In This Episode
What are the types of questions you should ask when selling a veterinary practice? How can you ensure that you get a deal you’re happy with from among the legions of veterinary consolidators? Why do the larger consolidators make the moves that they do? On this episode of the Veterinary Innovation Podcast, Shawn & Ivan are joined by Dan Espinal of Rarebreed Veterinary Partners, a former venture capitalist who shares key insight into the world of sales and acquisitions, and why the established model still has room for improvement.
- The humanization of pets
- Veterinary consolidation
- Which questions business owners should ask consolidators
Shawn Wilkie: Hey, you’re listening to the veterinary Innovation podcast. You’re listening to the veterinary Innovation podcast. My name is Shawn Wilkie super excited to be here with my awesome. Co-host Ivan we go ahead and introduce today’s guests and maybe yourself.
Ivan Zak: Yes. I’m a generation podcast and exhibition area know. We always bitching Aryan and the greater of Sparkle. I’m gonna introduce Dan Espinal. We that’s how you pronounce that then I met through Isaacs and we kind of research then a little bit and found more information about in So a member of the board of directors of the Boys and Girls Clubs of Southern Maine. I can’t speak this morning. He heard it comment infantryman badge and Comet advisor for the US army in Afghanistan between November 2007 2008. He climbed Mount Elbrus and dormant volcano in southern Russia in 2013, which I didn’t really cool. He ran into that Community York City marathon. He absolutely loves Portland where he lives. I sold me this Boston Terrier and his first six jobs were lawnmower grocery store bagger sales assistant at Barnes & Noble telephone fundraiser at the University landscaper and ROTC Cadets. He’s favorite to shows are breaking bad and Game of Thrones. So and then military he gained a degree at MIT in double major in economics and international relationships with a specialty in international See firm before joining. Alex is a senior director at the lab Division and of corporate development strategy, which 500 company I’d it’s I just want to throw in a quick plug in or italics because of the news that came out of the blue burgundy at what happened with the CEO of items John are so biking accident and seems like there’s some cases from that and what we read that Jameson Whiskey took over the CEO role for now, but terrible tragedy and I just know John personally and I want to acknowledge that that’s my convalescence to the family.
Shawn Wilkie: Yeah, that’s super horribly. I met Joanne last year the vineyard Innovation Summit and just to all-around nice guy. So, you know just sending positive vibrations from everybody here the veterinary Innovation podcasts to him and his family and we hope nothing but the best for him
Ivan Zak: All right, so then it was that that pretty accurate that background that we’ve done yet.
Meet our guest – Dan Espinal of Rarebreed Veterinary Partners
Dan Espinal: Yeah, no, well always impressed you were able to figure out it was a grocer or a bagger at a grocery store many years ago. I mean that was a pretty good rendition Ivan. I’m interested to learn your sources. But yeah, that’s about right. I also if I met her for a moment used to work closely with John at IDEXX when I was figuring the corporate veil minute strategy team and he’s a mentor of mine and I once heard him described at a charity event here called Junior Achievement, which is a number of good things for young aspiring people in many different cities, but in Portland in this case and called out John and the speaker called John a mensch. So I guess in Yiddish is a complete man. So someone who’s, you know a great, you know, philanthropist somebody who really really appreciate the Arts and I know he does a lot for the Portland Symphony Orchestra and you know, he started a charity for Wildcats. He’s incredible cyclists. So goodbye John and his family.
Ivan Zak: Yeah, absolutely. So got our we’re introducing. I forgot in the introduction say that you are now a CEO the new consolidator called Rare Breed bet and this is something new that’s happening and organ and in New England, and we just wanted to really start with the opportunity to get you to give us two words on. What is Rare Breed about and I’m going to give you a hard time and then try to understand what consolidator Market is doing because it seems like quite a popular thing on the veteran a market and there’s controversy relative. It’s good bad for the industry. So why don’t you start us with those your calendar for this right now, so why don’t you give us a few words about Rarebreed and what you guys are about what’s your kind of vision onto this industry and facilitation and what inspired you to start this?
Dan Espinal: So so I think you know what makes Rarebreed unique from our perspective is we’re taking a really unique perspective on kind of what matters in the delivery of veterinary medicine with a particular focus on people our view. Is that this industry is no question that the veterinary Market is is a growing one. They’re all kinds of benefits that we’re discovering research-driven that are associated with pet ownership for example companionship for geriatric folks or people without many family members. We also know it’s really good for as you mentioned. I have a night, you know have military background as an infantry officer spent some time in a long-range surveillance attachment. Some time is a combat advisor Unison tomato ten US soldiers from of the bunch of napkins, but we know that it’s very helpful for people with post-traumatic stress disorder as well. We also know that it teaches young children compassion that be so many benefits associated with with pet ownership. No surprise that more and more people are owning pets and more and more. People are also concerned and invested in that well-being Health Care their pets and so our view is that this is a century-long trend the pain ownership is going to continue to increase as we continue to learn more about the benefits of pet ownership. And so we’re going to show the market. So what does that mean? Okay. Well, there’s no question. Demand is going up and eventually become Economist as well as a hobby and demand is not the issue in this market. It’s actually supplied and it’s apply at the time of need when my pet and when I have time to go to the doctor when my pet peeve Medical Care am I able to find a quality qualified veterinarian and team to deliver the best Healthcare and you know, I think oftentimes that’s very difficult to do, you know as we as we know there are many unfilled positions it better Hospital throughout the country. Now you guys are in Canada them to focus on the US for now, but that’s a real iIssue and that was part of the Providence of rare breed. We understood that there were other folks who were buying awful to me the benefits of owning and managing a number of hospitals is clear you get greater buying power we can deliver better services for the end user. You have a more integrated platform bunch of benefits, but again getting people and scaling culture are really really hard things. So rare breed was born with the focus of really creating an exceptional work experience and our view is that we create exceptional employee experience that our teams will deliver exceptional customer experience for their customers. And by the way, this is not new. There are a lot of other retail models out there and I would bucket Veterinary Services is a retail business its retail Healthcare, but retail nominal s where it’s you know, you never know who’s going to walk in the door. It’s hard work. You have to be there, you know, it’s tend to be eight to five 826 is oftentimes underappreciated oftentimes underpaid there are othIn other markets, there’s I don’t like coffee Market the grocery store Market the convenience store market and you know interestingly a professor for my grad school mission way and it her name is Xena con. She’s Turkish Stephanie did a study on a number of different companies that deliver exceptional customer experience employee experience and really focused on on a few companies that seem to be doing a really good job and she named the strategy basically pulled out a whole bunch of data points and put together kind of a for tenant strategy and called a good job strategy was focusing on Trader Joe’s Starbucks Costco quick trip and Zara, I believe and came up with the strategy. We like to bring I don’t know if this is a perfect model but an example like this into the veterinary market, so that’s kind of rare breed, you know in a nutshell think of us in our vision is we want to be the brand we want to be the employer of choice for veterinarians coming out of school who want to deliver great health care to their customers
Ivan Zak: Awesome and you mentioned the one thing about the expansion of visionary industry. And from from what I understand is it took from experience is a Visionary and then when when I was in its teeth like this is Sara Lee the market it’s not more people or more paths out there, but I think that the quality of care that people provide to their pets he’s changing globally and I think specifically in North America they started using this term humanization of the pets and I think that plays a significant role that our marketing spending in how much people want to do.
Dan Espinal: You know, I think as people, you know, we tend to see the world through our own eyes and I think the humanization of pets is kind of like, you know symptom of that and you know in my experience is personally I see that all around us no question, but inside to the world so my father first generation from Dominican Republic my mother’s first generation American from Chile, but you know, I’ve had the chance to visit some called developing places. I never experienced. I want to make it public for the first time. I got there in an airplane got off the plane. I was wearing sneakers and I remember this crowd of young kids chasing me to try to shine my sneakers, you know to make a couple bucks, but that you know memory stuck with me, you know, and then I my time in Afghanistan we were fully embedded with Afghans kind of Southeastern corner of Afghanistan, you know, no other Europeans are westerners their say and you know, really got a chance to see how Afghans interacted locally with their animals and it’s a total tell you in all those situations compared to what we see in the u.s. Wholly different Dynamics. I mean in the u.s. Here like my dog is a little bed. We take it out in the morning, you know, we kind of taken to get Grooms. We told her Pamper it my Boston Terrier sleeps in my bed. He’s like my We really have humanized in and he is my furry baby. But what I’ve noticed is that this humanization of pets appears to be at least anecdotally really correlated to the level of affluence of the society when I was in Afghanistan the dogs that were there were basically like living in hers and competing with locals for like clean water and food like they were actually in competition for basic survival requirements like the bottom of Maslow’s hierarchy of needs. Meanwhile the US soldiers us together on our base. We would actually like bring the dogs in we feed them they sleep around us and actually really serve a pretty nice functional purpose. There were early warning system. They actually can smell like Afghans coming around and so like in a way we’re protecting us, which was super cool for my point is that you know, I think this humanization of pets team as our level of stars are standard of living increases it seems so does our bond and our ability to bond with and other mammal and the other anecdote I’ll point out They should’ve passed standard of living is increasing mortality rate going down quality of life increasing length of Life increasing. Those are just fact bond between humans animals. Also increasing. No, that’s sort of one one data point in my mind the other one that really occurred to me is you know as I look at the world is the more we rely on technology and move away from people sort of like urbanization kind of brought us into the city’s digitization is bringing us into the internet and connecting the world, which is super cool. But at the same time all our friends are many of our friends live on the internet in a way, we’re more connected, but in another way we’re less connected and I think that Gap is being filled by dogs our relationship with dogs and cats and I think it’s natural for us to Crave on the million Bond and you know, I think about specific anecdote, I guess in He’s called addiction to the internet and it’s a little bit more prevalent in Tokyo, and apparently the folks who are like totally addicted to Mayor and like you get up in the morning and they’re just like online all day get up for like three reasons to eat to go to the bathroom and then to feed their pets and that’s it. And so I think the further we get into our technology to our phones and the internet and Facebook Snapchat LinkedIn. You name it the further we get away from other humans and The More We crave and need that million touch. I think in my mind, those are kind of the two themes. I guess the third one which is just kind of a cyclic ality more than anything else is you know, this kind of this graying graying of the world theme is the average population increases the older and older people start to retire have been rumors kids go away dirty nesters. They need to replace that with something. I think that’s that’s another that’s an additional element, but I think that what has a more of a cyclic ality than anything else those are kind of the three themes This concept of humanization of animals.
Shawn Wilkie: I’d like to get your opinion. You know, I look at the Mars company, you know. Yes the candy bar company with a net worth of 78 billion. They’re the largest owner of veterinary hospitals in North America and continue to buy hospitals super super rapidly. What do you think about their approach and what don’t you like about their approach? And what do you look up to them for giving us a little bit of insight in what you think of that organization?
Dan Espinal: It’s a family business. It’s private business. It’s the site of fourth or fifth largest privately owned business in the world around Bechtel, I think and Deloitte similar sizes, and yes, they’re out there buying it kind of started this trend in the veterinary Market, you know, I think there are historical business model was vertically integrate the supply chain and kind of horizontally approach sales and marketing so One manufacturing supply chain we make I don’t know Wrigley’s the same way everywhere, you know, but you might take a slightly different marketing approach in Brazil than you would in the Ukraine and he would in Canada than you would in the US which I think is highly affected because what does that do that creates local decision-making local p&l Authority the ability to curate the message for that unique customer, but very very very low cost of goods so they’re really smart on the business end. So there he said candy bar company. Well, they figured out that hey dog foods not that different what if we could grind up different kinds of meat throw it in a bag and sell it differently in different markets and then they said holy smokes. Wait a second. The highest margin dog food bags are the ones that have recurring Revenue element and have therapeutic benefits and you get a seven year lifetime value with tAnd then they realized hey the channel for that. Is that the Aryans this is an awesome Market it’s growing and so you know, what I respect about them is their shrewd business operators the really really good at running product businesses their newer to service business, which is little different because changing machine is different than changing a human to provide that service. So I think the running it and they’re realizing in their history with Banfield plays this out then which is actually one of The Inspirations for me starting Rare Breed. So I ran the you know, chemistry business that its we had Kettle KET 1 St m84 those were our products we sold globally we’re doing a Dan Espinal of implementation and the want to contract for another diagnostic company Banfield course trying to beat up everybody on price because that’s the model been filled by the way for your listeners is the largest possible chain in the US and maybe the world I think and there I think the first chain that Mars bought into back in June 20 2007 maybe a little earlier but anyway they’re very very prescriptive about how they run there’s one kind of diagnostic approach and the way I learned about that was you know as we sought out to understand them in order to win their business they wanted bile acids as a test in the chemistry panel our medical Affairs group was kind of beat their heads against the wall because they were saying well no medicines got away from that that’s a poor indicator of liver function in a pre and aesthetic panel like medicine and John away from that but they were so prescriptive like that’s the way you had to do it so how are we going to make that work and Medical Care is not like making a McDonald’s hamburger not to belittle that but it’s very hard to wash rinse repeat and so that’s an area where I think I don’t like the Banfield approach is that a practice is called a practice because it’s defined by the protocols and experience of that individual and then every medicine in particular is one of those Industries I think is one of those professions I think one of the oldest professions in mankind as soon as we became agrarian we were domesticating animals really hot dogs already your coevolving with us and you needed people who could take care of them and perform certainly and so there seems to be an element Veterinary retention and engagement of Staff because you’re basically telling an individual who went to school with the top of their class in college I went to school for four years to be a veterinarian were super competitive super smart and now you’re telling them how to make basically make a hamburger is really not a great approach and so that’s one thing I don’t like about Mars what I do like about Mars is they do realize they appreciate that this is a growing business this is a fifty to a hundred year Trend the humanization of pets as I’ve alluded to and they’re making really smart bets that it’s going to grow the way they’re doing it is a little different than how we’re going to approach it but they understand the wheel around a human in the pet the food elements the pharmaceutical the diagnostic the Veterinary Service element and how everything fits in
Shawn Wilkie: Dan one of the things that I think will be really interesting for our listeners is what is the first conversation look like with a consolidator you know there’s probably a ton of n Aryans that own their own business that that have operated operated for years that are scared of a conversation with the consolidator because of what their friends have told them or what they’ve heard what is the first conversation look like you know if you’re meeting you know a practice owner that’s owned a practice for 20 years they’re profitable they’ve paid off their building they’re looking to exit but they’re scared of that conversation what does it look like what does it sound like give us a little bit of insight
Dan Espinal: Yeah absolutely you know it comes in many different forms I think there’s two main forms of the conversation starts one is they go to a broker the like okay I want to sell only the highest price we go talk to a broker to pretty it up and put it on the market and then we’ll have these conversations and then I’ll you know I’ll pick one to be honest in a way a little bit becoming seller’s market where it is a seller’s market where a lot of other consolidators out there who are saying hey come talk to me I think what makes our approach unique however it comes because we do everything we can to really understand what what unique now we bought the practice but about the individual who’s selling it what really matters and that just comes from my experience in making deals when we did deal that I’d excellent I did deals with the Venture capitalists before I Dex the best deals were made when I could that you know that would be great to know or another veterinarian says hey you don’t make me nervous about selling is I could never live in a town where I drove by that practice and it had a different name so that really really matters to them that’s great that’s something that I take and I put in the mental bank and say okay I think we understand what matters to this person and I said to you before we can be flexible so you know do you want to continue practice for five years or to pressure 10 years like we can make our model work for most sellers which I think a massive differentiated from other groups so the conversation is really hey nice to meet you here’s what we’re about tell us about you what matters to you why you practice veterinary medicine you know what’s unique about your particular practice why you practice in this town now what is your spouse do you have any kids what do you do for fun what do you want to do what are you going to do after you sell your practice that tells a lot about a person and again this the whole all about people and so if we can understand that we can make numbers where we can make structures work those are just functional elements of the deal the emotional human elements that really make make it different it reminds you of one business person you asked me about Mars business person I really admires it see jobs particularly because he understood that it wasn’t about the functional benefits of any particular product that they were going to sell that was Baseline and you can have Engineers arguing all day about which one has more storage and which one has better RAM and whatever which has more pixels on a screen at the end of the day that really doesn’t matter that it comes down to how does a product make me feel and that’s what we’re trying to create with Rare Breed we want people to feel good about coming into partnership with us at the customers were going to be taking care of their employees are going to be taken care of but their legacy is going to be taken care of that’s what matters that’s we’re trying to strike and so the conversation into the conversation to answer again is what matters to you and how can we make this work not work from an economic perspective how can we make this work
Which questions business owners should ask veterinary consolidators?
Shawn Wilkie: Yeah that’s awesome a couple more questions for you so let’s flip the tables so instead of instead of being the head of this new consolidator Rarebreed you’re a hospital that is in a business for 20 years you’re the owner and you’re about to have a conversation with multiple consolidators what book do I read to make sure that I negotiate the shit out of you when you come to try to talk to me and how do I defend or what don’t I say you know what things should I hold close to my chest and not you know I know it’s really an opposing question for what your prerogative is but you know help our listeners to be a little bit more educated what do we hold close to our chest and what are we not will close to our chest and then any other book recommendation to maybe help me you know get the best deal for me and my family and my employees
Dan Espinal: Those are good questions I don’t think they’re the right questions I would ask myself first why am I doing this so I can’t tell you how many people you know get into it and get scared off because like oh my God it’s not what I expected it would be it’s like heels are really hard you know it’s like you know you’re being stripped down naked and hit with a cold water hose because anybody who’s buying into practice was going to want to know everything so there’s really nothing you’re going to not want to tell maybe you want to advertise it a little differently at first to generate interest but all the clothes is going to come off and they’re going to see the birth marks and so you know you might as well get ready for that I think more importantly is do you know what you’re doing is you have the resolve to go through with this and what matters to you am I doing this because I want to spend more time with my grandchildren my doing this because I’m sick of tracking down their medicine and they doing this because it’s always been my dream to sail around the world with I’m gonna buy a boat because that would help you answer some pretty fundamental questions like how much do I need to make my going to have enough for my retirement do I have to continue to work am I going to be happy with this new environment where I’m not making every single decision or there’s another stakeholder at the table that we’re table that we’re going to have to have a quorum on before we can make decisions that I used to just make myself does it matter to me to continue to practice make most of the medical decisions and do I not want to deal with HR and marketing because that’s a whole different set of questions that or potential buyers that we come from that so I think the most important thing any one of your listeners can do if you’re thinking about selling is understand really understand why they’re selling know I’ve heard seller say like Market is really high now this seems like a bubble I want to get the highest place that’s great that’s an answer another is hey I want to spend more time with my kids another one is I just want I want more time I went I just want to practice that in your medicine anymore you know those are all great understanding yourself is I think the start of this journey now in terms of what book to read you know there’s a good basic book lower Middle Market that I read that’s like kind of good well Google name here while I talk to you it’s just kind of like Baseline like how does it rain – it work what are all the phases what goes on the other important thing to do is to start getting kind of your house in order anybody who purchases a business is going to want to know your financials for the last three years from a p&l perspective from a balance sheet perspective from a tax return perspective like you need those numbers in order and the best thing to do I think is to prepare for that oftentimes small business owners want a lot of personal expenses through there that’s going to impact the ultimate valuation of your business you’re going to want to clean that up so you’re gonna want to take out personal expenses you’re going to want to sharpen the sharpen the edge you’re going to want to basically expand your profitability but multiple difficulty uses ebitda which everybody kind of throws around earnings before interest taxes depreciation amortization really what it is is what is the that you might a relationship between veterinarians text and their customers what is the tenure of my team if your team is all brand-new that would raise some Flags so you’re going to want longer tenure team to the extent you can influence that higher even a margin get rid of all those expenses that aren’t necessary push your vendors on the diagnostic side push your landscaper push your business insurance try to get the best prices on those so you have a couple years for your p&l is expanded those are two of the best things you can do and then get all your books in order make sure that your account is really running stuff through another thing to consider it’s really important as I’ve seen a company that was structured as a corporation and they’re really significant tax implications 50% of what you would have made would go away because you have to pay attention same lesson travesty so just make sure your structure the right way.