February 2010
Is the market for veterinary practices turning around?
Abstract:
The recession has hammered everything from jobs to housing prices to retirement savings.
What about the market for veterinary practices?
Article:
Trends: How has the recession affected the market for veterinary practices?
DG: In surveying the Simmons offices (10 located throughout the United States), the first two quarters of 2009 transactions were down 37% compared to 2008 and down 25% compared to 2007.
Trends: Are things getting better?
DG: In the second half of 2009, our office has absolutely turned around. While we had three transactions in the first half of the year, we currently have four committed agreements headed for closing and three offers being considered by sellers. I would call that a dramatic turnaround.
Trends: What advice do you have for an owner thinking about selling a practice in today’s economy?
DG: In many ways, the same as always. That is, always plan to sell at the top of your game. Revenues that are growing, net profit that is growing, goodwill that is transferable … and don’t retire emotionally before you do physically.
The one thing that is different is lender behavior.
While 90% financing was a slam dunk in 2003–2008, the current scenario for many lenders is that they will finance 80–85% of the package (practice and real estate) and are requiring a larger carryback loan by sellers.
Buyers rarely have more than $5,000–$10,000, so their situation does not change. The need to change falls directly on sellers. They have to carry back 15% of most deals instead of the prior requirement of 8-10%.
And often, the carryback loan by the seller must be on standby for a period of time (meaning that while interest does accrue, payments may be limited to interest only or none at all for 1-3 years or more). This requirement varies with each lender.
Still, in most cases they can plan on getting 85% of their money at closing.
Trends: What advice do you have for a veterinarian thinking about buying a practice?
DG: Valuations have been driven down a bit by the economic downturn and lack of revenue growth.
Historic performance of veterinary practices is that they enjoy revenue growth of 4.8% per year in recession years and 6.6% overall (since 1972). I find this reassuring.
NCVEI data showed practices up in 2008 about 3% overall in revenue. This year has been essentially flat. In most prior years, the revenue growth was 8–10%. So this recession has hit harder than others.
When we see primary care, daytime SA practices down in revenue, it is usually less than 5%. Emergency and specialty referrals have been hit harder.
Many practices are up in 2009 over 2008, so not all are equally affected.
I continue to believe that veterinary practices are a good investment for those who should be practice owners (it is not for everyone). While we are not recession-proof, there is plenty of evidence that we are recession-resistant and hold up much better than many other industries.
Dick Goebel is a veterinary practice appraiser and broker with Simmons Mid-Atlantic and Simmons Great Lakes (www.simmonsinc.com).
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