Retirement Choices: Selling Your Practice—Should You Sell to an Individual or a Corporation?

by Lavanya Sunkara

You’ve dedicated your life to caring for companion animals. You’ve built a successful practice on strong values, with people equally committed to enhancing the lives of pets. Now it’s time to retire. What do you do? There are several things to consider when making this life-changing decision. The owner-veterinarian of a profitable and well-managed practice has the choice of selling to a corporation, an associate, or an outside veterinarian.

Whichever decision you make, the process can seem daunting, as it’s one of the most significant financial transactions a veterinarian will make in their lifetime. Valuations, marketing packets, and negotiations are all par for the course in getting the best deal for your practice. More importantly, finding the right buyer to continue the business with similar values is paramount. Thankfully, there are industry-specific consulting, brokerage, and legal experts who can help with transactions of veterinary sales.

Here are some suggestions when considering whether to sell your practice to a corporation or a private buyer.

Implementing an Exit Strategy

If you have decided to sell your practice and retire, the first step is to create an exit strategy and have a five-year plan. Typically, when selling to a corporation, most contracts require the selling veterinarian to stay on for a minimum of two to three years to make the transition as seamless as possible. If you are considering this route, take into account the number of years it may take to get your affairs in order and be fully out of the practice.

Peter Tanella, cochair of Mandelbaum Salsburg Veterinary Law Practice, says the retiring veterinarian can use this five-year period to identify areas that need improvement to increase profitability and salability.

“Get your books and records in order,” he said. “Get the practice appraised by an industry practice appraiser. Make sure all of your contracts have been reviewed and executed, and you have proper associate agreements in place.”

Another thing to consider is to have a baseline practice valuation performed. “The appraisal will give you the current market value of the practice that can help you make decisions accordingly,” suggested David King, DVM, certified valuation analyst of Simmons Southcentral, a veterinary brokerage and appraisal firm.

“If the market is good, or if your practice could be a corporate target, it might be best to test the market now rather than in three to five years,” King said. “So you can sell the practice at a tremendous value, and then run the clock out for transition from three to five years as an employee of the corporation.”

In addition to being a veterinarian and a certified valuation analyst, King is also a real estate agent and broker, placing him in the unique position to facilitate veterinary practice sales.

Additionally, most buyers interested in the practice are also keen on buying the real estate to avoid rent payments and begin building equity. Be prepared to part with the practice as a whole to avoid transactions falling through in the future.

Selling to a Corporation

Corporate sales have been dominating the market in recent years, with practices in prime locations sometimes receiving triple the asking price.

“Five years ago, corporations were just kind of a blip on the market,” King said. “They were only looking at really high-grossing practices. They were offering good numbers, but not great numbers. Things changed when corporations started realizing that veterinary medicine is recession-proof.”

He continued, “Most veterinarians don’t want to sell to a corporation because it goes against their grain. They want to sell to private individuals.” In the past, there were fears among veterinarians that a corporation would swoop in and change the look and feel of the practice, replacing the local, hometown hospital with a chain business. However, corporations are catching on and have a better understanding of what veterinarians really want.

Pathway Vet Alliance is a veterinary management group based in Austin, Texas, that owns and operates hundreds of practices across the country.

According to Michael Bland, chief development officer at Pathway Vet Alliance, once the corporation purchases the practice, it provides support for many administrative tasks, including accounting, bill payment, marketing, IT, and recruiting. Employee benefits transition to Pathway’s plans, such as 401(k) matching and eight weeks paid maternity leave. However, most of the staff won’t notice a difference in the day-to-day operations of the practice other than their paychecks being signed by a different person.

“We leave all medical decisions to the local teams and support them in any way we can to continue to provide great service to pets and clients and to grow the business. To us, ‘status quo’ is boring, but growing together and making a meaningful impact on our communities is exciting,” said Bland.

After two to three years, the selling veterinarian will leave and a new doctor will be introduced, continuing the transition process. The staff and the rest of the associates will remain, if they choose to stay on. For clients, the practice remains unchanged, with no impact on the prices or the quality of healthcare. “[The corporation] bought the practice because it’s successful and all the people that are already there made it successful. They don’t want to fix what’s not broken,” said Tanella.

After careful consideration, Mark F. Magazu, DVM, of Saint Francis Veterinary Center in Woolwich, New Jersey, decided to sell his successful, 80-employee practice to Pathway Vet Alliance. “As a 25-plus–year AAHA-accredited practice, I needed to know our standards would continue to elevate once I was gone,” said Magazu.

He tasked his son, Mark Magazu II, who has a background in finance, law, and high-stakes negotiation, to oversee the transition from start to finish.

“We evaluated 10 groups, narrowing down to 3 finalists based primarily on two key criteria: a vision for veterinary medical excellence inclined toward innovation and a foundational focus on workplace culture across the company,” Magazu said.

The entire process took about a year, which gave Magazu an opportunity to arrange the hospital for transition success and for his son to conduct due diligence on each potential corporate partner. Upon finding Pathway, Magazu happily agreed to remain with the practice for two years before retirement.

Selling to an Associate

While selling to a corporation may seem appealing, it may not be what the retiring doctor or co-owner wants. Becky Krull, DVM, co-owner of Green Bay and Allouez Animal Hospitals in Wisconsin, considered selling to a corporate entity when her co-owner retired, but she wasn’t ready. “I love being my own boss. There is great satisfaction in building something and overseeing its successes. I like setting goals, inspiring my staff, and leadership challenges. Ownership also offers the financial rewards of a successful business as well as the stresses of the risk taken,” she added.

Krull started the partnership in 2008; she put in place legal safeguards to protect her interest in the event of her co-owner’s retirement. “I had it set up in my buyout contract that I would always have the first right of refusal at our agreed-upon purchase price. This protected me from ever having my partner sell to a corporation for a much larger price than I could afford,” she shared.

In Krull’s case, she relied on lawyers, accountants, and financial advisers to help with the transition. However, veterinarians can also retain veterinary brokerage and appraisal firms to ensure the smooth transition out of practice ownership. When a seller approaches King for a private sale, he steps in as the mediator, especially when the buyer and seller know each other and need guidance.

“There are so many things that can go sideways, and especially when it’s a buyer- or an owner-associate–type situation. You have to have somebody in between them, someone they can be mad at,” said King. Part of King’s job is to do a fair market valuation for the seller and to make the buyer aware of expected profits if they purchase the practice.

The mediator negotiates the best deal between the two parties. “If there’s ever an issue that comes up, it’s probably come up before. We’ve probably already dealt with it. We let people know what’s the right way or maybe even wrong way to avoid that particular situation,” said King.

When it comes to negotiating on behalf of the buyer, consultants will help them do what they need to do to buy the practice, from finding them qualified attorneys to proper financing. “It’s important for a buyer to get a good lender who is familiar with the industry and that’s going to not just give them a loan but also be there for them down the road and answer questions,” advised King.

Selling Criteria

According to Bland, corporations are most interested in private practices “that offer high-quality medicine, show consistent year-over-year growth, have a strong base of doctors and staff, and have nice facilities that have room for expansion.” More importantly, practices are given more attention when they are located in markets where the corporation is looking to expand their presence and service offerings.

King agreed: “If I have somebody grossing $300,000 with low profitability in Austin or Houston, Texas, there’s a potential I could find a buyer for it. However, a single DVM in a small town doing $200,000, working three to four days a week, with one employee, we will have a hard time selling.”

As for AAHA accreditation, Bland said, “We don’t require the AAHA designation, but we do like hospitals with this designation.”

Process of Selling

The process of a corporate sale can take anywhere from three to four months. It involves retaining a firm like Simmons, which will prepare a packet with the practice’s financials in two to three weeks. This corporate packet, which puts the practice in the best light, is then privately distributed to a select number of corporations. They are given four to six weeks to perform their due diligence and make offers.

“Hopefully, by that date, our client has several offers in front of him or her that they can decide where they want to go,” said King. Once the offers are narrowed down to one or two, negotiations will begin to get a better deal with more money or terms.

Because the brokerage firm has prior experience and data points on a number of corporate sales, they are best suited to advise on an optimal deal. King added, “We’ve been doing it long enough that we know what each corporation wants and what questions to ask.”

The sale negotiations typically take two or three weeks. Once the final offer has been accepted, closing takes another 60 days.

Private listings of practices are listed on the brokerage firm’s website, and it could take anywhere from one to nine months or longer to finalize the deal. “Frankly, I’ve had some listings where I suggest to the seller that it might take a while, and then I have a buyer show up and it was sold in a month. Some haven’t sold three years later,” said King.

Choosing Between Corporate Prices and Flexibility

Private buyers are having to compete with corporate prices, which in turn is putting retiring veterinarians in a difficult position: choosing between a profitable deal and one that might be more aligned with their beliefs.

Husband and wife Nicholas Pope, DVM, and Elizabeth Pope, DVM, recently purchased two practices in New Jersey: South Branch Veterinary Services and Clover Hill Animal Hospital. During both sales, they had to compete with offers from corporations, be competitive on price, and get creative in what they could bring to the table that the consolidators could not.

“In one of the transactions, we were willing to be much more flexible with the retiring owner on her desired timeline to leave immediately following the sale than consolidators were comfortable offering,” said Nicholas Pope.

“It’s been my experience that most practice owners, all things being equal, would love to pass on their practice to the next generation of young veterinarians.”

In the end, it comes down to the retiring veterinarian feeling comfortable and happy with a buyer that will honor and continue their legacy. 

Lavanya Sunkara is a New York City–based freelance writer and animal lover. She enjoys going on hikes and road trips with her two adopted dogs. Follow her on Instagram @nature_traveler.

 

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