Are you ready for your veterinary practice to leave the nest?

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Are you ready for your veterinary practice to leave the nest?

If you're thinking of retiring or selling your practice, Dr. Christopher Allen has some words of advice on making sure you set up your 'baby' to have a happy new life on its own.
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Jun 04, 2018

A beautiful takeoff. (Shutterstock.com)From time to time, I hear veterinary clinic owners refer to their practices as their “baby.” Their business, which they may either have started from scratch or adopted from some other practitioner and then nurtured and invigorated, is important to them in an emotional way. Their clinic, for many years, has been like a member of the family, not merely a revenue stream or a reliable source of employment.

From where I sit as a lawyer who works with longtime practice owners approaching retirement or contemplating a practice sale, this analogy is still apt, but in this case “the baby” has grown up and is ready to move on to find its own way in the world with a new partner and family.

No suitor could be good enough

A clinician who is preparing to sell a practice faces an imminent and dramatic life change. A sale means relinquishing authority over employees as well as losing the opportunity to watch them learn and develop professionally. The seller no longer will control the hospital’s curb appeal or decide which drugs and products will be ordered and which don’t measure up to standards.

Then, of course, comes the new “marriage.” Buyers are hovering outside the door, sending letters, calling on the phone. It seems like everybody with a spare nickel wants to court your healthy, attractive practice!

Of course, in the old days it was far easier to size up a person who seemed interested in a clinic that was “eligible” to be purchased. That’s because in the old days, all those people were actually, well, people. During sale negotiations, the practice owner could look the buyer in the eye—hear her talk about her plans for the facility, her enthusiasm about the future and perhaps her intention to further train and promote staff members.

Today, the folks who come calling might be individuals, but they are just as likely to be venture capitalists, money managers or corporate acquisitions officers. It’s much tougher to determine what businesspeople and MBAs have in mind for your sweet little practice than if the counterparty were a flesh-and-bones DVM with a dream.

So to practitioners contemplating the sale of a veterinary hospital, I offer these questions to help assess whether the buyer who is interested in your offspring is truly the right catch.

‘Will you be a good provider?’

Without some substantial due diligence, it can be difficult for a practice seller to know whether a potential purchaser is financially sound enough to operate the clinic in the manner to which it had become accustomed. Particularly when corporate buyers come calling, it can be hard to know whether clinic profits will be reinvested to improve the quality of services provided to the public or the facility will merely become a source of cash to be drained and “redeployed” elsewhere.

Also, a practice seller is well-advised to obtain as much information as she can about the financial health of a potential buyer in order to be sure it can pay any “holdback” amount (a portion of the purchase price not paid at closing but rather retained to guarantee that the seller will remain as an employee for a set amount of time—usually one to three years—after the closing of the practice sale).

‘Are you truly committed to my child?’

Veterinary corporations and other acquiring entities don’t just buy clinics; they also sell them. And they sell themselves. They merge, they expand and they become subsidiaries. It’s no different than what happened to your local drugstore: When it opened up it was an Eckerd. Then it was a Rite-Aid. In a few months it may morph into a Walgreens.

While it may not be possible for a veterinary practice seller to know exactly what a potential acquirer has planned for her clinic, it never hurts to ask. And it can also be helpful to reach out to other DVMs who’ve sold to a given practice consolidator. It’s interesting to find out whether the company made an effort to retain the culture that existed under the old owner or made dramatic or draconian changes to facilitate the process of “flipping” the hospital to yet another buyer.

‘Am I going to end up supporting you?’

If you’re thinking of selling your veterinary hospital, think clearly about how much you really know about any particular buyer. Here are a couple of traps in which you might find yourself after sale of your clinic to a cash-strapped individual or corporation:

Long-term mandatory seller employment. Many veterinary hospital purchasers hedge their bets by requiring selling doctors to remain employed for long periods in exchange for a generous sale price offer. They want the seller to stay on (often on a production-only basis) for two, three or more years after closing. A selling doctor needs to remember that after the sale, she is no longer the captain of the ship, notwithstanding her new “medical director” title. Those three postsale years can become underpaid torture if the purchaser steps in and makes the work environment unpleasant or excessively stressful.

The new in-law cries “poverty.” Nowadays, individuals, partnerships and corporations make veterinary practice acquisitions using creative financing involving significant amounts of debt (or through the granting of purchaser’s stock to the seller). A cornucopia of potential complications can follow the closing of a deal so structured:

> If the seller takes back stock in the acquiring entity as partial payment, she has entrusted her money to another with little or no knowledge of how the acquirer will perform.

> If the buyer is heavily in debt, it can be forced to close locations. If one of those locations happens to occupy a building owned by the veterinarian who sold that clinic, the doc may be stuck with an empty commercial site that is not suited for an alternative tenant.

> If the seller “partners” with the purchaser by retaining, say, 25 percent of the clinic stock, the deal may be touted by the acquirer as a chance to “keep a hand in management.” In reality, there’s a good chance the seller will end up having little or no say over major decisions, including his own hours, salary or when or how much of a dividend the practice will pay to him.

So be aware, practice sellers: there are a lot of fish in the ocean. Before you sign your clinic’s marriage certificate, do your best to answer that critical question: Is my buyer going to prove to be true blue? Or am I dealing with a cad?

Dr. Christopher J. Allen is president of the Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached via email at [email protected].