Corporate groups have been buying independent vet practices across Australia for years, and many owners will get an approach at some point. A sale can be a great outcome, but the headline price is only part of the deal. How it’s paid, what you agree to after settlement and what the buyer finds in due diligence matter just as much.
Before you reply to an approach
Talk to your lawyer and accountant before you sign anything, including a confidentiality agreement or a letter of intent. Most buyers will ask for both early.
A confidentiality agreement should protect your practice information and stop the buyer approaching your staff or clients if the deal doesn’t go ahead. A letter of intent (or term sheet) is usually not binding on price, but it often includes binding terms such as exclusivity, which stops you talking to other buyers for a set period. Read it as carefully as the final contract.
How the price is worked out
Most corporate offers are based on a multiple of the practice’s earnings, usually EBITDA. Buyers “normalise” those earnings, adjusting for things like what the owners pay themselves compared with what a manager would cost. Small adjustments can move the price a long way, so understand how the buyer has done the maths before you accept it.
How the price is paid
Very few deals are all cash on settlement. Common structures include:
- Deferred payments, paid in instalments after settlement.
- Earn-outs, where part of the price depends on the practice hitting targets after the sale, often while you’re still working there.
- Shares or equity in the buyer’s group instead of, or as well as, cash.
Each has risk. With an earn-out, look closely at how the targets are measured and what control you’ll have over the things that affect them once the buyer is running the practice.
Staying on after the sale
Buyers usually want the selling vets to stay for a period, generally up to 3 years, under a new employment agreement. This agreement deserves as much attention as the sale contract: your role, clinical autonomy, hours, pay and what happens if it doesn’t work out.
You’ll also be asked to agree to a restraint, preventing you from opening or working at a competing practice nearby for a period after you leave. Restraints given on a sale of a business are often enforced more readily than ordinary employment restraints, because the buyer has paid for the goodwill. Make sure the area and duration are ones you can live with.
What the buyer will check
Expect detailed due diligence. The areas that most often affect price or delay a sale in vet practices are:
- Staff pay. Buyers check employment contracts, award coverage and pay records. Underpayments are common in the sector and can reduce the price or lead to an indemnity. Intentional underpayment is now a criminal offence, so fix any issues early.
- The premises. Buyers want secure tenure. Check how long is left on your lease, your renewal options and whether the landlord must consent to the transfer.
- Key people. If the practice relies heavily on one or two vets, the buyer will want to know they’re staying.
- Records and systems. Clean financials and practice management data make due diligence faster and the buyer more comfortable.
Tax
The structure of the sale has a big effect on what you keep. Talk to your accountant early about capital gains tax, including whether the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 (Cth) may apply, and about the GST treatment of the sale.
Quick checklist
- Get advice before signing a confidentiality agreement or letter of intent
- Understand how your earnings have been normalised
- Know how much is paid at settlement and how much depends on the future
- Review your post-sale employment agreement and restraint carefully
- Check staff pay and award compliance before the buyer does
- Confirm your lease position and landlord consent
- Plan the tax position with your accountant
