At Ackerman Group, our goal is to create a customized transaction to meet your personal and professional goals. While that’s the foundation of our approach, we also look for ways to maximize the value you receive while ensuring the buyer is the “right” company for you and your team.
In 2017, we pioneered the first “Group Process” in the veterinary industry and have brokered two to three groups each year until COVID slowed our group processes. Almost all of our buyers and sellers alike view the group process as a success; continued buyer interest in participating drives us to continue forming these “Groups.” What is a “Group,” and how can it maximize value for sellers and buyers?
What is a Group?
A Group occurs when we have several unaffiliated practice owners looking to sell their hospitals, who would benefit from a higher price and better terms if they were to combine with other veterinary hospitals to sell together. A Group creates scale for the buyer, where they buy a few practices and a large amount of EBITDA without deploying significant business development resources to ‘win’ each hospital. In some groups, there is just one buyer. Other times, when the group is large enough, it can be split into two pieces for two different buyers.
A Group creates a ‘bundle’ of practices, but each business is sold individually with the Group terms. We negotiate separate legal documents for each practice, but the legal documents across the group retain many similarities due to our process of negotiating them (this saves group members both time and legal fees).
What are the pros and cons of a Group?
From a seller’s perspective, the group provides a number of benefits:
- Participating in a Group yields, on average, a 1-2x higher EBITDA multiple than what the owner would receive through an individual auction process.
- Groups can provide better terms on key issues, such as employment agreements and leases.
- Participating in a Group means less time spent talking to and meeting with multiple suitors.
The main downside is a more limited choice of potential buyers: the trade-off for a higher valuation may mean fewer choices.
From a buyer’s perspective, the group requires fewer business development resources to purchase 5-10 veterinary hospitals and substantial EBITDA. A buyer of a Group will decide that the incremental premium and deal terms are worth the trade-off around the size of the deal.
Economies of scale in a Group benefit both the buyer and seller. This extends to a streamlined legal process where ‘form’ agreements are negotiated for all sellers. Legal documents aren’t customized to the individual practice until the end of the Group process. In general, there is a lot of coordination and communication required to ensure each seller understands the pros and cons of the deal.
Why do buyers pay a premium for a Group?
Buyers purchase groups of practices to acquire them at specific periods in their own growth trajectory and investment cycles. For smaller buyers, they may be interested in purchasing a Group to obtain scale. As an example, a buyer with 25 hospitals might consider acquiring a group of 6-10 hospitals to grow substantially in one year or to expand their geographic footprint. The scale that they secure from purchasing the group provides more credibility with other sellers (when they own more locations) and more negotiating leverage with vendors.
We also see buyers looking for a Group when they are 3 to 15 months away from a recapitalization event to increase their growth trajectory. If they are close to the recap, the premium price is likely still below the multiple from where they’ll sell.
Are there common traits to practices in a group?
Initially, our Groups were typically a diverse set of practices across geography, practice size, and demographics. More recently, however, we are forming groups that are specifically tailored to buyer needs and the consolidation market. For example, we have built a Group based on geography for a smaller consolidator that was not a national business. We have brokered Groups that are primarily large practices to provide only high-quality assets to a particular buyer. At the end of the day, the nature of the group will depend on the market conditions, the buyers interested at a particular point in time, and the interest level of sellers. Because purchasing companies’ acquisition appetites vary based on these factors, our Group purchasers also vary over time.
In Summary
Groups can be a valuable route for the right sellers at a certain time and under the right circumstances. We do not always have Groups as an option for practice owners — Ackerman Group usually brokers Groups twice a year, depending on demand. With the market softening during from mid-2022 into 2023, the Group process is a way to counteract a slight decline in multiples, but it presents some unique challenges as well. As the market evolves, the Group transaction will remain as an option and opportunity that may fit with your goals as a practice owner. Feel free to contact Ackerman Group ([email protected]) to learn more about the Group process!