Veterinary practice mergers: the new way of doing business?
An estimated 85 to 95 percent of U.S. veterinary hospitals are owned independently, but increasingly, corporations have been buying up practices to take advantage of economies of scale and increase profitability. Typically, veterinarians have been on the selling end of these transactions, but a new breed of practitioners see an opportunity in consolidating amongst themselves.
Dr. Scott Spaulding is CEO of Badger Veterinary Hospitals in Wisconsin and recently became president of Mixed Animal Veterinary Associates North America. MAVANA merged 21 mixed animal and equine veterinary practices located in 10 states that employ 105 full-time–equivalent veterinarians and approximately 350 other workers. The merger transaction closed Dec. 31, 2016, and operations began a day later. MAVANA has 45 shareholders and is 95 percent veterinarian-owned.
MAVANA isn’t as much a direct response to corporate consolidation, Dr. Spaulding said, as it is an attempt to increase shareholder value, improve the method of practice transactions from one generation to the next, and improve business operations.
“We see opportunities in buying in bigger volumes for drugs, supplies, and equipment,” he said.
Dr. Spaulding became motivated to start MAVANA, in part, after watching corporations buy up veterinary practices for less than he thought they were worth. For example, he said VCA Antech was paying owners about five to six times their recent annual earnings, but when he looked at VCA’s valuation on Wall Street, it was 30 times the company’s annual earnings.
“I thought, ‘Why can’t shareholder veterinarians realize better valuations for their practices?’ We might not go from five times to 30 times valuation overnight, but what about to eight or 10 times? I’ve seen so many veterinarians sell for very poor valuations, I thought there has got to be opportunity there,” he said.
Another impetus was his own retirement plan. Dr. Spaulding owns 40 percent of the shares in his practices. Yet, he wasn’t sure he’d be able to sell those shares to his associates, many of whom had high educational debt and didn’t necessarily want to be owners. Finally, he knew there had to be a better way to handle the business aspects of his practice, from buying inventory to human relations to finances and tax preparation.
“It seemed to me there was an opportunity to put together some practices to develop a corporate structure to pull a lot of the business administration part out of the practice at the local level and put it at the corporate level. By pooling our resources, we can hire experts in those fields, and that’s what we’re in the process of doing right now with MAVANA,” Dr. Spaulding said.
MAVANA also is taking advantage of the market for mixed animal and large animal practices. Much of the corporate consolidation has been among small animal practices, but he points out that a number of high-quality mixed animal and equine practices that have been in business for decades are profitable and well-run but aren’t in quite that same demand.
The group’s long-term focus will be on operations, growing bigger, and increasing efficiency while maintaining high standards of care when it comes to medicine and surgery.
“These owners place equal emphasis on business-related aspects of veterinary hospitals and the practice of veterinary medicine. We recognize change is coming to decades-old veterinary business models; we want to lead the way in developing new business models to benefit veterinary shareholders,” he said.