This small animal practice was owned and operated by two partners in their mid 30’s. The partners were classmates at veterinary school who met and eventually married. The practice had been in operation for almost 30 years and they had owned the practice for 6 years.
Approximately one year after graduation, these two young veterinarians borrowed $1,600,000 and acquired the practice and real estate. Their payment for the loan was a little over $13,000 per month. After six years of their management, the yearly practice revenue was $1,100,000 and revenue had increased over $100,000 in the past year. After paying the note payments and spending approximately $40,000 per year for building improvements, the owners were collectively taking home approximately $225,000 per year.
While owning the practice, their family had grown and they now had several children. Not wanting someone else to rear their children, one parent stayed home with the children each day. The practice was open six days per week. He worked four days and she worked the other two. They rarely had time together. The lack of family time along with the huge debt and large monthly payments became unsustainable. They came to the conclusion that they needed to sell their practice, get out of debt and improve their family life.
They enjoyed their practice and were far too young to retire. In fact, they needed to continue to work at the practice after the sale and earn approximately the same production compensation as they were currently making. Also, when the owners purchased the practice and building, they had taken out one loan secured by both the practice and the building. This is called cross collateralization. The total loan had to be paid off in the event of the sale of either the practice or the building but the sellers did not want to sell the building. The sellers wanted to lease the building to the eventual buyer and have the loan be paid off by the building rent.
Praxis set out to find a buyer who could not perform the veterinary medicine in the practice and did not want to purchase the real estate. Praxis presented the purchase opportunity to numerous buyers and secured four offers. Praxis ultimately obtained an offer of $1.2M, or 109% of revenue, for the practice. The buyer invited the owners to stay on as medical directors at the practice for as long as they liked. In addition, the buyer offered them a compensation package that equaled, and in some ways exceeded, what they had received as owners without them having to participate in the management of the practice. Praxis worked with the seller’s bank to obtain a release of the building as collateral for the original loan in exchange for the assignment of the new lease and a pay down of the bank debt.
This combination of a great purchase price, a salary equal to what they had been earning as owners, and a long-term employment contract was perfect. The sellers ended up with no debt at all, working in the same place they loved, with a long-term triple net lease and enough cash in the bank to make a down payment on their first home. In addition, the sellers now have much more family time as they no longer have to manage a practice.