No Images? Click here VETERINARY NEWSLETTER October 2018 Private equity stalking Greencross?I note an article in the Australian Financial Review 10th October 2018 headed “Private equity barking mad about Greencross” and follow up article on 11th October. The article speculates that Greencross is being stalked by a private equity firm. Greencross shares had plunged to under $4 since its profit downgrade in May but rumours of a private equity buyout saw Greencross jump to $4.80. Two years ago Greencross spurned a takeover bid at $6.75! Greencross had been targeted by short sellers and currently has 10.35% of its shares short sold. If the private equity bid does not materialise the probability would be that its share price would fall back to under $4. If the private equity bid does succeed it won’t be a case of business as usual. Private equity buyers invariably restructure businesses and the restructuring would likely see a probable separation of its Petbarn business from its floundering veterinary practices. We continue to receive accounts from owners of privately owned veterinary practices indicating that corporate practices are spilling clients to them at a significant rate. Greencross has confirmed that it has been approached by unnamed potential buyers. The key issue in running successful practices is having an active veterinary owner involved in running them. It is clear that difficulty in maintaining full time veterinary staff has become the professions burning issue and obviously practices where owners are on site and do a lot of the work have a significant advantage. We cannot help wondering whether a private equity buyer of Greencross might not sell off its freestanding veterinary practices and simply concentrate on the Petbarn business with its small in-house veterinary clinics – it is food for thought. Opportunities for Veterinary Practices Practices with dedicated hard working owners easily win veterinary market share from corporates staffed purely with employed staff. Mickey Mouse schemes to offer a tiny bit of equity to vets working in practices don’t have the same impact as real ownership. As veterinary practice is people intensive, its success is significantly related to the length of its relationships with clients coupled with keeping most surgery in-house. These practices have significant natural advantages over corporately run practices particularly after the contractual employment period of the previous owner has expired. Veterinary practices without an owner on site don’t cope well with staffing rosters and clients get sick of the veterinary staffing churn. Those hard working practice owners who forge long term relationships with clients have higher retention rates and attract refugee clients from corporates. There is little that corporates can do to arrest this problem.
Saving on Life Insurance Synstrat Management Pty Ltd holds its own Australian Financial Services Licence (AFSL 227 169) and is therefore not controlled by a bank or insurance company licence holder. Many vet practice owners have more life insurance than they need. Contact Cameron Darnley at Synstrat for advice and quotes. Cameron is also a Financial Planner.
Veterinary Practice Valuations – buying practices For advice on practice valuation contact David Collins or Graham Middleton, or if not immediately available speak with Jenny O’Brien.
Veterinary partnership issues For partnership issues including consultation on partnership agreements speak with Graham Middleton who is also a very experienced Business Adviser and Financial Planner to Vets Greencross Ltd 2018 results Net profit after tax fell from $42.1 million to $20.7 million. Earnings per share fell from 36.2 cents to 17.5 cents. The recent share price of $3.94 compared with a rolling 12 month high of $6.56. Greencross is in the process of changing its business model with greater emphasis on specialist pet stores and has increased the number of vet practices in store from 28 to 43 during financial year 2018. We understand from comments by vets that many of these are small limited service facilities. Greencross opened 4 specialist emergency hospitals, 8 retail stores and 26 grooming salons in the year but reduced the number of standalone general veterinary practices. The content of its executive team suggests that its moving towards a retailing dominated business model. There are no veterinary surgeons in its senior management team and only one remaining on its board. The potential weakness in a retail dominated business model is that the big supermarket chains, Coles and Woolworths and perhaps Aldi, monitor sales across the spectrum and if sale of pet food products are increasing their computer modelling will allocate more shelf space. Its acquisition of veterinary practices slowed to a near halt in 2018. The difficulty in staffing standalone veterinary clinics of significant size appears to be a force generating change in its business mode. It is evident that stockbroking analysts have a poor understanding of Stock Exchange listed veterinary companies. Based on performance over the past year, confidence in Greencross, Apiam Animal Health and National Veterinary Services by investors is weak. This also limits the potential upside from a future listing of Veterinary Partners’ business. The reality is that they are a year or two too late in getting to the critical mass necessary to conduct an IPO and listing on the market. While they can still do this the earnings multiple that they can achieve is likely to be lower than would have been the case. Underlying all of this is the nation-wide shortage of veterinarians available to work full time. Why else would Greencross prioritise opening 26 grooming salons in the year in which the number of its free standing general veterinary practices declined?
Greencross - Private Equity? According to the Australian Financial Review on 6th August 2018, private equity firms are watching the United States to see whether private equity owned Pet Smart and Pet Co, can avoid bankruptcy due to Amazon. Reportedly Greencross at a recent share price of $4.39 was too expensive, yet this is well down on its 52-week high of $6.56! We wonder whether the impact of the shortage of full time vets on corporates has been noted by the private equity players? Meanwhile, National Veterinary Care recently traded at $2.26, down from a 12-month high of $3.20, ouch. Apiam Animal Health traded at 64 cents, down from a 12-month high of 94 cents. In the past we have observed that the best place for full time hardworking vets to establish new practices were near corporate practices. The lack of continuity of relationships at the corporate practices has handed a long term advantage to the privately owned practices nearby. It’s never been more true.
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 Best wishes to all Vets, Graham Middleton and the Synstrat Team 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. |