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Has the corporate market for practices dried up?

It is evident from conversations with vets and the lack of recent transactions that the veterinary corporates, particularly the small animal veterinary corporates, have stopped buying practices and as a result competitive tension in the market has dried up. 

As result practice vendors arguing that their practice is worth a higher multiple because of what corporates will pay is an argument that can be dismissed because of lack of current sales evidence.  Rather it’s the case of what individual veterinarians are prepared to pay for a practice.  This is a different market than the corporate market.  Good practices still sell at realistic prices.

The reasons are that:
1. The increasing proportion of female vets with families who are only prepared to work limited family friendly hours has placed a growing strain on practice rosters.
2. Those vets who sold their practices relatively early in the corporate phase have passed a point at which their legal obligations to remain employed by the acquirer of their practice has ceased.  They are now doing to their employing corporates what female vets did to them by specifying the days and times which they are prepared to work.
3. Given the increasing difficulty of attracting veterinary employees to fill all the rosters in their existing practices the corporates have lost the stomach to buy more practices because that will only add to their problem.  With no competing buying pressure from other corporates, the higher EBITDA multiples that the corporates were paying have disappeared.
4. In this market the real buying power is slowly but surely reverting to existing vets; particularly vets married to other vets who can between them fill a reasonable proportion of a roster in a good practice.

We expect these trends to continue for the foreseeable future.
We see these trends increasing in respect of corporate mixed animal practices because the distance between practices and the differences in the nature of practices ie, dairy related, pig related, etc. make it even more difficult to shift resources between practices.  Indeed the reason that a number of older vets gave for selling their mixed animal practices to a corporate was that they were having difficulty in staffing their practices.  Naturally there are also issues of bad shoulders and injured bodies from years of dealing with large animals.
The APIAM Animal Health Ltd share price chart over the past 12 months is illuminating as is the share price chart of Greencross Ltd.


Practice Accounting & Valuation Services

Synstrat is the only accounting group in Australia which maintains an active, continuously updating database of veterinary practice benchmarking performance.  This is essential in assessing and advising performance of a practice and in valuing practices.  Telephone David Collins or Graham Middleton on 03 9843 7777.

Advantages of privately owned practices

Lots of businesses hit invisible walls when their business model can no longer cope with the rate of expansion and they find themselves restrained by issues which they had not contemplated.  Veterinary corporates may be at that point. 

However well conducted privately owned practices, particularly those with a couple of hard working partners prepared to do good work and charge for it will outperform local competing corporate practices.  Their advantage accelerates over time as the turnover of vets at the corporate creates the constant complaint that “I never see the same vet twice at that place!”

The basic problem of the corporate lies in the fact that while certain types of businesses run on massive aggregations of capital for example airlines, iron ore mines or supermarket chains in the case of veterinary practices it’s not about the aggregation of capital but about the aggregation of relationships.  People deal with people that they have built up trust with over a long period.  The corporate style at McDonalds works well with the sale of standardised products but fails when hamburger type products are replaced with relationship based services.  McDonalds has replaced some counter staff with screens where customers place their own orders.  However you need vets to consult and perform surgery, not machines. 

While large transport companies shift the same amount of freight with less drivers but bigger trucks the same labour saving cannot be achieved in veterinary practice.

All of this means that the best place to create a new veterinary practice is often in between two corporate practices. As those vets able to work full time gravitate towards ownership of their own practices the staffing problem of the corporates will become more acute.

A sad outcome for Vetshare Ltd

Vetshare is winding up its vet supply business but continuing to conduct a buying business in the name of Independent Vets of Australia Pty Ltd, a wholly owned subsidiary.  Its distribution arm had continued to make decreasing losses but achieved no sign of reaching real profitability.

At 30th June 2017 Vetshare had accumulated losses of $3,867,941.  To put things in perspective its remaining equity of $1,150,851 was less than the value of many individual veterinary practices.

Along the way it had closed its own warehousing operation realised the value of its stock and effectively became an agent for a supplier.  That phase has now ended and it is conducting a buying group which is effectively an affiliate of Provet.

We wish it well, but note that it has become the opposite of what it set out to be.

There are 5,986,792 shares on issue and the net tangible asset value as at 30th June 2017 is 19.223 cents per share.  That is taken to be its market value.

A modest number of shares were issued to directors during the 2017 year in lieu of cash payment.

The closure of the group’s wholesale supplier veterinary medicine and other products in late August 2017 incurred a loss of $97,634.

Although a small profit of $9576 was attributed to Independent Vets of Australia (IVA) the group’s buying business during the 2017 financial year this figure is too small to draw conclusions from given that it was operating with similar management as to the now ceased wholesale distribution business.

We note that a financing facility of $800,000 which the group had access to was cancelled in September 2017.

It is too early to tell whether this latest iteration of the business will be successful long term.  If so the group has a lot of tax losses to absorb in order to rebuild its equity base before it would have to pay a dividend.

We can but hope that it manages a turnaround in its new form.

Graham Middleton purchased shares in Vetshare Ltd in its initial offering in his family superannuation fund which still has ownership of them. Many veterinarians also bought Vetshare Ltd shares.

Health Insurance – Saving Money

Consumer group Choice’s writing on the subject on how health funds rip off their clients with extras cover makes compelling reading. 

Below is a link to the Choice Magazine article, “Do you need extras health insurance” and then, “So should I drop my extras cover?”

Avoid comparative websites.  They earn commission from churning people from one health insurance fund to another and don’t necessarily come up with the best deal.

Health insurance is best taken out with the small mutual not for profit funds.  For those eligible, teachers, defence health, navy health and HIF are adequate choices.  Check the facts carefully on the Choice site, as most people will be better off having hospital insurance only.  Note that for those requiring health insurance to avoid a Medicare surcharge, only hospital cover is required.  Also note that you can shift from fund to fund and maintain your current age rating.

Financial Planning and Life Insurance for Vets

Synstrat is experienced at providing financial plans for vets. These take into account veterinary practice profitability and benchmarks, as well as ownership of premises and other family assets and financial issues.

Telephone Graham Middleton, Cameron Darnley or Roger Armitage, each of whom are experienced financial planners, on 03 9843 7777. Cameron can also assist with life insurance. Synstrat Management Pty Ltd holds its own licence. It is not obliged to recommend the products of a particular bank or insurance company.

For an appointment with Graham Middleton, or if interstate a telephone conference, ring Jenny O’Brien 03 9843 7777.  Charges apply.  Jenny will explain charges and information required.

Synstrat Publications

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 and additionally, if you wish to receive our Vet Newsletter via email, please indicate.