Photo courtesy of Columbia Tech Center
LegacyVet occupies rented office space on the third floor of 1498 SE Tech Center Place in Vancouver, Washington, about a mile from Banfield’s new corporate headquarters.
Three veterinarians and a corporate executive long associated with Banfield Pet Hospital have formed a company to purchase animal hospitals, some to be converted to Banfield practices and some, they say, to keep and manage themselves or potentially sell to other buyers.
To date, the company, LegacyVet Inc., has purchased 10 practices. It’s resold four to Banfield.
According to Dr. Jeff Brant, LegacyVet chief operating officer, the practices are in Lexington, Kentucky; Denver; Grand Junction, Colorado; Salt Lake City; Tampa, Florida; the San Francisco Bay Area; and Seattle. LegacyVet’s central office is in Vancouver, Washington.
Company principals are Brant; Dr. S. Todd Marcum, chief medical officer; Dr. Robert Lester, executive vice president of relationships; and Kelly Orfield, president and CEO.
Orfield worked for Banfield for nearly 16 years, most recently as vice president of procurement, before assuming the top position at LegacyVet in February.
Brant is a Banfield co-founder whose history with the company dates to 1993. His most recent role was senior vice president responsible for international expansion, recruiting and operational consulting. He left the company in 2008.
Lester is another long-timer at Banfield, joining the company in 1994 and working in various roles, most recently as vice president for university and professional relations. In February 2013, Lester became assistant dean for clinical relations at Lincoln Memorial University in Tennessee, a position he continues to hold part-time.
Marcum was associated with Banfield for 16 years as co-owner of 15 Banfield franchise hospitals in Kentucky, Indiana and Ohio. He is based in Kentucky.
Altogether, LegacyVet has about 50 employees, Brant said, about half of whom have a history with Banfield. Notwithstanding its close ties to Banfield, LegacyVet is an independent business, Brant said.
“We have a strong strategic relationship with Banfield, but it is not exclusive,” he said in a telephone interview. “We are fully funded and owned exclusively by our principals. Said another way, LegacyVet is not owned in part or in full by any outside interest.”
Banfield is the largest owner of veterinary clinics in the world, with about 960 hospitals in the United States and Puerto Rico. Banfield is owned by Mars Inc., a private international corporation probably best known for selling M&Ms and other candy.
Most Banfield hospitals are located inside PetSmart stores, but the company began opening new standalone clinics in 2012. Standalone clinics comprise about 10 percent of its hospitals today, according to Vincent Bradley, Banfield’s president and CEO.
Banfield expansion continues apace. Bradley said he anticipates opening about 50 new hospitals — at PetSmarts and in standalone locations — by the end of 2016. That figure doesn’t include the four established practices it acquired from LegacyVet.
LegacyVet COO Brant said he and his partners formed the company in response to several trends in the veterinary industry.
One is growing practice ownership by private-equity groups, known as PE for short. “We see this proliferation of consolidators, mostly outsiders, coming into the industry [as] loosely managed groups that amass practices,” Brant said. “They tend to roll them up and sell them off to other PE groups as they go.”
He described them broadly as “financial guys with a three- to five-year investment window. They have little to no operating experience in veterinary medicine. They’re mostly focused on profit, very little focus on people.”
A recent industry update by the investment bank Provident Healthcare Partners LLC corroborates Brant's observation that private investors increasingly are interested in buying veterinary practices. Provident posted earlier this year: “Consolidation of veterinary hospitals continued at a strong pace in the second quarter of 2016, with private equity-backed veterinary practice management companies leading the way in acquisition volumes as these groups continue to aggressively expand throughout the U.S.”
LegacyVet sees itself as a veterinarian-owned and -managed alternative to such outsiders to the industry.
“When you talk to owners, there’s really a couple of things that I hear from them,” Brant said. “One, they want to preserve their legacy. They’re very proud of the practice they built. And two, they want to make sure their people are cared for.”
Brant said LegacyVet believes that practices operated as groups are stronger financially due to their collective buying power and shared services. They also can afford to provide training and other employee benefits, he said.
And whereas in the past, a clinic owner moving toward retirement might sell a practice to a younger associate, Brant said that model is weakening due to a combination of other trends.
One is heavy debt burdening new veterinarians. Today’s practitioners start their careers with an average educational debt of about $150,000 (the figure in 2015 was $142,394 or $160,435, depending on how the average is calculated).
The generation known as millennials also tend to have different priorities from their older colleagues, Brant said. “They are much more focused on work-life balance,” he said, which can translate into disinterest in owning.
Suppose a prospective seller does have an associate interested in buying? Brant said LegacyVet is sensitive to that. “One of the first things we ask is, ‘Do you have an associate who wishes to purchase your practice?’ If they say yes, we say, ‘We encourage you to have that conversation.’ We back off. The last thing I want to do is get between a practice owner and an associate who wants to buy the practice,” he said.
Yet that is exactly what happened in at least two instances.
‘Sweet, easy’ offer
At Creekside Animal Hospital in Draper, Utah, about 20 miles south of Salt Lake City, Dr. Marty Orr hired an associate, Dr. Bret Grover, two years ago with the idea of selling the small- and exotic-animal practice to him in a few years.
Orr said he’d periodically been approached by various investment groups interested in buying, but their offers weren’t attractive. “It all became a big number-crunching thing that always ended up … to devalue the practice and not pay me what I felt I needed to be paid,” he said.
Then a consultant whom Orr hired to help institute wellness plans modeled after Banfield’s introduced him to people at LegacyVet.
LegacyVet made a purchase offer that was based chiefly on the clinic's previous-year revenue, Orr said. “It was very sweet, very easy, wasn’t complicated.”
Orr called LegacyVet’s interest “a dream come true. … They took care of me in a way that I just couldn’t believe. They honored me and my exotic practice and helped me feel I was a great doctor.”
Orr said the conversation with LegacyVet began early this year and grew serious in February. The deal was done on April 22. Ownership transferred to Banfield in June.
The new owners have brought to the practice “tens of thousands of dollars’ ” worth of updated and additional medical equipment, Orr said. Improvements include microchip scanners for every exam room, more sophisticated devices for monitoring patients under anesthesia and a new X-ray machine.
Employees have benefited, too, he said: “They get more paid time off, vacation, CE [continuing education], 401Ks, health insurance — things I wasn’t able to provide or come close to offering.”
Orr still owns the land and building occupied by the practice — he leases the space to Banfield — and is employed as chief of staff. Now age 57, he anticipates working another 10 years. “My love is to be in the room with patients and [pet] owners as opposed to managing griping employees,” ordering supplies or taking care of administrative tasks, he said. “Now I can be in the rooms, and Banfield can take care of the rest.”
As for Grover, the associate who aspired to buy the practice, Orr said, “I did give him the first choice to buy me out instead of Banfield or LegacyVet, but the comparison of what they could do for me — he understands that I couldn’t refuse and he couldn’t match [their offer]. And the enhancement that came into the practice, he and I knew it was not something we could do on our own. … He had a choice to stay or to leave,” Orr added. “He’s embraced the whole thing.”
Grover confirmed that he made peace with the circumstances but said he initially was stunned. “I moved here to buy Dr. Orr’s practice,” Grover said, explaining that he had relocated his family of five to Utah — leaving a larger practice in California and taking a $30,000-a-year pay cut — specifically because of the ownership prospect.
“It was in my contract to buy the practice, [that] after two or three years, then that would be an option that we would discuss,” he said.
Grover said once Orr had a firm offer from LegacyVet, he was given first right of refusal. He’d hoped to be able to buy 55 or 60 percent of the practice outright and purchase the rest from Orr over time. He could not match LegacyVet’s offer.
“Initially, I was pretty upset because it felt like — and he knows, I talked to him about it — it was like pulled right out from underneath me,” Grover said. “After the initial shock, I started seeing [that] … this is probably going to be OK because what’s the worst thing that’s going to happen? I have to find a new job.”
Grover said he appreciates the employee benefits and new equipment, not to mention the pay raise, which was more than he asked for. And he’s found Banfield to be “different and better than what I expected.” But he’s not ready to give up his goal of owning a practice.
“I didn’t go into veterinary medicine to be a veterinarian,” he said. “I went into veterinary medicine because I like veterinary medicine and I wanted to own.”
He’s staying for now but said he’s keeping his options open, “talking with different people about different situations that could present themselves.”
Situation soured
A husband-and-wife pair of associates in Belleville, Michigan, weren’t as sanguine when their employer began negotiating with LegacyVet.
Dr. Scott Driscoll said he and his wife, Dr. Keri Dasher, had been in intermittent negotiations to buy out the owner, who was semi-retired, but they had not come to terms on price.
This spring, a team from LegacyVet arrived to discuss a plan to transition the practice to a Banfield Pet Hospital, Driscoll said. He perceived LegacyVet as representing Banfield, and that the company wants practice owners to stay on for at least a year after purchase “to keep the clients coming in.” In the case of Belleville Animal Hospital, because the owner was often away, Driscoll said, the prospective new owners wanted the two associates to stay.
“They offered us money and raises and all that kind of thing,” Driscoll said. “And I’d have a non-compete [contract] with them, which I don’t have now.”
While the associates considered their options, the transition team visited the hospital for the better part of a week, Driscoll recounted:
“They handed out booklets that said, ‘Belleville Animal Hospital is now Banfield.’ … They gave us the pep talk, bags of T-shirts with M&Ms because they’re owned by Mars.
“None of our staff knew [it was coming], it was a bit of an ambush. They came in with their bright, cheery attitudes thinking we’d be happy that we were part of Banfield, and the staff was in tears.”
The tension increased after Driscoll and Dasher decided to decline LegacyVet’s employment offer. “We want our own place,” he said.
LegacyVet then advised the clinic owner to find new associates, according to Driscoll. He said he and Dasher, who had been with the clinic for 18 and 12 years, respectively, were fired in early September.
Belleville Animal Hospital owner Dr. Gerald Graf declined to comment.
Undaunted by the turn of events, the former associates are planning by year’s end to open a practice next door. Driscoll said he told his ex-boss, “I don’t see myself competing with you. I’m competing with them.”
But the messy situation apparently led LegacyVet to back away. Driscoll said the purchase is on hold. Washington Secretary of State business records show a filing made in April for a LegacyVet-Belleville LLC but Brant said LegacyVet does not own Belleville.
“As I mentioned earlier, there are some [veterinarians] out there who want to buy but for whatever reason, financially can’t afford to,” Brant said. “We always address that with practice owners and ask them to clear it up. … Absolutely, I don’t want to get in the way of anybody. You’ve got to have mutual respect there within the profession.”
Brant said he was not at liberty to discuss particulars of the Belleville negotiation but noted, “We are about aligning with like-minded folks, both owners and associates, who can catch our vision of a bright and prosperous future. We will only invite groups to join us who believe our profession’s best days are ahead.”
Other characteristics Brant said LegacyVet looks for in clinics are: a location in a major market, more than one doctor in the practice and annual revenue of more than $1 million.
As for how many hospitals LegacyVet aims to buy in the short-term and long run, Brant declined to say, calling the information proprietary.