Case Study #76: Veterinary Mini Roll-Up

When Dr. Joseph Marchell started Old Brown Dog Veterinary Partners he was a broke, in-debt recent college graduate. But he took six months working at a private equity firm, observed what was going on in the marketplace, made moves, and bet big. In the end, he achieved a 28X EBITDA exit for the entity he helped to build.

Inefficient Markets

Joseph is the son of two veterinarian parents so he very much believes in helping animals, but he also has a real eye for business, and his first job out of school was not understudying with one of his parent’s practices, but rather working in private equity, helping to identify veterinary practices that could be bought and packed up into a larger entity with more value after operations had been streamlined and professionalized.

Indeed, because many vets are focused on animals and not spreadsheets, they end up functioning like solopreneurs and hence there are lots of inefficiencies that PE can improve, including that lowest-hanging of fruit, underpricing.

One More Leap of Faith

As Joseph continued to see skyrocketing values for veterinary practices he was evaluating for purchase at his PE firm, he brought his work home and had a conversation with his parents, talking about the value they currently had and how much more their business could be worth if it was part of a tactical roll-up. They were cautiously optimistic and before too long, Joseph created Old Brown Dog as the entity for this project.

While that entity was originally going to get funding to go out and get deals, Joseph had his hands full creating efficiencies with the three practices the entity acquired (his parents’ practices and another). Because he took the time to bring in a professional operations manager and someone fully in charge of HR, Old Brown Dog started seeing more profitability right away, leading to an even better possible multiple of EBITDA.

Further, Joseph was ultimately de-risking all these practices by putting people in place that reduced the key man burden on the practicing vet. Indeed, once all those functions had been hired, even the vet himself could leave and the practice could continue on with a new doctor. The mom-and-pop one-off practices were becoming part of a well-oiled machine.

22 NDAs, 8 LOIs

Joseph was working as a vet in these practices as well as working on the business so he knew he couldn’t also take it to market. At least…he realized that after he tried it first. When he realized he was in over his head he brought in an M&A advisor who took the business off the market and cut all lines of communication off with interested parties so that the adjustments to EBITDA were crystal clear and so that Old Brown Dog could craft the narrative for selling.

Once it went back out into the market, 22 NDAs led to 8 LOIs. Joseph took the three best and asked them to come back with their best and final offer. When the dust settled, he had sold the business for a value far beyond his parents’ wildest dreams, and right in the zone he had hoped for.

Key Lessons

This case study offers three helpful lessons:

• Control the narrative: when asked why he was selling the business, Joseph was able to point to his limitations which were opportunities for a buyer, namely capital investment in buying other practices and hiring investment in getting HR and operations people in place as the roll-up continued. This allowed buyers to see where they could add value (and what that value could add up to). 
• When the market moves, so should you: even though he had only been working in PE for six months, Joseph saw an opportunity for arbitrage and value creation by bringing efficiencies to what he had seen since his childhood: an inefficient market of veterinary practices. He didn’t wait to get more experience. He pounced, and was handsomely rewarded.
• Savings are everywhere: even when you have an eye to sharpening pencils and cutting costs, there are always cost savings to be had. Even if you don’t plan a roll-up or plan to be part of one, there is a direct relationship between cost savings and the valuation of your business.

Considering a roll-up in your industry? We’ve helped others put those together before. Give us a call.