Valuation

Practice valuations and those that value practices can come in all shapes and sizes.  Did you know that there are probably 20 different methods you can use to value a practice?  Did you know there are 5 to 10 different certifications or accreditations one can work towards obtaining?

Rule of thumb valuations are ones that are typically quoted and overly abused.  The typical rule of thumb in a dental practice is a value based on a percentage of the practices gross collections.  For metropolitan areas, the rule of thumb can be from 85% of collections up to 100% of collections.  For a rural area, the value is typically 65% up to 85% of collections.  Sounds simple and straightforward, but why can this be inaccurate? 

The first reason is the practice may have a good gross production number, say $800,000, but it also may be mismanaged with overhead of $750,000 leaving $50,000 leftover for debt service and salary for the doctor.  Do you want to work for nothing?  Using a rule of thumb approach, this practice, if in downtown Seattle or Portland, would sell for between $700,000 and $800,000.  Secondly, you don’t know what is being run through the gross revenue production number.  Is the practice on capitation plans, DSHS, or another low reimbursement program?  Low reimbursement means low money to the practice, narrowing the margins.  If you get a high volume of the low reimbursement programs, you can bump up your gross and leave little to pay off debt and doctors salary. 

Another valuation method that can be dangerous is called the cash flow method.  This method calculates an adjusted cash flow to the practice.  The valuator will then normalize a doctors’ salary and calculate a value based on how much debt the practice can afford to pay.  In some practices, the valuator will use a forecasted number to get the value even higher.  This helps the seller when selling a practice, but is bad for the buyer as he or she is stuck paying a high debt payment each month.

Omni follows standards set by the Institute of Business Appraisers and the Society of Certified Public Accountants Certified Valuation Analyst program.  We have on staff an Accredited Business Appraiser as well as two Certified Valuation Analysts.  We use three different valuation methods to determine the value of a practice – the Production Acquisition Method, the Capitalization Rate Method and the Book Value method.  Each of these methods focuses on a different aspect of the practice.  After we calculate all 3 methods, we blend them to determine the total value of the practice.  Blending these methods gives us a value that looks at the assets, cash flow and overall collections of the practice – a full picture of the entire practice and not just a glimpse of one aspect of the practice.

If you are interested in hearing more about Omni’s Practice Valuations, send us an email or give us a call at 877-866-6053 today!

• Corporates are continuing to expand.  Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
• Some corporates have begun to do de novo practices.  They are filling the gaps where they don’t have ownership of a practice with a startup practice.  If you can’t buy it, build it!
• The DVM retention rate for the industry is 62%.  A particular corporate claimed to retain DVMs at a rate of 82.5%.  They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
• There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
• This corporate has three commitments – Wellness Plans, Dentistry, and Fear-Free Clinics.
• They expect the current acquisition trend to continue for the next three to five years.
• Valuations are different among the various corporate buyers.  Their add-back for DVM salaries is 20%.  Another corporate buyer uses 22%.  That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary.  That can vary significantly amongst corporate buyers.  These are just two of ten examples of the differences they provided.
• Valuations have gone up over the past 5 years.  Five years ago, they were buying practices at 4x to 5x EBITDA.  They are now acquiring practices at a broader range of 6x to 9x EBITDA.
• They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
• General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices.  Corporates currently own 30% of all of these practices.  The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically.  Corporates then may turn to specialty clinics.  Note, we’re already seeing this in the marketplace.  They also may focus on de novo practices.

In summary, the presentation confirmed what our thoughts have been:

1. Corporates are here to stay.
2. Corporate ownership will continue to grow.
3. There are some good corporate buyers who treat their staff and DVMs well and there are others that do not.
4. Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration.
5. Valuations will begin to trend down in the not too distant future.

The number of corporate buyers in the market and the supply of practices corporates want all play into this.  Whether good or bad, the corporate veterinary practice is here for the long haul.

This is just meant as an educational document and we are not promoting this or any other corporate buyer. ​

• Corporates are continuing to expand.  Not only in the U.S. and Canada, but this corporate buyer has begun acquiring practices in Australia and New Zealand.
• Some corporates have begun to do de novo practices.  They are filling the gaps where they don’t have ownership of a practice with a startup practice.  If you can’t buy it, build it!
• The DVM retention rate for the industry is 62%.  A particular corporate claimed to retain DVMs at a rate of 82.5%.  They said it’s due to how they treat the DVM and staff leaving everything as close to the same as possible. They also give the owners a piece of the pie.
• There currently is a shortage of DVM associates. They are putting a heavy effort towards recruiting DVMs at Veterinary Schools as well as the general public.
• This corporate has three commitments – Wellness Plans, Dentistry, and Fear-Free Clinics.
• They expect the current acquisition trend to continue for the next three to five years.
• Valuations are different among the various corporate buyers.  Their add-back for DVM salaries is 20%.  Another corporate buyer uses 22%.  That can make a big difference in the purchase price on a large practice. Another example is adding back an office manager salary.  That can vary significantly amongst corporate buyers.  These are just two of ten examples of the differences they provided.
• Valuations have gone up over the past 5 years.  Five years ago, they were buying practices at 4x to 5x EBITDA.  They are now acquiring practices at a broader range of 6x to 9x EBITDA.
• They believe valuations are currently at their high peak with the expectation that they will start tapering back down to the 4x to 5x EBITDA range they saw five years ago.
• General Veterinary Practices that are in the sights of corporate acquisition teams represent 50% of all General Veterinary Practices.  Corporates currently own 30% of all of these practices.  The expectation is that once total corporate ownership hits 50%, the acquisitions will taper off dramatically.  Corporates then may turn to specialty clinics.  Note, we’re already seeing this in the marketplace.  They also may focus on de novo practices.

In summary, the presentation confirmed what our thoughts have been:

1. Corporates are here to stay.
2. Corporate ownership will continue to grow.
3. There are some good corporate buyers who treat their staff and DVMs well and there are others that do not.
4. Corporates will go the de novo route when they can’t find a practice in an area they want to have a concentration.
5. Valuations will begin to trend down in the not too distant future.

The number of corporate buyers in the market and the supply of practices corporates want all play into this.  Whether good or bad, the corporate veterinary practice is here for the long haul.

This is just meant as an educational document and we are not promoting this or any other corporate buyer. ​