Veterinary Practice Merger: Combining Two Clinics
A veterinary practice merger brings two independent hospitals together under shared ownership. For owners who want the benefits of scale, such as shared staff, better purchasing, broader service offerings and succession options, a merger can be an alternative to selling to a corporate group. It allows veterinarians to stay independent while building a larger organization.
Mergers are also complex. Combining two businesses means combining cultures, systems, finances and ownership interests, and the details need to be worked out carefully. This guide explains how veterinary practice mergers typically work and how they may be financed. Ownership rules vary by state, and nothing here is legal, tax or accounting advice. Experienced counsel and accountants should be involved from the start.
Why Independent Owners Consider a Merger
Owners pursue mergers for a range of reasons:
- Scale: a larger organization may negotiate better vendor terms and spread administrative costs
- Staffing: shared veterinarians and technicians can cover schedules, vacations and after-hours care
- Services: combining hospitals may make it possible to add advanced diagnostics, surgery or extended hours
- Succession: an owner nearing retirement may gain a clear path to transition ownership to partners
- Independence: owners can grow without selling to a consolidator
- Value: a larger, more diversified group may be more attractive to future buyers or partners
Merger vs Acquisition
In practice, the line between a merger and an acquisition can blur. In a true merger, both owners contribute their practices to a combined entity and receive ownership in proportion to an agreed value. In other cases, one owner buys the other’s practice outright and the selling owner stays on as an associate or minority partner.
If one owner is clearly acquiring the other, our guide to buying a second veterinary practice covers the acquisition path in more detail.
Valuing Each Practice
Before combining, each practice needs to be valued fairly. Owners typically obtain independent valuations based on adjusted earnings, assets and other factors. Differences in profitability, growth, real estate ownership, equipment condition and debt all affect how ownership in the combined entity is divided.
Valuation disagreements are one of the biggest obstacles to a merger, so using a consistent method for both practices is important. Valuation and advisory support, such as our advisory and consulting services, can help owners approach this step objectively.
Structuring the Combined Entity
Key decisions include:
- What legal entity will own the combined practice
- How ownership interests will be divided
- How each owner will be compensated for clinical work and management
- Who will make day-to-day and major decisions
- What happens if an owner wants to leave, retires or becomes disabled
- Whether real estate will be included or held separately
These terms should be captured in a written agreement. Our article on the veterinary partnership agreement explains the provisions owners should address.
Combining Operations
The operational side of a merger often takes longer than the legal side. Owners may need to align:
- Practice management software, records and client communication
- Pricing, protocols and service standards
- Compensation and benefits for staff
- Inventory systems and vendor relationships
- Branding and marketing
Culture is just as important. Staff at each hospital may be used to different ways of working, and clear communication can help keep teams engaged through the transition. Licenses, registrations and vendor agreements should not be assumed to transfer to a new entity.
How a Veterinary Practice Merger May Be Financed
Financing needs depend on the structure. A merger may require funding for:
- Buying out part of one owner’s interest to balance ownership
- Refinancing existing debt from both practices into one loan
- Integration costs, such as software, signage and equipment
- Working capital during the transition
- Expanding or renovating a facility if hospitals are consolidated
Conventional practice loans may be an option for established practices with strong combined cash flow, and SBA-backed loans may be available for some structures, subject to eligibility, use of proceeds, program rules and lender review. Lenders will typically review the financials of both practices, the combined projections, the ownership structure and the experience of the owners. Every loan is subject to approval.
Due Diligence Goes Both Ways
In a merger, each owner is effectively buying into the other’s practice, so both sides should complete due diligence. That typically includes reviewing tax returns and financial statements, debt and lease obligations, equipment condition, staffing and employment agreements, and any past claims or disputes. Billing practices, controlled substance handling and recordkeeping should be reviewed by qualified compliance professionals. Surprises discovered after closing can strain the partnership, so it pays to be thorough before signing.
Pitfalls to Avoid
- Agreeing on ownership splits before completing independent valuations
- Leaving governance and exit terms vague
- Underestimating the time and cost of integrating systems
- Overlooking differences in culture, protocols and compensation
- Failing to plan working capital for the transition period
Alternatives to Consider
A merger is one of several paths for independent owners. Others include selling to an associate, selling to a private buyer or selling to a corporate group. Our comparison of selling to a corporate vs private buyer may help owners weigh their options.
Final Thoughts
A veterinary practice merger can give independent owners scale, staffing flexibility and succession options without selling to a consolidator. Success depends on fair valuations, a clear ownership agreement, thoughtful integration and financing that fits the combined business.
US Medical Funding helps veterinary owners finance mergers, partner buyouts and acquisitions. Learn more about our veterinary practice acquisition financing and our full range of veterinary practice financing options.
