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The latest veterinary business content produced by VBJ, covering topics such as Business, Finance, HR, Digital and Practice Profiles

  • Buying or selling a vet practice, part 4

    Buying or selling a vet practice, part 4

    Last time, we looked at some practical steps to be taken running up to completion (pre-closing) and completion itself. This week, we will look at some of the softer skills that may be required post-completion – particularly if you are a buyer or seller who has an ongoing retained role in the business.

    For the acquired business – and those involved in it (whether employees or sellers with a continuing role) – the period immediately following completion will inevitably result in change of some sort, and require a degree of adaptation.

    Business as usual

    If you are a seller with a continuing role, clear communication with employees, suppliers and customers to avoid undue worry and disruption to operations, along with reassurance it is “business as usual” (if your role permits that), will go a long way to ensuring a smooth transition.

    For the buyer, managing reactions to that change in a positive manner in the period immediately following completion will be key to the long-term success of the acquisition or merger.

    It’s often said the first 100 days following an acquisition or merger is the most critical period, during which time the confidence of staff should be won, customers contacted and reassured, and systems integrated.

    Hands on or off?

    Generally, if former management have a retained role in the business (even if only for a few months), the integration phase will, of course, be much easier.

    Otherwise, a hands-off approach from a buyer, without a physical presence within the business for the first few months, could have a negative effect on the business, from which it could be difficult to recover.

    Calendar.
    It’s often said the first 100 days following an acquisition or merger is the most critical period. Image © gazanfer / Adobe Stock

    Large consolidators will very likely have a well-tested integration plan, which can be rolled out, but others should carefully plan for integration in advance of completion.

    Given concerns customers might have following a sale, some integration plans of consolidators will involve not informing customers of the sale until some later.

    It can often be easier to allay fears of change when people realise the change occurred six months ago and they haven’t noticed any difference in service.

    Secret to your success

    In short – and this may sound cliché – but success comes down to the people in the business – particularly for a veterinary practice – and how they integrate in to the new model immediately post-completion could be what makes a transaction successful.

    As a final thought, two top tips to keep in mind include:

    • Buyers: have a plan prepared in advance of completion for the integration.
    • Sellers with an ongoing role: enjoy your new position as either an employee or consultant without the burden of being a business owner. Otherwise, enjoy retirement.
  • Buying or selling a vet practice, part 2

    Buying or selling a vet practice, part 2

    In part one of this blog topic, we looked at the first phase in the buying/selling process (pre-due diligence). In this post, we‘ll look at the next two stages – due diligence and deal documentation.

    Due diligence

    In essence, due diligence is the process where the potential buyer takes a very close look at the practice it is thinking of buying. It will be keen to make sure it is getting what it expects and that no nasty hidden surprises are lying in wait that will reduce the value of the business after completion of the purchase.

    The process itself is likely to involve the business owner’s advisors setting up a “data room” where the key information the buyer has asked to see is provided. These data rooms are now frequently online – essentially, file sharing sites.

    Compiling information for a data room can be a very time-consuming process, and the more organised the practice owner is, generally the easier this process will be.

    Usually during this process the owner doesn’t want too many employees knowing about a potential sale. This can impact the information gathering, often putting a greater burden on the owner.

    It is, therefore, usually worth considering bringing some key colleagues into the process to help ease that burden (it is only so often you can use the excuse “the auditors need the information”).

    Due diligence tips

    Some key points to bear in mind for a business owner during the due diligence phase are:

    • Always have robust confidentiality agreements in place with the buyer. But remember, if any sensitive, confidential information exists that could significantly disadvantage the business if the buyer doesn’t buy it, don’t disclose it to the buyer until you are happy a sale is very likely.
    • Don’t try to hide any “skeletons”. Trust is very important to buyers; if they think they can’t trust you, a real risk exists of the deal not proceeding or the due diligence becoming much more detailed and prolonged than it might otherwise have been.
    • Having clear lines of communication and responsibility mitigates the risk of detrimental issues and later potential disputes arising.
    • Know what you are passing across. If any “skeletons” exist, make sure you know you are passing across a “skeleton”.

    Documentation

    Assuming due diligence has progressed well, the buyer will then move to producing the first drafts of the main deal documents.

    Depending on timescales (and the buyer’s confidence it won’t uncover any nasty surprises) the documentation is often produced at an early stage in the due diligence process, so negotiation of the documents can take place while due diligence is ongoing.

    In most cases, it is going to be the buyer’s lawyer who produces most of the deal documents.

    Documentation tips

    Key points to bear in mind during the documentation phase are:

    • Don’t underestimate just how much documentation is required and how long it might take to agree. The main document is, of course, going to be the acquisition agreement, but ancillary documents (particularly those that rely on third party consent, such as banks, landlords or other funders) can play a very important role. Failing to address issues arising in relation to these documents can have a dramatic impact on the timetable.
    • If possible, you (and your advisors) should avoid negotiating key documents at the last minute – preparation and planning is critical to avoid this. A detailed timetable and responsibility list should be prepared – and adhered to wherever possible.
    • When appointing advisors, it is worthwhile asking them for a list of documents likely to be required. This will give you an idea of what is likely to be involved and may also indicate to you how experienced your advisor is in relation to disposals or acquisitions of businesses.
  • Buying or selling a vet practice, part 1

    Buying or selling a vet practice, part 1

    Last time we looked at some hurdles owners of veterinary businesses have to overcome in finding their way to the exit door. However, once you have one hand on the door handle, what can you expect to follow?

    Practices that have been on a “buy and build” strategy will be familiar with the acquisition process, but many owners will only ever be involved in one sale process.

    Business owners in this situation often rely heavily on friends and contacts that have been through the process before, but, in many cases, those people can paint an unflattering picture.

    Parts of the process

    So what is actually involved? Is it as time-consuming and stressful as many claim?

    Generally, the process can be broken into six main phases:

    • pre-due diligence
    • due diligence
    • documentation
    • pre-closing
    • closing
    • post-closing

    In this article, we look at the first phase and how to deal with some issues that arise.

    Pre-due diligence

    Headline price

    Before letting a potential buyer inside your business, it is important to establish at the outset the price range they are prepared to pay, or at least how the price will be calculated.

    From a combination of publicly available financial information and additional (non-sensitive) financial information supplied by the business owner, a potential buyer is usually able to give an indicative price.

    However, a number of assumptions are likely to have been made when calculating this price and it will be important for the practice owner to understand what they were.

    Structure

    In addition to the headline price, how and when that is payable should be discussed at an early stage.

    As an owner, you will usually want to get as much of the price in cash as soon as possible. A buyer will usually look to defer paying as much of the price as possible, particularly in a veterinary business where personal relationships between the vets and clients are key.

    Given the number of issues that need considering if payment is deferred or subject to an earn-out (in which case, the price depends on the post-completion performance of the practice), it is vital a business owner understands whether this is the buyer’s intention and engages early with advisors to understand the issues in more detail.

    Know your buyer

    Every business owner understands a buyer will want to know as much as possible about the business it is buying before the sale completes, but not every owner appreciates the importance of knowing the buyer. For example:

    • If any deferred consideration takes place, will the buyer be good for the cash?
    • If an earn-out exists, do you trust the buyer to not manipulate the short-term profits to reduce the price payable?
    • If you are continuing in the business for a period after completion, can you work with the buyer?

    Consider speaking to the owners of previous businesses that have been bought by the buyer. Putting a bit of effort into this phase can help you gauge how likely the sale is to complete and the success of the exit.

  • What main hurdles do I need to overcome to sell my practice?

    What main hurdles do I need to overcome to sell my practice?

    Every veterinary practice owner needs to know two important things about his or her business – where the exit door is and how to open it.

    Unfortunately, many owners don’t know the answers to these questions, for a number of (understandable) reasons.

    Priorities

    Perhaps the most common hurdle is: “I am too busy trying to run the practice and do my day job to think about that.”

    As with any excuse based on not enough time, the issue is one of priorities – it is often not sufficiently high up on the agenda. The danger is when it becomes high up on the priority list, it might be too late to realise the value in the business.

    Potential buyers

    For many business owners, the second hurdle is they simply don’t know their practice’s potential buyer. This, however, is not something that can really be said about the veterinary industry just now.

    For some time, the industry has seen significant consolidation as large corporate practices actively look to acquire firms across the country and, as a result, valuations have been rising. Therefore, for many veterinary practice owners, the question can be whether to sell the practice to younger vets in the practice or one of the larger corporates. This question can be a very difficult one, but one owners need to deal with.

    In some cases, the answer will be driven by which route allows the owners to maximise the value for their business. However, in many other cases, maximising value is not the key driver, and owners are prepared to sacrifice some of the value to go down their preferred exit route.

    Performance

    Poor financial performance is also a hurdle many owners think they need to overcome before giving thought to an exit.

    This is flawed logic!

    Performance drives value, not exit strategies – owners need to address financial performance, but it needs to be considered in conjunction with exit strategies. If different options to improve financial performance are available, the one that fits better with an identified exit strategy is likely to be the right one.

    Summary

    To summarise:

    • The veterinary industry has, for a few years now, been going through a lot of consolidation. For those veterinary practice owners who don’t have a planned route to the exit door, now is the time at least to work out which floor the door is on and who might be on the other side of it.
    • If you can identify an exit strategy (or strategies), make sure it informs the ongoing decisions taken in the business.
    • If you have competing interests among different owners, try to avoid letting them fester so resentment grows and positions become more entrenched.
    • Value is only one aspect of the exit – focusing on the right exit strategy will drive value.
    • Try to run your business with one eye on the exit door – what will potential buyers be looking for when they take over the business?