veterinary hospital is a high stakes event that will have a material impact on the future prospects of your family and your career. Hiring an m&a consultant (Transition Advisor) and a good attorney to help you navigate the process is a must, particularly if you are considering a sale to a corporate buyer.
You should consider consulting with, or hiring all of the following execution partners:
Your transaction attorney will help you negotiate and document the deal that you select. A good attorney will have experience in practice transitions, be trustworthy and diligent. Most charge by billable hours, meaning you pay whether the deal closes or not and whether the work is high quality or not.
Be wary of fixed $ fee arrangements with your legal counsel. While you want to be sure your attorney is not running the clock on you, you also want to be sure your attorney will take the time necessary to properly address the issues that matter most to you.
Veterinary Practice Sale Advisor (sometimes called a Broker)
The goal of the Practice Sale Advisor is to get you the best deal possible and to see that the deal closes on the terms proposed. Unlike other partners you will hire or consult, this advisor is paid the bulk of their fee only if the deal closes. This compensation structure means that they should be willing to perform a broad range of deal-related services without charging explicitly for the hours they put in.
The level of service and the quality of representation varies greatly for this partner. Brokers tend to see their main function as finding a buyer, a relatively low value service since the corporate buyers in veterinary services are generally well known.
A true advisor (one such true advisor is lVet Value’s affiliated company dvmEvolution) will do much more for you than find a buyer. Such an advisor will have your back at all stages of the deal in addition to having specific experience dealing with corporate buyers.
One goal is to maximize your after-tax proceeds from a transition. The taxes you pay can vary significantly based on the deal structure used, or form of consideration paid. It is critical that you consult tax counsel to figure out what the options are and how to achieve them.
Once you receive your proceeds, you will want someone to help you invest the proceeds. There are many wealth managers that have built practices catering specifically to veterinarians and other doctors.
Your accountant can provide and explain your financial statements. If your books are maintained to optimize cash taxes paid (this is common for veterinary practices and most small businesses),someone will need to spend time identifying and completing key adjustments to prepare your financials for buyer evaluation. If your accountant has not successfully marketed and sold practices to corporate buyers, you should not rely on them to do this effectively.
Counterparty – Your buyer / partner
Regardless of your long-term post-transition objectives, you should pick your counterparty carefully. Ideally, you are looking for a buyer who will act like a partner. Sometimes the buyer who offers the highest sale valuation may not be the right fit for you.
There are more than 40 corporate consolidators in the market, not to mention myriad individual buyers, each with different approaches to practice ownership. Some buyers offer a top-down, “command and control” approach to practice operations, while others offer practice-level support, but generally let you continue to run the practice as you think best. Before you transition, you should do your homework to understand how potential buyers run the practices they own. Make sure to speak with any references provided.
Sometimes signing an LOI is the jumping off point to understanding whether the buyer “walks the walk” or simply “talks the talk” of being your partner. Don’t be afraid to walk away and start again with someone else. There are many fish in the sea.
The work you do, upfront, before marketing your practice.
In some sense, everything you’ve done as a practice owner is preparation. If you plan on selling a veterinary practice in a few years, you can make investments today to maximize your outcome. Investments that can increase your revenue growth rate, or add scale and capabilities to your practice are worth considering carefully at anytime, but particularly if you are two to three years from selling your practice.
The preparation we are discussing here is the work you do in the months preceding the sale of your practice before you engage with potential buyers. Preparing for your sale before interacting buyers will allow you to position your practice in the best possible light so that the value you have created translates into the best possible offer. Upfront preparation will also serve to stream-line the due diligence process that will occur as a potential buyer evaluates your practice.
The Price paid for the practice interest sold.
To maximize your sale price, you will need to interact with multiple, sometimes many potential buyers to “discover” the price. For this reason, best practice does not suggest a “list-price” approach used by many practice brokers.
Each buyer will determine their own valuation based on how your practice compares to other practices they have seen, and other factors. However, no buyer wants to pay more than what is needed to convince you to sell your practice.
There are many ways that a buyer may be able to acquire your practice for less than what someone else might pay for it. The most common way is to convince you to sell before you are prepared of have adequately evaluated interest in your practice. You should be extremely wary of high pressure tactics such as increasing the sale price in exchange for signing an LOI today (or now).
The Practice Sale Advisor is responsible for getting the seller the best price.
As the practice owner, you should know what terms you must focus on, determine where you may have options not considered by your counsel, and determine what terms may be negotiated by your advisors, or others.
A good attorney who has completed veterinary practice transitions will take the time to walk you through the contract and explain the trade-offs. A veterinary practice sale advisor will also provide perspective based on his/her experience.
A crucial “particular” is the structure of the deal post-transition. Most buyers will want you (and your associates) to continue practicing medicine or run your practice post-transition.
Different buyers will suggest different post-transition incentive structures to accomplish these goals, including PracticeJVs, or equity in the “TopCo”, or parent company. The key is to find the deal that meets your risk objectives, and provides attractive incentives for your post-transition objectives.