Veterinary practice ownership, like the continental drift, is gradually moving and shifting across our time. The trend now points toward increased corporate ownership and practice consolidators, whereas previously there were more private, solo-owned practices.
“The landscape of practice ownership has and is still changing,” said Darren Taul, DVM, president-elect of the American Animal Hospital Association (AAHA). Dr. Taul is also a veterinary practice consultant for Blue Heron Consulting in Danville, Ky., and owner of two veterinary hospitals in central Kentucky. “There are many facets to this picture.”
For one, according to Dr. Taul, corporations are willing to pay top dollar for larger practices that associates can’t match.
The trend has been gradual, but it is quite apparent.
“There’s little room to doubt that practice ownership is changing with the growth of consolidators,” said Stith Keiser, CEO of Blue Heron Consulting, and adjunct faculty member at several veterinary schools. “Most consolidators, when backed by private equity, focus on return on wealth and the value in the ability to roll up and then sell hospitals in bulk. As private practice owners, most of us focus not only on return on wealth, the risk associated with investing, but we also depend on cash flow, as hospitals are our livelihood. This important differentiator allows consolidators to offer high multipliers—it’s not uncommon to see 10 times—whereas most private buyers can’t get a loan for more than about five times.”
Every week, Keiser said he hears of young associates who were “promised” the opportunity to buy in. Instead, the hospital owner sells to a consolidator for a much higher price.
“This phenomenon doesn’t make consolidators necessarily good or bad; it’s just a reality,” Keiser added.
“The most recent data I’ve seen from the American Veterinary Medical Association puts about 10,000 practices for sale in the next 10 years,” Keiser said. “Consolidators will pick up most of the multidoctor, multimillion-dollar hospitals, but that still leaves a majority of hospitals classified as no-lo, meaning no to low value, practices.”
These types of hospitals tend to reflect poor management, culture, and medicine, Keiser explained.
“No-lo hospitals can be a challenge to turn around due to years of certain management styles and medical philosophies, but they also present a phenomenal opportunity for a new owner with a passion for leadership, business, and medicine,” he said.
Up front and center
Although a lot of factors drive change, it’s the younger veterinary generation (intentional or not) that is helping direct the flow.
“Preferences of the younger generation have contributed to a lesser interest in practice ownership than generations before,” said David Murvin, co-founder of Houston-based Petwell Partners.
Veterinary schools are graduating students in record numbers, giving the younger generation heftier swaying power. Class size has risen by an average of 1.8 percent a year for the past 30 years, according to the Association of American Veterinary Medical Colleges. The total number of new veterinarians entering the profession in 2016 was 4,477, as represented by the number of test takers who passed the North American Veterinary Licensing Examination, according to the AVMA.
“Anecdotally, based on what I see at the school level, many new graduates are being drawn to corporate practice due to an emphasis on work/life balance, loan repayment programs, and very strong compensation and benefits,” Keiser said.
Dr. Taul agreed.
“Small, privately owned hospitals can’t provide the same perks as these ‘mega-hospitals’ due to the lack of resources and funding,” he said. “Privately owned hospitals are finding themselves unable to recruit new graduates.”
Even if younger veterinarians want to purchase a practice, the feasibility of it proves more difficult than past generations.
“The premiums some corporate groups are willing to pay to acquire certain veterinary practices puts a subset of the market out of financial reach for most younger veterinarians,” Murvin said. “Looking ahead 10 years, we expect 20 to 25 percent of veterinary practices to be corporately owned, versus 10 to 12 percent today.”
Renee, Rucinsky, DVM, DABVP (Feline), has a different perspective being owner of the feline-only practice, Mid Atlantic Cat Hospital in Queenstown, Md.
“Our practices typically are smaller to begin with, and it’s not unusual to have one- or two-doctor practices, and probably not as many partnerships,” Dr. Rucinsky said. “I would argue that younger vets can see that some owners have chosen ownership because it can, if done correctly, enhance their work-life balance and financial freedom. Younger vets are coming out of school with a little more business perspective, and I think a better understanding of the possibilities that ownership can provide.”
Veterinary schools are indeed incorporating more resources about the ins and outs of practice ownership.
“As an adjunct faculty member at several veterinary schools, I get to brag about some of our schools for doing a better job than we have historically exposing students to the benefits of ownership,” Keiser said. “This includes breaking the stereotype that ownership has to equate to 100-hour work weeks with no time for family, fun, or anything else.”
Many young associates are also weary of the debt load of a hospital combined with student loans, which can make ownership prohibitive, according to Dr. Taul.
“In reality, the best option for paying off student loans and providing a comfortable retirement is often through practice ownership,” Dr. Taul said. “As younger generations become more financially savvy, practice ownership on various levels may become more of an option.”
Small independent hospitals aren’t going to fall by the wayside, according to Pam Nichols, DVM, AAHA board of directors, owner of Animal Care Center in West Bountiful, Utah, and the Utah Dog Park.
“While the economy of scale is not so great, I believe that there will always be a market for the family veterinarian model of doing business,” Dr. Nichols said. “I think this next generation of vets is primarily looking for a hospital with the right culture and the right core values. … If we as independent practitioners can offer a good lifestyle, say 3.5 to 4.5 days a week, with a decent salary—$90,000 to $200,000 depending on how productive—we will always have talented vets looking to work for and with us.”
With this in mind, the future will be able to support both private- and corporate-owned practices, according to Dr. Rucinsky. Clients, not to be forgotten, are also helping drive trends.
“So many people still want the small town, family, neighborhood experience in all aspects of their lives,” she said. “You can compare the locally owned practice to a farm-to-table restaurant. … Some people are more likely to trust the locally owned, independent practice.
“On the other hand, some people want the chain restaurant experience. You know what you’re going to get no matter where in town or across the country you go. It’s predictable and fine, sometimes great, sometimes not, but pretty much the same wherever. That makes them comfortable.”
As Dr. Rucinsky pointed out, either option is fine as long as pets are receiving quality care.