FLIPPING ANIMAL HOSPITALS FOR BIG PROFITS – BUYING TO SELL:
A common strategy for many veterinary consolidators (most are owned and or controlled by private equity firms) is to buy as many hospitals as quickly as possible and combine them into a larger organization in order to obtain a higher valuation. Within a few years, the combined entity is resold to another industry consolidator for big profits.
Hospital groups can sell for hundreds of millions of dollars (often more than $1 billion) to competing veterinary consolidators.
SHORT-TERM INVESTMENT TIME HORIZON:
- The typical time horizon for many veterinary consolidators, the period of time one expects to hold an investment (group of hospitals), is usually 3 to 5 years.
- Consolidators primarily use recapitalization (RECAP) as an acquisition technique and or to implement an exit strategy (consolidator is ready to exit and sell the hospital group), when an investment has met its profit objective.
- In some cases, individual practices are flipped to new owners within months of being acquired by veterinary consolidators. This happens when a consolidator is going through recapitalization (continues to buy practices leading up to the RECAP event, in order to increase revenue in its portfolio and obtain a higher valuation).
The majority of animal hospitals that are being sold are increasing being acquired by corporate consolidators. In many cases, big corporations are offering to purchase hospitals for prices in excess of the true value of the practice, at significant multiples of EBITDA. As a result, many independent veterinarians are unable to afford to acquire these hospitals.
SALE PRICE OF HOSPITALS ARE BASED ON EBITDA:
EBITDA, a widely used measure of corporate profitability, which stands for Earnings Before Interest, Taxes, Depreciation and Amortization.
- In some cases, consolidators have more than doubled their EBITDA, based on its initial purchase.
EBITDA MULTIPLES IN VETERINARY CARE INDUSTRY:
MULTIPLE ARBITRAGE is a common strategy for corporate consolidators which buys several practices at lower multiples of EBITDA, and combines them into a larger organization in order to obtain a higher multiple of EBITDA.
- INDIVIDUAL PRACTICES: ‘Good’ general practices are selling for 8x-12x EBITDA (previously 7x-8x) and ‘Good’ specialty practices are selling for 12x-15x EBITDA (previously 10x-12x) according to the 2021 Brakke Industry Overview.
- HOSPITAL GROUPS: Recent multiples for the veterinary care industry are based on the high teens to 20x-plus EBITDA multiples at which other consolidators have traded. In early 2022, a hospital group sold at a 26.5x EBITDA multiple according to ION Analytics.
POTENTIAL SALES OF ANIMAL HOSPITAL GROUPS:
According to axios.com (8.3.22) – EBITDA MORE THAN DOUBLED
- Partners Group is gearing up for a potential sale of Blue River Petcare. Sources say Blue River is generating around $75 million of EBITDA. That’s up significantly from when Partners Group took over in 2019, when Blue River’s adjusted EBITDA was pegged at north of $30 million according to axios.com.
- The Vet Clinic Chow Down (6.22.21)
- Grant Jacobson is a vet in Marshalltown, Iowa. He’d worked at the same clinic for almost two decades and planned one day to buy the place. But a large corporation outbid his price by one million dollars and took over the clinic.
- Common Perceptions of Corporate-Owned Veterinary Practices
- PRIORITIZE PROFITS OVER PATIENT CARE: Many corporate consolidators prioritize generating returns and often overlook the employee well-being or quality of patient care. Their approach is buying as many hospitals as quickly as possible and then reselling at a higher multiple.
- CEOs of Corporate Consolidators:
- Study conducted by CARE for Pets™ reveals that the majority of veterinary consolidators are led by non-veterinarians. Many of the CEOs at veterinary consolidators have extensive experience with corporate finance, mergers and acquisitions (M&A), and high growth companies. Some of the chief executive officers were previously partners at private equity firms.
- Corporate Consolidator Ownership of General Practices is Accelerating
- Based on current trends, veterinary consolidators could potentially own and operate up to 60% of all general veterinary practices within the next decade.