No Images? Click here VETERINARY NEWSLETTER March 2018 Opportunity Knocks for Vets The high EBITDA multiples on corporate acquisition of Vet practices in recent years have eased as Vet staffing difficulties have become acute in many areas. However ambitious vets are not going to be as well off long term working for corporates as they will by starting their own practices; preferably two Vet partnerships with both prepared to work partner hours to build the practice. If you are able to work full time over an extended period the potential rewards for running your own practice will in most cases far exceed what you will receive in salary benefits from a corporate. For advice on this speak to Synstrat (03) 9843 7777. The great corporate weakness No matter how much management pressure is applied, a vet can only do one consult at a time or conduct one surgery at a time. This is quite unlike mining or manufacturing industry where bigger machines and greater automation means that ever increasing production is achievable per worker. The corporate magic is exhausted quickly in Vet practices. By contrast, well presented, privately owned practices which work hard at engaging with their clients repeatedly win clients away from corporate practices and keep them. As we’ve observed on numerous occasions, the best place to start a new practice is near a large corporate practice. Synstrat has lots of experience in advising veterinary practices providing effective accounting services and assisting with their long term business and financial strategies. Analyst reports Contrary to the opinions of starry eyed stockbroking analysts the corporate share of the veterinary services market won’t go on expanding at the pace of recent years. It will reach a ceiling imposed by the difficulty of its own staffing structures. * The greater the number of the Vets able to work full time who start their own practices, the greater the difficulty of the corporate models trying to operate with a huge proportion of part time Vets and * The greater the proportion of part time Vets the greater the difficulty of corporate models. Imagine if nearly all full time Vets work in their own practices and the corporates have to run with nearly all part timers as staff! The Best Place to Start a Practice This will be close to a large corporately owned practice or better still in the midst of a nest of corporate practices. Inevitably a well run practice owned by two hard working partners will drain clients away from corporates. A start up in a good location with two full time Vets can grow into quite a good practice if those two full time vets are prepared to do most of the surgery and employ some part time vets. A key issue in successful practices is keeping most surgery in house. Nor do Pet Barn style operations have a guaranteed future share of the pet food market. If the sale of pet food and pet products become sufficiently lucrative, the large supermarket chains simply increase the percentage of shelf space offered to those products and limit the market share of the Pet Barn style operations. Good veterinary practices don’t make their money out of sales of pet food and never have. They make it from providing Veterinary services to loyal clients who become bonded to them and their practice and are prepared to pay for good service. What is happening to Veterinary corporates? Greencross Ltd (ASX code GXL) has recently been trading at $5.50 against the 52 week high of $7.36. Its half year results look sound to the naked eye but we note that the growth in the number of its stand-alone clinics has come to a halt while in store clinics have increased. There is widespread anecdotal evidence across the veterinary profession of nearby practices operated by long term veterinary owners gaining a steady stream of clients who dislike Greencross’s modus operandi. This approximately coincides with the growing scarcity of full time vets as the increasing proportion of females in the profession have had an inevitable impact of child raising on the hours that they are available to work. National Veterinary Care (NVC) It has fared better in the stockmarket than Greencross over the past year with a recent share price of $2.58 against a 12 month high of $3.20. However again there is anecdotal evidence of some NVC clinics shedding clients or not having experienced vets on hand to do surgeries or reducing former practice hours of operating. We expect NVC to struggle as vendor vets work out their contracts and in some cases move on. Apiam Animal Health (ASX code AHX) Apiam had a recent share price of 81.5 cents, down from a 52 week high of $1.26. Its recent half year result indicated revenue of $50.8 million for net profit before tax of $2.6 million. Because of recent acquisitions comparison with the previous corresponding period is meaningless but profit before tax of 5.1% of revenue across a spread of large animal/mixed animal practices certainly doesn’t merit excitement. We predict that Apiam will increasingly struggle as difficulties in getting full time employee vets to work in widely scattered large animal clinics and an inevitable pattern emerging of vendor vets retiring once they have met their work out options is likely to impose substantial and increasing practice management problems across the group. Who is advantaged? Those vets able to work full time and willing to start their own practices; particularly those who can find a compatible partner also available to work full time will do far better long term by starting their own practices in close competition with corporate practices. This will be true in both the large animal and the small animal world. As more vets realise the inevitable weakness of the corporates and as the best vets able to work full time start their own practices they will inevitably attract clients away from the corporates. Like virtually all professional services, veterinary services are relationship based. Hard working vets who get to know their clients and their animals over a long period are inevitably going to win out over corporate practices when clients comment “we never see the same vet twice at that place”. Corporate Acquisitions These appear to have slowed down significantly if not stopped. Clearly corporate HR is telling its management don’t buy more practices because we are having difficulty in staffing the ones that we already own. Practice Valuations & Practice Accounting * We are the most experienced Valuers in Australia. * We have an extensive database of Veterinary Practice performance. * We have advised many vets in respect of practice purchase, sale, formation of partnership and conflict resolution. * We do not need to visit a practice and therefore staff need not know that ownership change is being contemplated. * We provide accounting services to many vet practices. Contact Graham Middleton or David Collins to discuss your valuation queries. Family Law Valuations Unfortunately veterinarians are not immune from relationship breakdown and Graham Middleton and David Collins have long experience in valuing practices for family law property settlement purposes. In this unhappy situation it is critical that the situation be resolved as quickly as possible. Veterinary practices are assets, the value of which are likely to be disputed. Having an authoritative value from experienced valuers at an early stage in family law process is essential in gaining quick resolution so that both parties can get on with their respective lives. It is critical that the valuer has lots of experience in valuing veterinary practices. Don’t let lawyers talk you into using a forensic accountant who has never valued a veterinary practice. Saving money on life insurance Many vets have been sold inappropriate level premium policies which are unnecessarily expensive. In reality successful veterinarians gradually reduce their need for life insurance as their assets including superannuation increase and can therefore reduce the amount of cover they have. Cheaper life insurance cover will meet their needs. Speak to Cameron Darnley, the Synstrat partner who deals with life insurance to determine whether you can save money through a better deal. Labor's proposed dividend imputation changes These will mainly hurt lower income retirees who own Commonwealth Bank, Telstra, Woolworths or AMP shares arising out of offers of long ago, whose imputation credits will effectively be confiscated. Superannuation funds in pension mode will be able to restructure investments to reduce or eliminate the impact. Labor’s estimate of $59 billion of revenue to be saved over 10 years is wishful thinking. In reality, very little saving will occur and most of it will be at the expense of low income retirees.
For those vets up to the challenge of sustaining a veterinary career, Synstrat’s two publications, 50 Rules for Financial Success as a Veterinary Surgeon and Buying and Selling Veterinary Practices are available free of charge. Email your postal address to vet@synstrat.com.au The Synstrat Group are Australia's most experienced Veterinary practice business advisers, accountants, practice valuers and licensed financial advisers. The information contained herein is of a general nature and no specific action should be taken without individual advice. Synstrat Management Pty Ltd P. 03 9843 7777 ABN 57 006 295 325 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except wh ere the sender specifically states them to be the views of Synstrat. If you do not wish to receive this email in future, please reply to the sender requesting termination of service. |