Veterinary Practice Valuations
What is driving the increase in veterinary practice valuations?
The value of veterinary practices has increased dramatically over the past 10 years. What is driving this increase in valuation? Numerous factors have affected practice valuations in the past decade and continue to drive acquisitions of veterinary practices at valuations considerably higher than they were just a few years ago. Historically, the animal health industry was not seen as an attractive destination for capital by most of the professional investor class, such as venture capital, private equity, or family funds. It was seen primarily as a small business model, not at a scale that is attractive to professional investors. When several entities formed and began acquiring more practices, and eventually changed ownership at valuations more attractive than that of individual practices, others began to take note.
At about the same time, the great recession hit our economy, and financial analysts and investors took note that in spite of the economic challenges, consumers continued to seek and pay for veterinary care, when other items on their normal budget were no longer as important. Thus, veterinary practices continued to deliver economic resilience and positive earnings. That combined with continually increasing practice valuations and numerous transactions involving aggregated practices at scale that illustrated the accretive effect on valuations of growing practices both in size and number could yield very significant increases in practice valuations.
Thus, over the past 10 years, numerous other investors and analysts took note and began to look for destinations for capital in the veterinary and animal industries. Now there is significant competition to own veterinary practices, and as a result, practice valuations continue to increase.
Underlying fundamentals that are driving demand for and increasing valuations of veterinary practices include:
- Continued growth in pet ownership
- Increased willingness to spend on pets primarily amongst millennial-aged pet owners
- Attractive and consistent earnings or profits generated by well-run veterinary practices
- Aging demographic of practice owners seeking a successful practice succession strategy
- Relative lack of financial sophistication of many veterinary practice owners
- The increasing debt load of many veterinary associates, which contributes to the difficulty in transitioning practices to younger associates
All of these factors continue to contribute to an environment in which many veterinary practice owners are realizing an opportunity to reap significant valuations for the practices they’ve built and now seek to transition away from. The capital that has ‘found’ our market will create many opportunities for veterinarians, staff, and especially for pet owners, as that capital will fund the development of new solutions to improve pet health and a better customer.
Edward L. Blach, DVM, MS, MBA
Dr. Ed Blach works as a business and market specialist in veterinary medicine. He has a unique background that combines veterinary medicine, market research, business development, and management. Dr. Blach is also an inventor whose professional passion is innovation and improvement. He is co-founder of two current startups: Ask.Vet and IsMyPracticeHealthy.com.
Photo credit: istockphoto.com/nito100