At Ackerman Group, our main goal is to tailor transactions that fit your personal and professional needs. This focus is at the heart of what we do, but we also strive to maximize the value of each deal and make sure we match you with the right buyer for you and your team.
Back in 2017, we launched the first-ever “Group Process” in the veterinary industry. We’ve been running two to three of these groups each year until COVID-19 slowed things down. Both buyers and sellers have seen great success with this approach, and their ongoing interest keeps us excited about continuing these “Groups.” So, what is a “Group,” and how does it add value for everyone involved?
What makes Rich Lester an expert on this topic?
– Founder + CEO of a corporate buyer
– 16+ years in the veterinary space
– Dozens of practice transactions
What is a ‘Group’ in veterinary practice sales?
A Group forms when several unaffiliated practice owners, each looking to sell their hospitals, come together. By joining forces, they can command a higher price and secure better terms than if they sold individually. This arrangement also benefits the buyer by creating scale, allowing them to acquire multiple practices and a significant amount of EBITDA without the need for extensive business development efforts to secure each hospital.
Sometimes, a single buyer acquires the entire group. In other cases, especially with larger groups, the practices can be divided and sold to two different buyers.
In a Group, practices are bundled together but sold individually under the same negotiated terms. We prepare separate legal documents for each practice, while maintaining a high degree of similarity across all documents, streamlining the process and saving time and legal costs for group members.
What are the pros and cons selling your veterinary practice in a Group?
From a seller’s perspective, the group provides several 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.
Case Study:
Dr. Jason & Joann Randall
- Transformed a challenging sale into a strategic, high-value deal
- Maximized practice worth while ensuring a smooth staff transition
- Gained financial freedom and flexibility for the next chapter
Why do vet practice 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 the veterinary practices in a group?
Initially, our Groups consisted of a diverse mix of practices, varying by geography, size, and demographics. More recently, we have started forming groups that align more closely with specific buyer needs and market trends. For instance, we’ve created geographic-based Groups for smaller consolidators that aren’t national brands.
We’ve also arranged Groups composed mainly of large practices, providing high-quality assets to certain buyers. Ultimately, the composition of a Group depends on market conditions, the specific buyers interested at the time, and the level of interest from sellers. As the acquisition preferences of purchasing companies change, so do our Group purchasers.
Helpful Guide: Understanding Practice Valuations
- When should you get a veterinary practice valuation?
- What determines your practice’s sale price?
- How does Ackerman Group value practices like yours?
Groups in the Current Market
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. With the market softening from mid-2022 into 2024, 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. Is an individual or Group sale right for you? Contact us to learn more.
Find out if a Group or individual sale is right for you, connect with Ackerman Group to explore your best path forward.