Skip to main content
Articles & Resources

Veterinary Practice Valuation in a Sale Context

By February 21, 2019May 31st, 2022No Comments

Veterinary Practice Sales and Valuations

Buyers valuations vs what your practice is worth

Previous articles have detailed how a potential buyer derives a veterinary practice sale multiple and a Normalized EBITDA for a practice. These variables, multiplied together, generate a Buyer’s valuation and are critical in the veterinary practice sale and valuation process.

Now that we understand the basics, determining the value that you will get once you sell your pet clinic should be simple, right? In other words, shouldn’t the price that an owner selling an independent small animal veterinary clinic get for their practice be the same price as the value assigned to the business by a buyer? Unfortunately, it is not that simple.

To begin with, the buyer valuation is what a buyer could pay, but not what they will pay. If the buyer doesn’t have to pay this price, they will gladly pay less. The offer that comes from the buyer will reflect the information a buyer has or doesn’t have, their appetite for acquisitions and their access to capital. But, it will also be based upon their view on how competitive the particular purchase opportunity is. Competition is a seller’s friend.

If you want to get the True value of your practice when you sell, you need to have multiple buyer valuations

To facilitate getting the aforementioned buyer valuations, each buyer needs good and comprehensive information as well as access to many comparable transactions. The buyers use this information to determine what their operative veterinary valuation multiples are and their expected return on investment.

The True Value, or the Market Price for your vet practice, is defined as the Maximum Buyer Valuation: True Value = Max (Buyer1Val, Buyer2Val, Buyer3Val…BuyerNVal)

Given: Each buyer a) has quality information about the practice; b) is determining the practice valuation in a competitive bidding process; c) has access to comparable practice sales to compare your practice to.

Unfortunately for the sellers (independent practice owners), these conditions don’t appear to be satisfied in many of the practice sales we see in the veterinary industry.

Sometimes there is limited competition, meaning the practice owner only sees a small portion of potential buyer valuations available from the market. Other times the information provided to potential buyers is inadequate, resulting in the offer being substantially discounted from the Buyer Valuation. Moreover, the buyers take advantage of sellers by leveraging their experience. Remember consolidators are in the business of buying practices.

VetValue’s philosophy for veterinary sales and valuations

We apply our significant experience in valuation, and veterinary practice sales to provide our users with a facsimile of the process that a corporate group or private equity buyer would use to value your practice.

First, we derive a Normalized EBITDA for your practice by estimating adjustments suggested by the particular situation of your practice operation and financials. Having worked with many corporate buyers, we have a very good idea of what they adjust and how they do it.

Next, we apply our proprietary algorithm to various practice factors (growth & size, among others) to calculate a Buyer Valuation multiple. Our algorithm is tuned to the market and framed by the numerous practice sales we have advised on.

Finally, we calculate an estimated value using this modified cash flow method. This valuation methodology allows us to use the multiple we calculated times the EBITDA (the normalized version, of course) for the practice.

The valuation that results is our best estimate of what a corporate buyer would pay for your practice if your practice were to be sold in an organized auction.

Whether you can achieve this valuation or an even better sale price depends upon the sale process and the partners you choose to see it through.