Categories: Real Estate
February 18, 2022
For over two years Americans have continuously grappled with the unprecedented economic and social uncertainties brought about by the COVID-19 pandemic. While each individual was forced to face their own unique trials and challenges, many sought to cope with the ongoing isolation in a similar fashion: pets and companionship. Since the start of the pandemic, more than 23 million American households have welcomed new pets into their homes, nearly 1 in every 5 nationwide. As a result, American pet ownership has reached an all-time high, with household ownership rates exceeding 70% for the first time in U.S. history. This extraordinary surge in animal ownership has been accompanied by a significant uptick in pet-related spending. In 2020 alone, total pet spending in the U.S. reached nearly $84 billion, a 6.8% increase from the previous year, with expenditures on pet food, training, supplies, veterinary expenses, and more all experiencing considerable increases.
The remote nature of the pandemic had Americans not only spending more time with their pets, but more money on them as well. However, as Americans continue to navigate their way through the pandemic and toward a return to “normalcy”, social and professional obligations which have been absent from American life since early 2020 have begun to weigh heavily on recently adopted pets, as well as the bank accounts of their owners. A steady return to life in person has led many pet owners to seek out businesses, friends, and family members to care for their pets during working hours to ensure that they are not left alone throughout the day. The financial and logistical difficulties of pet ownership post-pandemic have left millions of Americans in precarious position, with some, unfortunately, electing to forgo their commitment to their pandemic companion in exchange for additional flexibilities. Pet ownership is a responsibility millions of Americans navigated for decades prior to the COVID-19 pandemic, and while the post-pandemic world certainly presents a plethora of obstacles to new pet owners, an ever-evolving pet-care industry is suited to assist. Below are examples of a few ways the legal field is helping to ease and improve pet ownership:
An Evolving Veterinary Landscape
Just as American pet ownership rates have seen a substantial increase since the start of the pandemic, so too have nationwide revenues in veterinary medicine. In 2020 alone, the veterinary industry saw an increase in national spending of more than 14%. The national average salary of veterinarians also saw a substantial increase of more than 5%, a stark contrast to many other professions over that period. Thus, the state of veterinary medicine is quite excellent, despite recent industry-wide obstacles such as clinical staffing shortages and COVID-related facility access limitations.
What does the state of the veterinary industry mean for pet owners? As the veterinary industry continues to grow, so too does level of service pet owners will experience. Across the country veterinary practices are being purchased, sold, and merged at record-breaking rates. These transactions often result in a more efficient and resourceful veterinary practice suited to better serve the individual and their pet. The parties playing the role of the buyer in many of these transactions tend to be larger companies with plentiful resources. After the transaction has been completed, the resulting veterinary clinic is often larger, more resource abundant, allowing veterinarians to focus on treatment of patients while management responsibilities are handled at the higher level. The beneficiary of this industry trend is not only the veterinarian, but the American consumer and pet itself, who will steady begin to experience a veterinary field better suited to meet the demands of the post-pandemic, pet-heavy market.
Increasing Landlord Lenience
Pet-related restrictions in the rental real estate markets have limited many new owners’ living mobility in a significant way. Pet-friendly housing can prove scarce in many areas of the country, an issue which the Humane Society has estimated to lead to nearly 500,000 pet surrenders each year. Even when many rental housing providers claim “pet friendly,” further restrictions on weight, breed, and age of the animal can result in the exclusion of the majority of otherwise eligible owners. The recent surge of American pet ownership has only further exacerbated this dilemma, with pet-friendliness ranking in the top 3 of rental amenity searches since 2020. The good news is that recent trends in the rental market are moving in favor of our four-legged friends. The Human Animal Bond Research Institute recently found that 83% of real estate owners reported pet-friendly vacancies are filled faster, and that residents in pet-friendly housing tend to remain 21% longer than those in housing that does not allow pets. “Individual apartment landlords are more agreeable to allowing tenants to have pets just to get tenants to rent their apartments,” said one prominent New York real estate agent.
While pet-friendly housing is trending in favor of pet-owners, renters should still expect their pets to affect the renting/leasing process in considerable ways. Indeed, a pet is likely to become part of leasing agreement, as many landlords will request a higher monthly multiple in security deposits from prospective renters accompanied by pets. While one to one and one-half monthly rent is typical in most residential leases, pet-owners should not be surprised by two, or in some cases even three times monthly rent is requested in security deposit at signing. Additionally, lease addendum permitting pets are also quite common. These are addition terms which attach to a lease agreement, and typically include a list of specific pets permitted in the rented space, pet vaccination requirements, liability provisions, and other rules and restrictions relating the pet’s occupancy of the property. These pet addendums are worth examining thoroughly, as owners will want to ensure that information contained therein is accurate and not overly cumbersome to the pet’s living situation.
October 27, 2021
For many veterinary practice owners, aspirations of selling your practice may be tempered by the unknowns of the acquisition process. Even when the circumstances of a potential sale are ideal, unfamiliarity with the market and sale procedures can lead to hesitancy. While timidity toward the unknown is certainly justifiable, owners should not let it stop them from becoming a participant in the rapidly growing market for veterinary practice acquisitions. While each veterinary practice sale is unique in its own right, there are also a number of procedural commonalities that appear in nearly every deal. Getting familiar with these steps and procedures may help shed some light on the selling process and relieve the effects of the acquisition unknowns:
Deciding to Sell: Behind every veterinary practice sale is the practice owner’s “Why”. The end goal for a successful veterinary practice owner is to one day sell their practice for a lucrative price and start their next chapter. For some, that next phase is complete retirement. For others, it might mean stepping away from a managerial role to focus solely on medicine, carving out more free personal time or sharing the responsibilities with a partner. Whatever the motivation may be, every sale of a practice begins with an owner’s decision to sell.
Valuing the Practice: An owner must have a general understanding of the monetary value of their practice prior to initiating the sales process. This valuation establishes reasonable expectations of return prior to entering the acquisition market and sets a pricing standard for potential buyers. Several key factors that are helpful in determining your practice’s value include the practice itself, equipment, and current and potential revenue. Potential buyers will also consider gross revenue, profit and loss statements, net operating income, EBITDA (earnings before interest, taxes, depreciation, and amortization), profit margins, a good location, room to expand, a long-lasting, efficient staff, a practice owner who will stick around and great client retention.
Finding a Buyer: There are many ways in which a practice owner may come across a suitable buyer. In some cases, the buyer may be a partner or associate veterinarian in the practice. In others you may have considered selling to a corporate consolidator. Selling to a corporate consolidator can be an excellent way for some owners to get their equity out now, with the ability to still work as a DVM for a few years after the sale. Three things that just about every corporate consolidator is looking for in a practice – high gross revenue, profitability and location. Knowing your options when it comes to selling your practice is a must. Consider engaging an experienced practice broker who can help you form the best plan for you and the best plan for your practice.
Negotiate the Deal: Once a suitable buyer has been located, it is time to determine the terms of sale. What does the purchase price look like? Will the owner receive all cash at closing? How long will the owner have to work after the sale? Are there any ownership opportunities for my associates? Should I sell or hold the real estate? What will the terms of my lease look like? There are many moving parts that need to be negotiated before the transaction can be consummated.
Letter of Intent: The letter of intent (LOI) is the preliminary agreement of the acquisition process which contains such salient terms as the purchase price, how the purchase price will be paid at closing, when the deal will close, the owner’s opportunity to reinvest in the buyer, the owner’s post-closing employment terms, and the terms involving the real estate. While the LOI is not a legally binding contract, it is typically used to establish both the essential terms of the transaction and the commitment of the parties to move toward a successful closing.
Due Diligence: This is the process of “looking under the hood” of the practice; the buyer will conduct an extremely detailed accounting of the assets, records, inventory, and financial standing of the veterinary practice. By conducting due diligence, the buyer is ensuring that the practice to be purchased is worth the price to be paid. For this process, the parties will want to involve industry specific accountants and legal counsel, as the closing of the deal and the purchase price to be paid is naturally contingent upon buyer’s satisfaction of the due diligence outcome.
Contracting Stage: The “Purchase Agreement” is one of the most important pieces of the entire transaction. This agreement, prepared and negotiated through each party’s respective legal counsel, will encompass the essence of the acquisition and obligations of both buyer and seller in successfully closing the transaction.
Pre-Closing Contingencies: Between the execution of the LOI and the agreed-upon closing date, both the buyer and the seller will be contractually obligated to perform a number of actions prior to the closing. These obligations may include the obtaining financing, disclosure of all practice operations, execution of employment documents and various certificates, etc. Each party’s respective legal team will be significantly involved in facilitating the drafting of documents and ensuring the satisfaction of deadlines and contingencies during this period.
Closing: The “Closing Date” is the day that the veterinary practice transaction is solidified; the seller is paid the purchase price, the buyer acquires ownership to the practice, and transaction is complete! Keep in mind that with modern technologies, a successful closing is typically accomplished electronically – gone are the days of the in person closing. The closing date marks the end of the acquisition process, and a new beginning for each party, especially for the owner who moves one step closer towards retirement.
If you have questions about Veterinary Law, please contact Peter Tanella.
June 22, 2021The purchase or sale of a veterinary practice can be an overwhelming journey. Even seasoned clinicians will encounter numerous potholes — emotional, financial and legal issues — on the road to closing what in many cases can be a multimillion-dollar transaction. Here are eight gaffes that frequently occur in the veterinary world and suggestions for overcoming them.
March 12, 2020
A Management Services Organization Adds a Layer of Structural Complexity to a Veterinary Practice but Offers Non-Veterinarians and Even Family Members the Opportunity to Reap the Financial Rewards
Veterinarians, investors and executives who want to form a management services organization (MSO) often do so without fully exploring the reasons. One revolutionary change in the veterinary industry over the last decade was heightened interest in MSOs, which resulted in a lot of newer market entrants, including, but not limited to, private equity.