Veterinary Practice Valuation in a Sale Context

February 21, 2019

How does a Buyer’s Valuation of a Veterinary Practice Relate to What the Practice is Worth?

Previous articles have detailed how a potential Buyer derives a multiple and a Normalized EBITDA for a practice. These variables generate a Buyer’s valuation.  

Is this the price a selling independent veterinary clinic owner will get for her practice when she sells it? Unfortunately, it is not.  

The buyer valuation is what a buyer could pay, but not what he will pay. If the buyer doesn’t have to pay this price, he will gladly pay less. The offer that comes from the buyer will reflect the information a buyer has or doesn’t have, but also his view on how competitive the purchase opportunity is. If the buyer believes he has convinced you that he is the best home for your practice, he will likely discount his offer price from his buyer valuation.  

If you want to get the True value of your practice when you sell, you need to have multiple buyer valuations.  

And each buyer needs good and comprehensive information and access to many comparable transactions. Satisfying those conditions gets you to your True Value, that being the price the market would pay for your practice.  

The Market Value of your practice is the Maximum Buyer Valuation

Given: Each buyer a) has quality information about the practice; b) is valuing the practice in a competitive bidding process; and c)has access to comparable practice sales to compare your practice to.

Unfortunately, these conditions don’t appear to be satisfied in many of the practice sales we see in the veterinary industry.  

Sometimes there is limited competition, meaning the practice owner only sees a small portion of potential buyer valuations available from the market. Other times the information is inadequate, resulting in theoffer being substantially discounted from the Buyer Valuation. And always, the buyers know every way to advantage a deal in their favor due to their experience

VetValue’s Philosophy

We apply our significant experience in valuation, and veterinary practice sales to present the process a corporate buyer would apply to value your practice.  

First, we derive a Normalized EBITDA for your practice by estimating adjustments suggested by the particular situation of your practice. 

Having worked with many corporate buyers, we have a very good idea of what they adjust and how they do it.  

Next, we apply our proprietary algorithm to various practice factors (growth, size and other) to calculate a Buyer Valuation multiple.  

Our algorithm is tuned to the market and framed by the numerous practice sales we have advised upon.  

The valuation that results is our best estimate of what a corporate buyer could pay for your practice if your practice were to be sold in an organized auction.   

Whether you can achieve this valuation or an even better sale price in a sale depends on the sale process and the partners you choose to see it through.

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