You can be on Entrepreneur’s cover!

How Veterinary Consolidators Are Building a Future-Proof Enterprise Veterinary consolidators have mastered the acquisition part. Successfully managing a merged enterprise after the purchase - now that's when the real challenge begins.

By Ivan Zak

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

FatCamera | Getty Images

A satisfactory return for private equity firms is 3x over three-to-five years. Veterinary consolidators easily exceed this figure, often generating a 4-5x return. It's a profitable business — people care about their pets more than they care about their own health. According to a New York Times article, while utilization of human healthcare services dropped by an estimated $15 billion during the pandemic, animal hospitals reported increases in their volume and revenue.

As private capital continues fueling veterinary consolidation and enterprises are urged to start generating as much profit as quickly as possible, it's time to discover ways of creating value post-acquisition. For starters, here are four questions to consider.

Related: 4 Reasons the Pandemic Is a Boon for the Pet Industry

How do we integrate and operate practices to get the highest ROI?

The veterinary healthcare market in the US is fragmented, remaining an attractive playground for corporate chains and their investors. In America, more than $31 billion of the $38 billion vet market is privately owned.

As corporatization continues, 25 percent of veterinary practices are expected to be consolidated by 2023 and will represent 50 percent of veterinary visits, Brakke Consulting predicts. Even the COVID-19 pandemic hasn't discouraged acquisitions and we have seen some major deals in 2020, such as Berkshire Partners acquisition of VetStrategy for over $1.4 billion.

Looking into the future, we can project using the European model, where the consolidation process began much earlier. Today, half of the veterinary practices in Britain are owned by corporations; it is 30-40 percent in Scandinavia. Veterinary care in Sweden, for example, had a retail health market share of about 50 percent in 2013. By 2018, this share had increased to 60-65 percent, representing a 20-30 percent increase within five years.

How can consolidators ride the tide, as the market is becoming saturated? The old strategy of simply buying as many practices as quickly as possible won't work anymore, as there are few good practices left to buy. Creating scalability at a lower cost and achieving the desired multiples is becoming harder, and this is where consolidators that focus on post-acquisition improvements will win.

When acquiring a practice, consolidators are often presented with financial and operational defects, poor systems, outdated software and other inherent management problems. Moreover, every new acquired practice will be using different software and have different processes. Now imagine having 50 practices like this and they need to be integrated and optimized.

While consolidators may have a value creation strategy and they generally understand how they will generate return on their investment, in reality, the strategy can be very disjointed from execution. Using data analytics to gather metrics on the business performance and establish a system to oversee the current and future acquisitions is essential.

This intelligence can help with optimization and integration, and in the long run, improve margins. It is also vital to have a clear roadmap and a framework to operate the practices post-acquisition, which leads us to the next question.

Do we have a clear roadmap for value creation?

Understanding what really creates value for an enterprise is the key to achieving streamlined efficiencies. At Veterinary Integration Solutions, we have crafted a unique Consolidator Maturity Model — a playbook for enterprises to convert their value creation strategy into a clear value creation plan. Combined with our proprietary Consolidator Operating Framework, it presents an ultimate guide to agile transformation into a future-proof enterprise.

For instance, say a consolidator sets the goal to acquire 100 practices in the next 12 months, but it turns out that their legal department can push only two clinics a month through the due diligence process. This immediately creates a dilemma as it only allows for the acquisitions of 24 practices a year. The problem is easily solved by creating a value creation stream that would outline all phases of the consolidation and if they see that due diligence is a bottleneck, that is what needs to be optimized.

The Consolidator Maturity Model consists of six levels of organizational development from the perspectives of processes, people, systems, data and specific metrics required for sustainable consolidation of small businesses into an enterprise. From my experience, most veterinary consolidators, irrespective of size, are on level one, two, or three at most.

Assessing organizational maturity is especially important when determining the congruence of the enterprise with the level it is at. Some elements can be either developed too early or underdeveloped and require attention in order to move to the next level.

For example, a consolidator decides to optimize their procurement by buying a Cubex machine. Overall, it is a great solution for inventory management but if the processes or policies to implement this system were not developed, that creates an incongruence with the enterprise's current phase of development.

The way to address this problem is to understand what the overall procurement system is and how Cubex fits into it. Then a detailed process of this initiative must be followed to make sure there are processes, policies and people to operate the system and the metrics to measure success are in place.

Related: The Five Stages Of Your Business Lifecycle: Which Phase Are You In?

How do we retain employees post-acquisition?

Consolidating practices means merging different cultures, workflows and systems, which is a significant stressor for employees. If not managed properly, the frustration and uncertainty caused by the changes will result in increased staff turnover post-acquisition.

Veterinary consolidators should pay special attention to the wellbeing of the frontline staff because people are their most valuable asset. Losing a good employee is losing knowledge, capacity and revenue. It becomes very expensive to have employees who are burned-out or not motivated. A study by Gallup found that disengaged employees have 37 percent higher absenteeism and 18 percent lower productivity. When translated into dollars, we're looking at 34 percent of a disengaged employee's annual salary, or $3,400 for every $10,000 they make.

Leading vs. managing is crucial to achieving organizational excellence. Lean thinking can be a powerful tool to improve employee experience post-acquisition; it has proven effective in human healthcare and can be applied in the veterinary domain.

The fundamental principle of lean thinking is respect for people who do the actual work. It's about empowering the frontline staff, giving them decision-making freedom, nurturing the feeling of being appreciated and in control and ultimately making them feel happy at work.

Because of their size and resources, corporate consolidators can make a significant impact on the industry by adopting lean thinking principles. Getting rid of the "heartless money-making machine" image will allow them to continuously retain and attract top talent.

Better due diligence pre-acquisition is also something to think about. Currently, most consolidators assess the practice from financial and legal due diligence aspects, but there is an additional benefit in understanding the culture, burnout rate and change management readiness. Making sure that a practice's team understands and shares the values of a corporation is of a paramount importance while making the transition from one culture to another.

Related: 12 Leadership Lessons from DocuSign CEO Dan Springer

How can we leverage technology to be competitive during the COVID-19 "new normal"?

Having established the practice integration processes, it's time to think about innovating them. COVID-19 became a "Chief Transformation Officer" in many companies in 2020 and is forcing the traditionally conservative veterinary industry to change as well.

Telemedicine, something that practices have been playing around with for the past decade, is now becoming a necessity as the lockdown results in fewer onsite visits. The increasing number of mobile veterinary services is another trend that has the potential to grow.

Clients are realizing the benefits of receiving necessary services for their pets without having to stress them out with transportation. Pet insurance companies and alternative billing options, like "membership" can also be on the list of strategies — considering the financial strain that the pandemic imposed on clients.

These innovations can potentially become a boost for client loyalty, but first, some of the challenges need to be addressed. Do practices understand how they can monetize telemedicine services? Do they have a process to manage the post telemedicine requests like diagnostic services and prescriptions? Do they have enough human resources to cover all the new service offerings? What is the method of remote medical recordkeeping? Are they using cloud software? If not, how is their data integrated? Can the practice management system support telemedicine? Are the teams ready for all of these changes?

More than half of the American population consists of millennials or younger and they are much more demanding of speed and efficiency in healthcare services. The need to adapt to the COVID-19 reality, together with the changes in the customer profile, are forcing practices to change with the times in order to gain a competitive edge in 2021 and beyond. After all, outpacing your competitors is the best leverage.

At the end of the day, building a future-proof veterinary consolidator comes down to having well-orchestrated systems, processes and policies, while supporting people who do the actual work.

Related: How 3 Veterinarian Best Friends Built a Business That Delivers Happy Barks and Happier Poops

Ivan Zak

DVM, MBA, CEO at Galaxy Vets

Ivan "Zak" Zakharenkov is a veterinarian with 12 years of practice, an MBA in international healthcare management, a co-host at "Consolidate That!" and "Veterinary Innovation Podcast" and an entrepreneur currently leading Galaxy Vets, a veterinary healthcare system co-owned by its employees.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business News

From Tom Brady to Kevin O'Leary – See Who Lost Big in the Wake of the FTX Crypto Collapse

The crash exposed an $8 billion hole in FTX's accounts, leaving investors and customers scrambling to recoup their funds.

Business News

This Highly-Debated Piece of Cinematic History Just Sold For Over $700,000 at Auction

The wood panel from "Titanic" is often mistaken as a door. Either way, he couldn't have fit. (Sorry.)

Business News

'Wildly Inappropriate': Woman Says She Was Denied a Job Because She Didn't Wear Makeup During the Interview

Melissa Weaver was applying for a VP of HR job at a tech company via video.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.