How Veterinarians Can Keep Up with Private Equity Companies

In this video, filmed at the 2018 NY Vet conference in New York City, Michael Dicks, MS, PhD, chief economic Advisor at VSOP Solutions by Calico, explains how private equity companies see a return on investment and how veterinarians can compete with them.

Michael Dicks, MS, PhD: The private equity companies, they’re interested in a model where they make a substantial return on investment. They’re looking at turning those practices in 5 years. So they want that practice to grow, they want its earning and its returns to grow over that 5 years. Veterinarians can learn from that, and emulate from that practice, not only to grow their own practice, but to compete in the purchase of their own practices. Some of the things [are] making sure you have a complete set of financials, which includes a balance sheet, so that you can look at both sides of that financial equation. Not only are you looking at profitability, but you’re also looking at what we call the asset turnover index. Those 2 things are what create that return on investment. The veterinary profession has simply not looked at the balance sheet. There are lots of reasons why that is, but they need to start doing that because when you look at both sides of that and do both the balance sheet and the income statement looking at return on investment, you’ll find that those practices, even being sold at 14 times earnings, are still making a return on investment that exceeds what they would get by investing long term in the stock market. A private equity company is going to continue; it’s not a bubble. This is going to continue to happen as long as those private equity companies can purchase practices and make a return on investment that exceeds 7%.