Vet practice fever burns as clinics change hands
The phone rings on a regular basis from the growing list of would-be buyers. “I get calls from maybe 10 or more different groups every month,” says Robert Knapp, the third generation veterinarian to run Knapp Veterinary Hospital in Clintonville. “They all say they’d like to talk to me about [purchasing] my practice.”
So far, Knapp, 58, has ignored these requests for meetings. He’s in no rush to retire or sell his practice. “I’m not returning these calls and I’m deleting the voicemails,” he says, then ponders the possibilities. “From what I’ve heard, they’re throwing some real numbers around, sometimes ridiculous numbers. It makes me wonder if I’m being foolish or not.”
Veterinarians in central Ohio and around the country who own private practices are getting similar calls and requests for meetings. The business model for this large and growing sector of the economy is changing rapidly, with a wave of acquisitions led by an international mega-company most people associate with candy: Mars Corp. The Virginia-based, family-owned corporate giant owns the Banfield Pet Hospital and VCA Animal Hospitals, two national veterinary practices; BluePearl, a national specialty and emergency veterinary practice; as well as the Royal Canin, Whiskas and Iams pet-food companies.
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The fallout from the Covid-19 pandemic has, if anything, increased the number of private equity investors and corporate suiters looking to buy veterinary practices, and values are climbing. People are spending more time at home with their beloved cats and dogs, not to mention clearing out adoption shelters one rescue at a time.
“It gives people choices,” says Jack Advent, executive director of the Ohio Veterinary Medical Association, of the relatively new option pet owners have to choose a privately owned or a corporate veterinary practice. The quality of care is similar, with the corporate entities offering a bit more of what Advent calls “standardized care” based on established corporate policies, as well as set pricing, while veterinarians in the privately owned practices have a bit more latitude in these areas. “I don’t think the average consumer will notice the difference between a Banfield and a Dr. Smith’s veterinary clinic,” he says.
The corporate practices are able to leverage economies of scale to reduce their pricing for procedures, medicine and pet food; and there’s further competition for private-practice veterinarians from online pet pharmacies such as Chewy.com. Nowadays, Rocky would most likely buy Cuff and Link’s turtle food online (and he would have to meet Adrian on a dating app). Owners of privately owned practices say their strength and competitive advantage lies in the longstanding relationships they have with their clients and their pets, and the more individualized service and specialty care they’re able to offer.
“My biggest fear is we’ll eventually lose the little independent veterinary hospitals, that they’ll be overwhelmed by the corporate ones,” says Andrea Lukuch, owner of Cats Only Veterinary Clinic in Upper Arlington. “Just like Walmart and Target did to all the little mom-and-pop shops.”
By the numbers
There are about 28,000 to 30,000 veterinary practices in the United States that cater to companion animals, primarily cats and dogs, according to Brakke Consulting, a Dallas-based company that specializes in animal health and compiles industry statistics.
“At the end of 2019, about 5,200 were corporately owned,” says John Volk, a senior consultant with Brakke. Corporate acquisition remained robust throughout 2020 and Volk estimates the number most likely surpassed 6,000 by the end of the year.
Mars is a privately owned, family business—one of the world’s largest—and therefore doesn’t file financial disclosures with the United States Securities and Exchange Commission (SEC). “They don’t publish all their information,” Volk says, but he estimates Mars owns “somewhere in excess of 2,000” veterinary practices in this country between Banfield, VCA and Blue Pearl. Mars purchased VCA for $9.1 billion in 2017.
There are eight Banfield and three VCA veterinary hospitals in the Columbus region.
“Most of the other players are private equity companies,” Volk says. “They’re looking for businesses that are profitable that they can grow and then sell in five or seven years for a big profit, and veterinary practices have proven to be that kind of business.”
Petco opened its 100th in-store veterinary hospital in San Diego in September, and Walmart has announced plans to increase its number of in-store retail veterinary clinics to 100. It’s advertising that pet owners can save “as much as 40 to 60 percent on vaccines and minor illness packages and exams.”
It’s difficult to determine an average price for the sale of a practice, Volk says, adding it’s based on EBITDA, which is earnings before interest, taxes, depreciation and amortization. “Good, three-plus doctor, general veterinary practices are selling in the range of eight times to 10 times EBITDA, and specialty practices even more,” he says. That’s an increase from the recent past, and is a direct result of the corporate influx—and the deep pockets of Mars and private equity groups.
The veterinary business model always had been “a private practice owned by a licensed doctor,” says David Burch, business banking director, sales and specialty bank for Huntington. “Like dental practices. Everyone knows their vet and their dentist, and now, having so many corporately owned is a significant cultural change.”
Burch has noticed the corporate impact. “Now, instead of the veterinary practice owner selling it to an associate for $700,000, they’re getting offers of $1.2 million or even more [from corporations],” he says.
There’s a reason large corporations and investment groups are diving into the pet-medicine business: It’s profitable and seems to be recession-proof. It’s even Covid-19 proof.
It’s also predominately a cash business, as very few pet owners have health insurance for their dogs and cats, instead paying their veterinary bills when treatment is rendered. The amount of money pet owners spent at veterinary clinics increased by 8 percent to $28 billion from 2012 to 2016, according to the American Veterinary Medical Association. Millennials now make up the largest segment of pet owners, with 70 percent owning a dog or cat, or both, according to statistics compiled by TD Ameritrade, which also found that dog owners spend $1,285 a year and cat owners $915 a year on their pets. Major surgery or cancer treatment can cost thousands.
“If you go back and look at the last economic crisis [in 2008 and 2009], you’ll find that the veterinary practice business held up very well,” Huntington’s Burch says. He adds that in early 2020 when the Covid-19 pandemic and lockdown caused an economic downturn, “we didn’t see a drop off.”
Instead, veterinary practices revamped on the fly, creating new, safety-first procedures for staff and customers.
“Veterinarians and their teams are front-line workers, and it’s not always recognized that they are,” says Denise Tumblin, president of Columbus-based WTA Veterinary Consultants. “It’s amazing what veterinarians have been able to accomplish [in 2020], revamping and adjusting and handling incredible workloads.”
Burch and Tumblin work with veterinary practices to help them optimize their business practices and to compete with the growing number of corporate practices that have the advantage of economies of scale. They also help clients calculate the value of their practices and navigate the sale to an associate, family member or corporation.
“We solve any financial need they may have,” Burch says. “Relocating, buying real estate or equipment, refurbishing, starting a business from scratch.” The Huntington team also offers financial and organizational advice, another way to help the smaller, veterinarian-owned practices compete. “From the corporate perspective, they’re able to find efficiencies,” he says of Banfield and VCA. “A key part of driving profitability is maximizing scheduling, and they have software that does that. A good group can get an extra 10 percent [in revenue] from scheduling.”
Burch compares what’s happening in the world of veterinary practices to dental practices, in that the traditional model of doctor-owned practices is changing, even more rapidly in pet medicine than dentistry. “The veterinary industry as compared to the dental industry is a little more primed for this because the associate veterinarians make less than an associate dentist,” he says.
The corporate buyers have much deeper pockets, adds Tumblin.
“They’re willing to pay a premium, and they don’t have to finance it, so that eliminates all their finance costs,” she says. “They want to be in this business, and it can be quite profitable if it’s well run.”
Tumblin and WTA Veterinary Consultants help private-practice veterinarians compete. They offer management consulting and “we also have three well-managed practice groups, groups of vets from around the country who meet and share ideas and help each other learn and grow,” she says.
Tumblin leads one of the three groups and says it includes members from Hawaii and Alaska. “We also do research and benchmark studies, and our intention is to help identify what the best-managed practices are doing and share this information,” she says.
The cat’s cradle
Andrea Lukuch’s parents were in the veterinary practice business. Her father, Edward Lukuch, was a veterinarian and owned seven practices in the Cleveland area. Her mother, Grazyna, was a veterinary nurse and worked with her husband. The plan was for Andrea to attend veterinary school. “I started working here, at this well-regarded cat hospital, and then increased my role and decided to purchase it in 2015,” she says of Cats Only Veterinary Clinic.
Lukuch, who is a nontraditional private owner in that she does not hold a doctor of veterinary medicine degree, has watched the increase in the number of corporate-owned practices, and it has her worried. Their cheaper costs and bigger buying power allows their clinics to save money on the purchase of supplies, medicine and pet food, offering customers lower prices on procedures and over-the-counter sales of food and medication. And then there’s PetSmart and Walmart, which also offer discounted prices on these items. “Now, if a veterinary practice is relying on over-the-counter sales of food and medication to stay alive, they’re behind the eight ball,” Lukuch says.
Fortunately, hers is a specialty practice, and there are enough cat lovers looking for a specialist to keep her and her team of four board-certified DVMs with feline practice specialties quite busy. The difference, when compared to a more typical mixed-animal practice, begins in the waiting room, Lukuch says. In a more typical practice, cats and dogs and their owners wait together in the same room, a few feet apart. Dogs are, by their very nature, more excitable and energetic, while “the cats say act like you’ve been here before,” she says.
Lukuch is looking to open a second-cat-only practice. “It’s been really hard to find the right place,” she says, adding she looked at a small practice in Newark with outdated equipment that was selling for about $100,000. She also looked at a much larger, more modern practice in Lewis Center. The asking price is $4 million. “Back in the day, the selling price was about one year’s gross,” she says. “Now, the corporations are throwing five to nine times the EBITDA.”
The growth of the corporate practices has made it harder for the private clinics to hire, Lukuch says. “They have a gigantic footprint here in central Ohio and offer recent graduates [from veterinary medical school] giant salaries and mentoring programs.”
A few years before Lukuch’s father passed away, in 2005, he sold his seven practices to VCA. “He was pretty young when he sold, about 55,” she says. “He was fortunate that he made good financial choices over the years and did well.”
The love factor
People are willing to spend a lot of money on their pets for a simple reason: They’re part of the family and well worth any expense necessary to keep them healthy, happy and alive.
“Over the last 30 years there’s been an evolution of how people view pets,” says Rustin Moore, a veterinarian and dean of Ohio State University’s College of Veterinary Medicine. “Pets were mostly outside animals, and then they moved directly into the houses and bedrooms and even into the beds. We know 90 percent of the people who have a pet view them as a member of the family.”
Pets provide more than unconditional love and companionship. They also provide a string of health benefits to their owners, Moore says, including lower blood pressure, heart rates and cholesterol levels, plus all the mental health benefits. A steady 70 percent of the population has pets, and, as the population grows, the number of pets will increase in the same proportion.
This means an increased need for veterinarians, but the pipeline is a slow one, as the training required to become a doctor of veterinary medicine is four years.
The OSU College of Veterinary Medicine is one of the largest and most well-regarded in the country. “We don’t have the capacity to increase our size anymore,” Moore says, adding the college admits 162 new “seats” every year. The number of applications for this limited number of openings has increased by about 75 percent in the last year, and “this year we had 2,424 applicants,” Moore says. New colleges of veterinary medicine have opened in the last few years, including ones at the University of Arizona and Long Island University. The average starting salary for a 2019 graduate was $70,054, up from $65,983 the year before, according to the American Veterinary Medical Association. One of the biggest reasons for the jump is the shortage of DVMs and the deeper pockets of the corporate players.
Creating a culture of care at a veterinary hospital is important, and that can be a challenge for corporate practices. Veterinarians working in corporate hospitals often are required to follow set procedures established by the corporation’s medical director or a board of doctors. These procedures are based on data collected from thousands of treatments and are what work in the majority of cases. “But, the individual who is licensed is ultimately responsible for the care of the animal and needs to make sure they’re only doing what’s best,” Advent says. “They need some flexibility, and they may need to deviate.”
A Banfield practice in Columbus, Cincinnati or Los Angeles can feel the same, Moore says. “I’m not saying that’s a good thing or a bad thing. But, because some of the practices they acquire have been there for a long time, and the clientele is used to a certain culture, many times they’ll want the [former] owners to work there for a period of time, one or two years or even longer.”
Advent, of the state veterinary association, keeps a close eye on trends at the veterinary hospitals in Ohio and beyond. He recognizes the influx of corporate practices and is quick to point out the advantages each business model offers. He says now and for the near term, there’s plenty of room for private practices and corporate players in the growing market for veterinary services.
For example: Veterinarians are more interested in treating pets than in keeping the books. “They went into veterinary medicine to help animals, and the more time they spend on the business side, the less time they have to treat animals,” Advent says, adding that many of this back office work—such as scheduling, billing and accounting—is handled by the corporate office of the Banfield and VCA practices.
There isn’t much wrangling with insurance companies, like medical billers in human healthcare have to deal with. Advent estimates the proportion of pet owners who carry health insurance for their pets is about 3 percent to 5 percent. And that number doesn’t seem to be growing very fast.
“A lot of pet owners just haven’t chosen to go down that path,” he says. “It’s more geared toward a serious situation, like when a dog gets hit by a car or ingests something dangerous and needs a serious operation. We’ve seen a little more interest, but not much of an uptick.”
“What sets us apart from the big corporations is we’re smaller and our philosophy is to get to know our clients on a first-name basis and to treat everyone like family members,” says Brigette Lightell. She and her husband, Todd Lightell, who hold DVMs, own and operate Dublin Veterinary Clinic.
The couple, both graduates of Ohio State’s College of Veterinary Medicine, bought the practice 11 years ago. “It was a long-established practice that went back to the 1960s, and we still have some of the original clients from the 60s,” Brigette Lightell says. “We got a loan from a local bank, First Bexley Bank [which was later sold to First Financial Bank in Cincinnati]. The person at the bank was familiar with the practice and knew it was successful. Now, so many practices sell to Banfield or VCA, so it would be a lot harder and more expensive to buy a practice.”
While Brigette Lightell says she sees mostly dogs and cats, Todd Lightell specializes in treating smaller, less common pets, such as gerbils, hamsters, Guinea pigs, ferrets, rabbits and turtles. “There are more exotics than you’d think, as there are people who live in apartments and condos who need a pet that takes up less space and that they don’t have to take outside for a walk to go to the bathroom.”
The corporate practices have an advantage in that they can buy commonly used items, such as heartworm medicine and flea-and-tick preventatives, in bulk at lower prices, and the Banfield and VCA practices get an even better deal on the Royal Canin and Iams pet foods made by their common parent company, Mars, Brigette Lightell says. “So, in order for us to have the same profit margin we have to charge more, and that’s how we explain it to people,” she says.
What comes next
Knapp’s grandfather started Knapp Veterinary Hospital in 1945. “My father [Paul Knapp] took over and purchased it, and then I took over and purchased it,” he says. “We’ve been at this same location [on Oakland Park Avenue] the whole time. We have seven doctors and total staff of more than 40.” All three of the Knapps are graduates of the OSU College of Veterinary Medicine. It’s difficult to estimate the number of cats and dogs—and their owners—they’ve cared for over the years.
None of Robert Knapp’s children attended veterinary college. His son, Bryan, is an Ohio State graduate with a business degree. He works for his father, handling many of the back-office operations. “We haven’t broached the subject,” the elder Knapp says when asked if his son will one day purchase his practice. “There is an allowance [in state regulations] for a non-veterinarian to own a practice if they get a facility license.” Another option is for one of the practice’s veterinarians to eventually buy the business.
Many veterinarians practice into their 70s and even 80s, so there’s no rush. And yet, the constant solicitation calls from potential buyers have gotten Knapp thinking about the future. There’s a lot of money to be made. “I’m hearing about premiums on the value of a practice that are unprecedented,” he says.
The bottom line, Knapp says, is that there should be multiple options for veterinarians looking to sell their practice, and multiple options for pet owners who seek medical care. He’s worried the number of veterinarian-owned practices will decrease.
“The competition and the cost is getting tough for a younger veterinarian who aspires to ownership,” Knapp says. “Can that individual go to a bank and get a loan and establish their business when corporations with deep pockets are paying a huge premium on a business they truly covet?”
The number of corporate practices will increase, Knapp says. “They’re not going away, nor should they. And there should always be a place for the entrepreneur veterinarian to hang up a shingle and practice high-quality veterinary medicine.”
Just like his father and grandfather did before him. Paul Knapp’s name and photo are still listed on the practice’s website, even though he retired and stopped practicing medicine a few years ago. “Taking his name off wouldn’t be good optics in the family,” Robert Knapp says with a chuckle.
Steve Wartenberg is a freelance writer.
Veterinary sector by the numbers
28-30k Veterinary practices in the U.S. for companion animals
48,898 U.S. vets focused on companion animals in 2018, which represents 67% of all vets.
$28 billion The amount of money pet owners spent at veterinary clinics in 2016, an increase of 8 percent from 2012.
Millennials The largest segment of pet owners.
70% Of Millennials have a dog or cat or both.
$1,285 Spent by dog owners a year on their pets.
$915 Spent by cat owners a year on their pets.
Sources: Brakke Consulting, American Veterinary Medical Association and TD Ameritrade