50 Shades of…Partnership
There is the age-old adage that everyone wants to be your friend when you have something that they want. These days, simply being an owner of a multi-doctor practice can garner you that kind of attention. Each week, it seems as though a new company is hanging out a shingle, calling practices and trying to buy them, joining several dozen other firms already out there in the quest to acquire. For those practice owners who are entertaining selling all or part of their businesses, navigating this sea of players can be challenging enough. However, in recent months this has been made all the more confusing by the rapid proliferation of the word “Partnership”. Everyone may not want to be your friend, but everyone wants to be your “partner” these days.
“Partner” and “partnership” are the buzzwords du jour because sellers have more options than ever before. Whereas ten years ago selling your practice meant turning over all ownership to another veterinarian or one of the handful of corporate groups that existed, today, sellers have the option to only sell a portion of their stake. Rich Lester, CEO of Veterinary Practice Partners, the first company to exclusively offer this kind of flexibility, empathizes with owners confused by the multitude of options. “When you look at the industry, there are no longer just the two sides of the corporate ownership spectrum, with the stereotypical, 100% corporate-controlled, centrally-managed model on one side and a co-owned, shared decision-making, true joint venture with doctors approach like ours on the other side. It’s certainly gotten more varied with the evolving strategies of the different groups out there.”
Most of the co-ownership models out there revolve around helping practice owners shed some of the responsibility they shoulder when they are the sole owner. Some, like Lester’s Veterinary Practice Partners, clearly delineate that DVM co-owners continue to lead the clinical side of the practice while the ownership group handles the core business functions, such as accounting, marketing, etc. Others organize around the concept of the DVM co-owner only being a practicing clinician while the corporate entity manages everything else. Still others are more akin to a silent investor scenario where the corporate group just owns a portion of the business and the DVM co-owner continues to do most everything at the practice.
Some of the key places where differentiation in partnership exists and Lester advises sellers to do extra diligence before committing to a buyer are around ownership succession and clinical leadership.
It’s a Partnership…
until it’s not.
For example, if you sell less than 100% of your practice today, what stipulations exist when either you want to fully retire or the corporate group gets bought out? Some companies will let you retain a stake, but force you to sell your stake to them when you leave.
…and what of your
In other words, DVM-ownership at the practice ends with you, as associates will never be provided the opportunity to buy-in. Talk to enough prior owners and you’ll learn that strong associates fleeing a practice after it’s been purchased outright by a corporate owner is not uncommon, leaving the selling DVM owner with a new team for his/her remaining years in practice.
What happens when a
consolidator gets sold?
Likewise, some corporates include language in their sales agreements that force you to sell your remaining stake to them immediately in the event they themselves get purchased, regardless of whether you are ready to or not.
“We see more corporate players dipping their toe in the water of partnership and co-ownership, but it frequently comes with very restrictive arrangements that handcuff the DVM,” warns Lester. “Something we’re proud of is hearing sellers mention how uniquely flexible our particular model is for them and their associates.”
Meddling in Medicine
Clinical standards, product formularies, and service offerings are another area where not all corporate “partners” align. From an economic efficiency perspective, mandating various aspects of medicine is thought to be optimal by some ownership companies, even in the presence of practice co-ownership with a clinician. This is not just the case in veterinary either, but also in human healthcare verticals such as dental. For some sellers, this adjustment is easy to make as they really are looking to let go of control; others can find the lack of local control over how medicine is ultimately practiced to be unsettling though.
“A lot of practice owners are surprised to learn that our Chief Veterinary Officer, Dr. Doug Aspros, actually plays a very untraditional Chief Veterinary Officer role,” states Gary Behler, VP of Operations at Veterinary Practice Partners. “He isn’t tinkering with our doctors’ medicine. Instead, he’s talking to practice owners about how co-owning can let them focus even more on their own medicine without our interference. This contrasts with things like clinical standards committees; exclusive, binding distribution agreements; and some of the other more restrictive methods for managing care you can see out there in the industry.”
With no signs of corporate consolidation slowing down, the importance of sellers prioritizing their needs remains heightened. If the consolidation trends previously observed in many human healthcare verticals are any indication, veterinary practice owners can look forward to every shade of partnership imaginable emerging over the next few years. Faced with such flexibility, those owners who consider their ideal futures post-sale will likely fare best during the process of interviewing corporate buyers and enjoy the co-ownership experience the most during their final years of practice. “
It can be really tempting to just respond to a phone call or letter from an interested buyer – the whole process can be so easy,” advises Lester, “but considering how different the definition of co-ownership is across the industry, I tell sellers the best thing they can do for themselves is the homework of fully comparing their options. For many sellers, this is a decision that they’ll only make once and can greatly impact their retirement. It’s not something to rush.”