Beware of strangers offering candy: Why sellers need to take a cautious approach with a new veterinary aggregator
Every year, some great practices will come to us asking what we know about a new veterinary aggregator that is marketing itself or approaching veterinary practices directly.
New aggregators come and go every year and generally have the same few things in common:
- They will have a glossy executive summary brochure, showing a group of impressive-looking people on the board who have been successful in business in other industries.
- There will be usually one or two (token) representatives on the board with some veterinary industry experience.
- In their correspondence and conversations with you, they will come across as very ambitious, talking about how fast they will acquire practices, saying that they are already in advanced negotiations with some great practices.
- They will say something to the effect that their (slightly) unique model and experience in other industries will act as a “disruptor” to the industry.
- They will say there will be an advantage to you getting in early and being among the first to come on board. Their offer to you will be for a “limited time only”.
When our clients ask us our opinion on these new aggregators, we usually ask the following questions:
1. Will they buy 1 practice or are they wanting to buy 20?
Most veterinary corporate wannabes have no interest in owning a single practice – they want to own many. So, when they put down an offer on one practice, they have no intention of following through on that offer unless they meet a critical mass.
To sign up to sell to any aggregator, you would receive a Term Sheet/Heads of Agreement that would lock you in to several months of exclusivity (where you reject any buyer that you are currently in discussions with and cannot talk to another would-be buyer), while they do their legal contracts, financials and other due diligence on your practice. This is reasonable, as there is considerable cost involved in corporate due diligence and it would be unfair for them to outlay this cost, only to find that you were not serious about their offer in the first place.
The difference with a new aggregator is that they don’t just use this exclusivity period to do due diligence. They also use it to keep practices like you in a holding pattern while they try to get other practices to buy, in order to reach the threshold they need to make this interesting for them.
You may find that you enter a Term Sheet with a new corporate with honorable intentions, only for that the deal not to go ahead because they couldn’t get enough practices on board. By the time you are released from your exclusivity commitment and reach out to the other suitors that you were considering earlier (before you signed with the new aggregator), you could find that they are gone, either because they spent their money elsewhere or because they are annoyed that they were your second choice.
If you are considering whether to sign a term sheet with a new veterinary aggregator, be confident that either:
- They will buy one practice at a time OR
- They will reach the critical mass of committed practices they need in order for them to buy any, OR
- That you have time up your sleeve and aren’t counting on the sale in any real way financially or lifestyle-wise in the near future.
2. If they do buy your practice… what is waiting for you on the other side?
When you sell a practice to any aggregator, it usually comes with post-sale work commitments that you have to make. These commitments are made easier by promises that they will take the burdens of ownership off your shoulders, allowing you to focus on your clinical practice post sale. Generally, there will be offers of IT, HR, marketing support, payroll and corporate discounts on consumables. There will be an expert at head office that you can call for help when there is a staffing issue, or to help get you back up and running when equipment breaks.
Selling a practice to an existing aggregator means that there is a track record of acquisitions and there will be a back office that is well versed in veterinary practice ownership issues and how to resolve them. An existing veterinary aggregator should be able to give you some referral sources of practices that they have bought and the contact details of those practices’ principal veterinarians, such that you make sure that the promises are well founded and that the aggregator is reasonable to deal with.
Selling to an untested, new aggregator gives you no such assurances. They could be (and sometimes are) building the plane while they are flying it.
If you are thinking of selling to a new aggregator, it is very important to get clarity on what will be waiting for you on the other side. Ask them how they will handle the support that they are offering? When are they going to be building their support team and do they have any thoughts on the composition and experience their team will have? Any serious aggregator will have a straight answer for you and will not leave this as an afterthought with vague placating answers.
Conclusion
It is very easy to be attracted to something shiny, only to find out that it was a mirage when you reach out to hold it…
The point of this article is not that you should never consider selling your practice to a new aggregator.
Some new aggregators (one out of four or five in our experience) will become legitimate entities and will progress to actually buying and owning practices.
These aggregators may present a great option to sell where no others exist.
However, this still leaves a significant percentage that will not amount to much. If you are entertaining an offer from a new veterinary corporate, extra caution needs to be shown and additional questions need to be asked.