Shaping the Future of Animal Health Care through Strategic Expansion

Discover the unexpected roads that lead to triumph in the veterinary industry as we sit down with Dr. Bill Wagner and Dzmitry Miranovich, the brilliant masterminds behind the rapid expansion of Associated Veterinary Partners. Dr. Bill shares the serendipitous moment his life took a turn from physics to animal care, while Dmitry reveals how their collective vision has transcended traditional business models, boasting phenomenal growth across multiple states. Their story isn't just about career evolution; it's a testament to how dynamic personal journeys can forge new pathways in the veterinary landscape and beyond.

Venture into the world of VetMed through the eyes of entrepreneurs and investors, where the love for animals meets robust market analysis. We unfold the layers of what makes this sector a magnet for investments, from its recession-resistant nature to the surging pet ownership rates. Hear firsthand how the industry's progression mirrors human healthcare, with cutting-edge advancements and escalating professional compensation. The dialogue also probes into the complexity behind practice sales, challenging the notion that passion cannot coexist with lucrative business prospects.

Concluding our intimate chat, we reflect on the weighty responsibilities shadowing veterinarians and the future that shines ahead. As our guests highlight the immense emotional toll of this profession, they also shine a spotlight on vital support systems like Not One More Vet, advocating for mental health in this field. It's a conversation that balances the gravity of the subjects at hand with a positive outlook, leaving us eager for the next installment of thought-provoking dialogue. A heartfelt thanks to Dr. Bill and Dmitry for granting us a glimpse into their world, and to you, our listeners, for embarking on this journey with us.

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Transcript

Speaker 1: 0:00

investors like veterinary medicine, right. There's also on the personal side, but fundamentally investors like VetMed because it has a ton of tailwinds. Americans love their pets, right, and the number of pets is growing very consistently year over year.

Speaker 2: 0:19

The goal of this show is to help healthcare organizations scale by leveraging real estate strategies and interviewing high-level healthcare executives in order to pull out lessons learned along the way. If you'd like a free site selection analysis from our team, or you'd like to learn more about how we're acquiring real estate through our fund on the blockchain, visit us at wwwreuniversityorg and drop us a line. That's re as in realestateuniversityorg.

Speaker 3: 0:45

Hello, welcome back to Helping Healthcare Scale. I'm Austin Hare, your host of the show Today. I'd like to welcome our guests Dr Bill Wagner and Dmitry Maranovich. These guys are the co-founders of Associated Veterinary Partners Now. They started in 2021, which was not that long ago and they already have 16 locations under management across 12 states, which is very impressive. So, guys, thanks for coming on the show.

Speaker 4: 1:04

Thanks for having us. Thank you.

Speaker 3: 1:06

I'd love to get each of your stories. Dr Bill, we can start with you. If you just want to explain what did you do before you guys met, I think it's interesting to figuring out. Did you have any early childhood experiences that were very shaping or influential? I know for me I ended up selling golf balls by the golf course because I found them for free and I had zero cost of goods sold and was able to make some money and got addicted to the entrepreneurial process. So literally as far back as you want to go, sky's the limit.

Speaker 4: 1:30

Yeah, and so I'm a veterinarian by trade. Going into entrepreneurship was not plan A for my career. I think there's probably two classes of entrepreneurs who are entrepreneurs for the sake of being an entrepreneur and then I think they're the accidental entrepreneurs who fell in love with an opportunity, and I think I probably fall more into that category. I always knew I had an affinity for animals. Going back to, I think, when I was five or six years old. There's a picture of me at Christmas where kind of the family's all being social and then I'm over just lounging on my cousin's dog. Yeah, I knew that was something that I had a natural affinity for. But I didn't really seriously consider vet med as a career until probably a lot later than many of my peers.

Speaker 4: 2:14

When I went to vet school, most of my classmates said, oh yeah, I knew I wanted to be a vet by the time I was old enough to walk, but for me I always was a science and math guy. I got really into physics in high school. I had a really awesome high school teacher in physics and I went into undergrad declared as a physics major. So I thought maybe I'd end up going down the engineering path or the physics PhD path. But my path to vet med started when our senior year of high school.

Speaker 4: 2:43

They figured out that once everybody got their college acceptances that the seniors really were not super engaged in their classes anymore at that point.

Speaker 4: 2:50

So they figured, oh, we'll have the students go off and for the last month or two of school go and do community service, because it's just a better use of their time than having them sit in the classroom and not pay attention. So we signed up for different charity things in the area and I signed up for an animal shelter because, again, I loved working with animals and through that role volunteering at an animal shelter I saw the veterinarian at that shelter do their work and it just really suddenly clicked for me of, hey, this is a career, this is something I can do with my life. So I decided to go into undergrad as pre-vet as well, Came out of undergrad and was still trying to figure out which direction I wanted to go in, so I ended up spending three years as a vet tech. I was also playing music at the time I played bass guitar. So I've been enjoying my early twenties and playing music and hanging out with my friends.

Speaker 3: 3:38

Were you in a band.

Speaker 4: 3:39

Yeah, yeah I was in a couple of bands around the Boston area mostly kind of blues and rock and funk stuff that had a lot of bass guitar going on but finally got serious. At that point I continued to fall more and more in love with the idea of being a veterinarian as I spent more time working as a technician, I got serious, ended up applying to vet school and got in and graduated in 2016. So I'm in the newer vintage of veterinarian, although that number keeps running away from me every year. I'm not sure how much longer I can embrace that label, but for now it still applies.

Speaker 4: 4:08

And I came out of vet school on a very traditional path. I took a small animal general practice job in Northern New Jersey, near where I grew up, and figured that practice ownership was probably going to be in maybe my 10-year plan. So, again following the very traditional path in vet med. What entrepreneurship has usually looked like in veter med? What entrepreneurship is usually look like in veterinary medicine, which is either starting or buying your own practice and operating being a small business owner? Where kind of things took a bit of a turn that took me in the direction of AVP was about three years into my I guess four and a half years working at that particular practice. They went through a transition of ownership from being independently owned to being purchased by a relatively traditional veterinary consolidator and I think overall that consolidator came in with good intentions and good plans and goals and so forth.

Speaker 4: 4:55

So I certainly don't hold any ill will but personally it ended up being a bit of a negative experience for me.

Speaker 4: 5:00

I felt that the I guess the spirit, the ethos of the practice when it was independently owned, a lot of that tied back to the owner of that practice.

Speaker 4: 5:09

The passion that he brought into the business as a small business owner was subtracted in the process of him turning into an employee and kind of this new distant management coming in, ended up starting to think about what was next for me in my career, what that meant, for this was my first exposure to corporate veterinary medicine in a direct sense. I was aware that it existed and that this was a trend within the profession, but I started to worry a bit about what the dynamics would look like for me to become a small business owner myself of what were the, what was the competitive landscape going to look like to buy or start a practice with so many, especially where Dimitri and I both live near each other in Northern New Jersey and Gannar area. There's an extremely high consolidation density in that area. Just pretty much all the clinics are corporate and the idea of going toe to toe with a lot of those clinics gave me some anxiety resources of those groups.

Speaker 4: 5:59

So I was at a inflection point of trying to figure out what was next for my career and ended up getting a call out of the blue from my college roommate who said hey, I've got this buddy Dimitri. We volunteer at the same nonprofit in the city. He works in finance. He's looking to talk to a veterinarian. I think it'd be great for you guys to get connected. So I ended up taking that phone call and I guess I'll kick it over to Dimitri and he can pick up the story from there and maybe give you some of his background as well, since I just rambled for a bit.

Speaker 1: 6:28

Yeah, that's good yeah, no, I'm great. Uh, I've heard Bill H-A-V-P like bazillion times and I think this is the first time he went back to his first Christmas or what. Not nice, so you learned something. I love it. Yeah, I think I've heard story. I just heard it kind of one on one. No, it's great. Yeah, I don't know how far back you want me to go, but I was born in Belarus, north.

Speaker 4: 6:51

Syracuse.

Speaker 1: 6:51

That's sweet and went to elementary grade high school there somewhere along the way and it's like half jokingly. But I think my uncle or maybe my mom got me like a Chicago Bulls hat and I thought that was the coolest thing in the world. And by the time I was in high school I thought why don't I apply for college in the US and didn't have any family or relatives or friends or, frankly, anyone here? And yeah, I'm simplifying it a little bit. It was a longer process but ended up getting a full ride at the school in the US Harder or easier, being from Belarus Because I can see it working either way.

Speaker 1: 7:27

I think it made it much harder. But it's obviously subjective, but hey, you never know, right. But there's challenges like right, like I wasn't eligible for loans, I couldn't get a loan, I wasn't eligible for financial aid and things like that, anyways, anyways. So yeah, I ended up getting scholarship and came to the US and somewhere along the way got interested in finance, fast forward, ended up going to investment banking. I worked at a firm called Deutsche Bank investment bank and then real quick.

Speaker 3: 7:56

What was it like going from Belarus to Chicago? Did you go to Chicago? I?

Speaker 1: 8:00

did not know.

Speaker 3: 8:01

Where'd you say you went? I went to school in.

Speaker 1: 8:03

Louisville, Kentucky called.

Speaker 3: 8:05

Bellarmine. But what was that like? Going from Belarus to being 18 years old in a new country? And new school where I'm assuming you some English, but probably not probably wasn't your first language.

Speaker 1: 8:16

Yeah, no, yeah, it wasn't my first language and I guess my English was okay, like good enough to get by. But yeah, I don't remember. I'm sure it was challenging. Right, it was challenging financially and mentally and emotionally. I didn't have family or friends and I couldn't go home for a few years, oh wow.

Speaker 3: 8:37

For a year you couldn't go home and see your family.

Speaker 1: 8:39

Yeah, yeah, but that also led to other things, right, I became very close to one of my school buddies, his family, and they actually ended up going to Belarus. They came to my wedding in Belarus and family visited them in their home in the US. Yeah, it certainly presented challenges, but also opportunities, in a sense. And yeah, but yeah, I ended up going to obviously learn English more or less and ended up going into finance, did investment banking for a couple of years and ended up going to obviously learn English more or less and ended up going into finance, did investment banking for a couple of years and ended up going to a firm called Carlyle on the investing side and kind of invested across a broad spectrum of asset classes and industries and so a lot of different things.

Speaker 3: 9:18

Were these asset classes all public markets or private? It was all public. Sorry, it was all private.

Speaker 1: 9:23

So it passes all public markets or private. It was all public. Sorry, it was all private. Okay, we did invest in some semi-public loans, things like that, but it was almost entirely.

Speaker 3: 9:32

Yeah, I love the topic of investing. I do real estate, I like investing in stocks, I have a little bit of crypto, so this topic is fascinating to me and I always find it interesting hearing behind the scenes. What were you guys looking for? Did you have stock-like returns but bond-like volatility, which is a tall order? So what was that like for you?

Speaker 1: 9:54

Yes, carlisle is more or less traditional private equity firm with a variety of different teams that invest in different asset classes. So I invested in credit, and so it was anything from senior debt to junior debt, to special situations, to some distress-ish stuff. We never intended to own the companies outright, but we were willing to go fairly deep in the capital structure. It was almost entirely private. We did invest in some public loans. Was it distressed businesses.

Speaker 1: 10:27

It was mostly performing businesses, right, so it's special situations has many different meanings, but it was mostly performing businesses. So case in point that med has been a great performer and it was one of the sectors that I was focused on and I looked at the variety of different investments in veterinary medicine, including some of the large consults, and that was how I learned about the industry and got an inside look.

Speaker 3: 10:54

What was it about VET that drew you to it? Like, for instance, was it EBITDA margins, was it the growth rate, was it stability or security? Just what parameters were you guys looking at?

Speaker 1: 11:05

Yeah, I think there are a lot of financial parameters. As far as why investors like VETS in their medicine, right, there's also on the personal side and Bill and I can talk more about that kind of why we got into the business of doing what we're doing. It's a separate topic. But fundamentally, investors like VetMed because it has a ton of tailwinds, right, americans love their pets, right, and the number of pets is growing very consistently year over year.

Speaker 1: 11:34

The industry has grown through all the recent recessions. It's very stable. It's cash pay for the most part. Most of it is credit card but meaning no insurance. Yeah, there is very little insurance, which I can't stand. Right, there is a very strong working capital trends because you collect revenue in a day or two and then you pay your vendors on a 36 day basis. So it's just very attractive. And I think something that I did not realize but then got to understand after I met Bill and after we actually got into the business together it does feel like the people who get into vet med are generally very committed to the profession. There is, historically, veterinarians, technicians, people working inside the vet clinic have been paid less than their equivalents at, like, dental clinic or whatever else right, like in the similar equivalent medical professions.

Speaker 3: 12:27

And I think that's because they, like, are following their passion more so than trying to maximize profits. What do you think?

Speaker 4: 12:34

It's a bit of both. I think that there's been some force correction in the market. There's been significant upticks in terms of just compensation across the industry over the last few years, in part driven by a general shortage of veterinary staffing, and I think that's had everybody looking around the room and realizing that there was opportunity to ask for more money. So I think there was quite a bit of catch up over the last few years, which is a good thing. Obviously my biased opinion as a member of the profession, but certainly I think there's also are some economic hurdles, just fundamental to the business.

Speaker 4: 13:06

On the flip side of when we look at human health care, just the revenue input is just so significantly larger healthcare just the revenue input is just so significantly larger. A great comparison that I love to make is the ovarial hysterectomy procedure, which is the spay procedure, removing the reproductive tract of a dog or a cat, which is a very common surgical procedure done in veterinary medicine. If you look across the country there's a massive spread in terms of what folks are charging for that, but you'll see anywhere from $200 to $1,000 is maybe again the broad spread of how much folks are charging for that procedure. If you look at human medicine, a hysterectomy, which is a comparable procedure.

Speaker 3: 13:44

It doesn't remove the ovaries, but it does remove the rest of the reproductive tract Like five grand or something right, 20 to 40 grand, so 200 bucks compared to 40 grand.

Speaker 4: 13:55

Yeah, essentially the same surgical procedure. I would say in veterinary medicine. Because we do these surgeries in such volume, the quality of the procedure is probably comparable, maybe in my again highly biased opinion. But our ovarian hysterectomies up and walking the same day, stuff like that it's the and the standards of care across veterinary medicine have also lifted significantly over the last 10 or 20 years. The quality of care gap I think is narrowed in a lot of ways.

Speaker 4: 14:21

You look at a lot of veterinary hospitals around the country. There's still a gap. You're not getting maybe the same care for your dog, especially for very severe illnesses, stuff like that, oncology, things like that as you would in a human hospital. But in a lot of ways the care is very comparable these days. The advances in veterinary care have been very significant but the driving cost behind it has stayed relatively in line with historical in a lot of ways. The human health care, just the costs are massive and all of that revenue drives ability to compensate people differently. Physicians on average are probably making two to five times as much as a veterinarian for relatively comparable medical degree. That's crazy.

Speaker 3: 15:04

Yeah, because I remember when I first started getting into the vet world a little bit like to 2021, I went to 2022, maybe I went to VMX and it was like, by one token, people were talking about how, in general, like, veterinarians were very passion oriented, emotional. They weren't necessarily calling them good business people. But then, the same token, you got these vet practices that were selling for 23 multiples and I'm like how can you have both these things be true?

Speaker 4: 15:31

Yeah, and it's an interesting dynamic as well, I think on the practice sales side.

Speaker 4: 15:34

A lot of that was driven A by a cropping up of intermediaries within the profession of. As you've got more of these kind of brokers in the room, a lot of them are able to then advocate for value and so forth and that drives a lot of the market. A lot of it was just that there was, and continues to be, a very robust market of buyers out there for veterinary clinics. Unless a prospective seller of a clinic is only talking to one party, they're going to get some indirect sense of the market just by being able to compare bids and so forth and most of the buyers out there knowing that there's probably going to be multiple bidders in any process, you need to put your best foot forward. So maybe a real estate parallel is good. Even if you've got a seller who's not inherently sophisticated on their own, they can still get a sense of the market just by looking around and potentially engaging with a third party who's going to be able to guide them through the process and so forth.

Speaker 1: 16:31

I think it's also important to mention two things. The quality of EBITDA, the quality of earnings in vet med is generally a lot higher than in many other industries, and so when you hear a 10x multiple for a vet clinic, it's actually not comparable to a 10x multiple for an HVAC business or a dental clinic, right? If you fully burden the cost, if you amortize CapEx, whatever that is, or you look at the EBITDA as a proxy of true cash flow, the multiple would actually be end up. The effective multiple would end up being higher for dental or HVAC and so forth.

Speaker 3: 17:04

Oh okay, so that makes a lot more sense. Can you expand on that?

Speaker 1: 17:07

Yeah, nicole, when you look at an EBITDA for a vet clinic assuming you're not talking about some super adjusted EBITDA and you make reasonable adjustments or maybe one-time costs or things that will go away that EBITDA is generally a good proxy for cashflow, right. You expect to get that much, or potentially even more, in cashflow, right, because of that dynamic of working capital. Being a, you collect more upfront than you pay your vendors on a 32, 60 day basis, as a matter of fact, your EBITDA is actually a very good proxy for cash flow. And then in some of those other businesses, it's not necessarily a very good proxy, right, because you have to think through okay, do I need to buy a new truck every year or two or do I need to replace trucks to maintain that earning power? Do I need capex? Do is maintain that earning power? Do I need CapEx? Am I actually collecting that revenue Because I'm underwriting this EBITDA based on collections? But am I actually collecting that from insurance companies and from people?

Speaker 3: 18:04

Yeah, when you send the invoice that counts towards your EBITDA but you may not actually collect 100% of that right, like when you're dealing with regular healthcare companies.

Speaker 1: 18:13

Correct and there are different ways of underwriting EBITDA. There's a concept called cash EBITDA, so there are ways to underwrite collections into EBITDA, but in a simple apples to apples basis. Sure, for vet clinics and your accounts receivable is generally less than 1% of revenue. It's a little bit different for mixed animal clinics it's slightly higher, but during seasonal peaks. But generally speaking, your accounts receivable is less than 1% revenue for many of those. So it's a massive percentage of revenue, right? So I don't know more percent, right? I don't know those numbers off the top of my head what they're now, and so obviously, as an underwriter investing, let's say, dental clinics, you try to understand those dynamics and factor them into into EBITDA. But how accurate are your assumptions? Right? You're basically making yet another assumption to arrive at your EBITDA, and that meant you look at the number, is a number, right, and so I think that's a big difference in quotes of cash flow.

Speaker 1: 19:08

And then, in terms of Bill's point, in terms of brokers, there are right. That's that med is not unique. Every industry you can think of has brokers and it's active and people get just had dental wisdom to remove, right? And I was talking to the doctor who was at clinic and he owns it. And we've been chatting and he's like yeah, I get the brokerage, but there's brokers and this and that and the same thing is in that med right and this and that and the same thing is in vet med right. Yeah, I think the reason why multiples for vet clinics got super high would like maybe a year and a half ago, I think it was just purely irrational because there was this huge bump in number of pets has been growing for like a one percent consistently year over year for like decades, and then in 2020, 21, in 2021, 2022, there's this massive shift. There are a lot more pets suddenly, right.

Speaker 3: 19:58

Then this historical trend of 1%, and I think people got over their skis of just underwriting that as being Do you think that growth rate was essentially dipping into the future and pulling forward the same amount of pets that would ultimately be, and do you think the growth rate is slowing down or is it continuing?

Speaker 4: 20:15

So far it seems to be continuing. It's a bit tough without the crystal ball to guess exactly at what's gonna happen, but it seems like it was more of a level shift up. But where I think a lot of groups ran into trouble and investors ran into trouble was trying to extrapolate a very abnormal growth curve through those two years, especially when we look at revenue trends across the profession. Revenue across the profession pretty consistently was up about 5% to 7% for a decade or two before the pandemic and then all of a sudden we saw top end annual growth rates getting up to 10 plus percent for this stretch of a year or two and certainly if you assume that they're going to continue at that rate, you can justify any valuation for a business that's going to grow 10 or 15 percent a year. But that was just not a reflection of kind of the underlying momentum of the industry. There was this idiosyncratic event of where a lot of people made the leap all at once into pet ownership. But we've seen that kind of after that froth has exited the market that there's still been this underlying 5%, 6%, 7% underlying growth that's continued over the last year or two after the subtraction of the froth. So it does seem that the underlying tailwinds of the industry this idea that every generation of Americans over the last four or five generations has progressively had a closer relationship with their pets are thinking differently as their pets being members of the family rather than just a possession. I think that is something that has remained strong.

Speaker 4: 21:47

So I don't think it's so much that there's now like a catch up period, but it's more just that things have normalized and if you were underwriting valuations or assumptions particularly if you were underwriting trailing 12-month EBITDA based on a very frothy period of the business where a lot of these veterinary practices were busier than they'd ever been in their history and probably will ever be again in many cases you looked at that moment in time and valued the business not just at an inflated multiple because moment in time, and valued the business not just at an inflated multiple because capital was cheap and enthusiasm was high, but also that the EBITDA itself was inflated.

Speaker 4: 22:21

All of a sudden, when things do normalize, that clinic returns to what is still very strong historical performance, but not as high as what was underwritten in that moment in time. All of a sudden you see groups that may have underwritten what they thought was 15 times EBITDA. That suddenly turns into 20 or 25 with the froth receding, and that is where some groups seem to get stuck. Especially when cost of capital was low and cost of debt was very low, a lot of these groups got very enthusiastic in terms of how they were utilizing debt. And especially if you're not being disciplined in how you underwrite and not being disciplined in how you value businesses, you can end up with what you think is a prudent amount of debt that suddenly, on a blended basis, becomes a lot less prudent because the underlying value of what you've purchased is actually less than what you thought.

Speaker 4: 23:10

So it became this snowball effect, where multiple bad decisions compounded each other for-.

Speaker 3: 23:15

What about supply and demand? Do you think that there needs to be? Do you think that there's just a lack of available clinics to buy? Do you think that there should be, or do you think there's a market for more de novo growth?

Speaker 4: 23:27

It's tough to say Certainly there's a long, long runway for consolidation in veterinary medicine still ahead as an industry, compared to both veterinary medicine overseas If you look at the European market, which is probably about 80 or 90% consolidated compared to the US, where there's a lot of different figures floating around there, but probably maybe 30 or 40% consolidated at this point. So there's still a massive runway ahead in terms of volume. But there's a lot of competition within the space. There are a lot of buyers less than there were a couple of years ago again, with some groups tightening the belt after they got overeager through that stretch of economic weirdness. But also when it comes to the de novo side of things, I think that there is good opportunity there.

Speaker 4: 24:12

But many of the de novo groups have run into kind of the same challenges that some of the larger acquisition groups have run into, which is that and if anything, those challenges are accentuated on the de novo side, which is the idea that if you have poorly aligned incentives with local leaders, where local leaders are not properly incentivized to really value the success of the practice and are sitting in the same car as the corporate entity, the investors that things start to fall apart. Employees will never think in the same way that an owner of a business will. Folks who have upside will think differently than people who don't. And DeNovo, that's accentuated because essentially it's a startup business. You're taking something from zero and trying to build a business around that. That's entrepreneurship.

Speaker 4: 25:02

If you don't have entrepreneurs in the building, you're going to have a big problem, and a lot of the DeNovo groups out there have been thinking about it as let's build boxes and fill them with people, which, in our opinion, is really the wrong way to go about. You really need to think about finding the right people to build around and then you can build a box where those people are. So I think that's. Incentives is the. We've got two magic words at AVP partnership is a big one and incentives is the other. If you and those words go together, if you give people the right financial and non-financial reasons to see success as being a shared venture together with your company, you're going to have a much better time than if you just try and see it as hey, we're accumulating employees, because, again, the employee mentality is always going to be different than an owner's mentality, than an entrepreneur's mentality.

Speaker 3: 25:51

Yeah, that makes sense. So I guess, in a nutshell, like what we talked about, what consolidators have done wrong, but what do you think is the right way to go about it then?

Speaker 4: 26:01

Yeah, and that's where we leaned into this word partnership. So when Dimitri and I first connected in 2020, we first started talking at the middle of 2020. And then we put our jobs respectively late 2020. And we formed our first partnership in October of 21. And there's a gap there and that was by design. We spent probably just shy of a year just thesis building of what can we do differently, Because we had we felt a very good bead on what the pain points were for the other veterinary consolidators out there that there was.

Speaker 3: 26:32

Dimitri, were you physically in the practice too, every day, or were you virtual?

Speaker 1: 26:36

I never worked at the practice, so the bill was. I started working remotely in March of 2020. I think we were. There was one of those coveted stories in new york city where, like, someone in your office was supposedly exposed and they to go work from home for a week and then week turned into never came back the goalposts kept moving.

Speaker 1: 26:57

Yeah, they basically never came back and then they had to. When they finally left, they they had to because of all this like security and confidentiality procedures and whatnot, they actually had to send someone to escort me into the building, take my stuff and then, and then they're like very nice, it wasn't weird, but this, yeah never came back to pick up my stuff and what I think august of 2020 or july 2020 and then, when you guys acquired this first practice, you were also virtual yeah, so, yeah, so we've been a virtual company throughout its entire existence.

Speaker 4: 27:27

Dimitri and I, for most of AVP, have been in the same area in northern New Jersey, although Dimitri was down in Charlottesville for two years while his wife was getting her MBA but we were a fully remote company. We've got a team of 11 scattered across the company two in New York, two in Florida, one in Missouri, two in Colorado, one in Washington State we're all over the place.

Speaker 3: 27:51

I guess I'm just curious what it was like trying to build out the thesis of one physical practice while you guys are virtual.

Speaker 4: 27:57

Yeah, and it was interesting. It was a learning curve, I think, for both of us. For me it was a culture shock. I had always been in person, even through COVID, as a clinician, because I was still in practice when COVID kicked off and so I was going into work every day, which was a bizarre experience of my what used to be a 30 minute commute turned into about a three minute commute, Because here at City Area, just with traffic, I would just sit in traffic every day just getting to this is great.

Speaker 3: 28:27

It looked like 10%.

Speaker 4: 28:29

Yeah, and it looked like the zombie apocalypse. It was just bizarre.

Speaker 3: 28:33

Yeah, I saw it in New York, it was nuts the New Jersey turnpike with just zero cars on it.

Speaker 4: 28:37

It was weird, it's the only way to describe it. It was a terrifying time to be working in person. Yeah, there was just not a lot of information about smoking in general. We were all winging it to a certain extent of just throwing your mask on, keep your fingers crossed and hope that nobody gets too sick. But it ended up being an interesting time also for entrepreneurship of when we dipped out, we committed to the idea of we were going to be a decentralized company.

Speaker 4: 29:05

I think we toyed a lot over the years and we're, I think, continuing to toy with the idea of do we have some sort of office at some point. But it's actually been a really cool experience to build a decentralized company because just the yeah, you have to, you're across 12 states, yeah, and the access to talent is really awesome. It's really broadened our horizons in terms of the caliber of individuals that we're able to work with, because you really can run a national search for talent and not need to worry about relocation and life situations and things like that. So it's been phenomenal because I'd say, out of all the things that I'm proud of, what we've built at AVP, I think, our team at the Success Center is what we call our corporate team. I'm really proud of the team that we've built. It's just a phenomenal group of people, and we wouldn't be able to do what we do without having some real butt kickers at the corporate level who are so what?

Speaker 3: 29:55

yeah, what was the thesis that you guys formed then at the end of the year? Like focusing on that one practice.

Speaker 4: 30:00

Yeah, so it was. The word partnership was the big focus of this idea of joint venture. We're not the only veterinary group that does joint venture. We're not the only group that has partners in our name. But we felt that when you peel back the layers of paint on kind of all the other joint ventures within veterinary medicine, that in some form or fashion that they were all falling short of this word partnership Sorry, my dogs are about to bark, possibly but that we felt that they weren't owning the word partnership in the way that we felt it was possible to own that word and that when we talked about this idea of alignment of incentives, that joint venture partnership really, if you've leaned into it as a operational model, create a lot of really cool opportunity to fill the void between independent ownership and corporate ownership, as these distinct business models of.

Speaker 4: 30:48

When you look at independent ownership, what makes it special, it is that entrepreneurial spirit. It is dynamic, local leaders who are empowered as decision makers, who on a day-to-day basis, come in and think like an owner of the business and in a lot of ways I think the corporate model in veterinary medicine where it struggles is it doesn't recognize the value of those individuals, that it's focused on this idea of turning owners into employees and there's, in our eyes, a subtraction of value that happens within that process. You've taken some magic out of that small business.

Speaker 3: 31:19

Do you have an example of turning an owner into an employee?

Speaker 4: 31:21

So that's been in veterinary medicine, the traditional acquisition model. If you look at a lot of the corporate groups it's 100% buyout. It is usually a signing that owner to a period of employment.

Speaker 3: 31:33

No profit sharing and no decision-making anymore.

Speaker 4: 31:37

Yeah, so they'll often become a medical director in that model. So they'll still have some medical autonomy to a degree, but it's certainly, at the end of the day, push comes to shove. They're not an owner of the business. If there is a disagreement on vision or direction or decision-making or things like that, they've got no cards. They're strictly an employee.

Speaker 4: 31:58

And we saw with a lot of especially the first generation veterinary consolidators as they started to realize that there was a disconnect in culture and values between sort of these corporate groups, that especially the generation one consolidators were very big on the McDonald's and medicine approach. If they were going to really make it feel very franchisee, every clinic was going to look the same, they were going to operate the same. They're going to have down to the core SOPs of how they practice medicine was all going to be identical across the network and that just it went over a lead balloon of just veterinary medicine is highly values-driven profession. You've got a lot of small business owners who are small business owners for a reason of they felt that they had a specific way of doing things, that they wanted to do it, and you've got those folks now turned into employees and being pulled that they have to march to a certain beat of the drum and it's just, it's a recipe for disaster, it's a recipe for disconnect, and a lot of these groups ran into some pretty deep reputational issues related to just making a lot of commitments and promises that things were going to be great through these transitions of ownership and they just really weren't. There was a lot of grinding of gears and that's where we leaned into the idea of partnership as a model of what is it that is so special about these businesses?

Speaker 4: 33:15

And the local leadership is usually at the core of that. So how do we keep these local leaders empowered and still in these decision-making empowered seats as owners? But now they've got a team behind them, they've got resources behind them, because that's when we look at the corporate end of the spectrum. What is the value of that business model? And it really is. It is the systems, the support, the economies of scale, the resources that come with being part of a network.

Speaker 4: 33:40

So try and pull the buffet line routine and just grab the things that we like from these two pretty distinct ownership models and blend them together in the middle. We are a corporate group and we certainly don't ever try and be disingenuous and say that's not who we are. But certainly if there was a swimming pool where the hyper traditional consolidators are on one end of that pool, we consider ourselves on the complete opposite end of it. We're in the swimming pool together, we're in the swimming pool together. We're in the same business model if we are a veterinary consolidator, but certainly we like to think that we're thinking about it.

Speaker 3: 34:11

So the main difference being, yeah, instead of buying a hundred percent, just essentially buying part, allowing the seller to take some chips off the table, but also keeping ownership, keeping equity and keeping is it voting? Class shares or what exactly? Or just more autonomy in their practice.

Speaker 1: 34:27

And slightly more than that right. It's not only that we allow and it's not allowed, we require the seller to roll over equity right. Every single clinic in our group is called by at least one veterinarian, in some instances more than one. We also enable associate veterinarians to buy in certain situations. We've enabled the practice manager really strong leader to buy in and other situations. That's really the focus right, the local ownership right, and they also preach medical autonomy. And for our medical directors, who are typically the former sole owners and now partners with us economically, they get exposure to corporate multiple arbitrage and gross EBITDA and distributions and things like that in a true like economic partnership sense. Right, like we're not, we're not limiting their upside or things like that.

Speaker 3: 35:17

No, that's cool. So, yeah, a couple. I know we're getting close to the end of our time here. I want to talk to a little bit about the just the mental health side of things. So just to pivot the conversation. It's crazy like the stats on like suicides among veterinarians and I know that you guys have a partnership with Not One More Vet and I think that's a really cool thing. So just love to hear your guys' take on that.

Speaker 4: 35:38

Yeah, and it's it's been a longstanding issue in our profession. That I think is now, on a twofold front, become very in the center of everybody's attention within the profession. One that I think there's a lot more awareness this is not a new issue within veterinary medicine, although I do think it's been in a lot of ways an accelerating issue. So that's the other front of it is that I do think that there are new layers of mental health challenges that have built into the profession over time. It's emotional work, it's challenging work. You spend a lot of time as a veterinarian delivering bad news. It's part of being in healthcare in general. But veterinarians find themselves in a bit of a unique situation where if you look at kind of the average family vet general practitioner, they are both the general practitioner, often the oncologist, the surgeon, the radiologist, the internal medicine specialist all these things for all of their patients. There's certainly now grown a referral class of veterinarians. That's something that's somewhat newer to the profession but in general kind of veterinarians are expected to be in a lot of ways the jack of all trades and that introduces a lot of interesting and challenging emotional dynamics to it. In many cases, if you're a long tenured clinician. Within the profession, you are talking end of life conversations with the same families that you talked about, beginning of life conversations when they brought in that puppy or kitten for the first time. That can be challenging.

Speaker 4: 37:07

The financial aspects of the profession also are challenging a lot of ways. Unfortunately, as veterinarians, we spend a lot of time talking about money, which is not what we got into the profession to do. But because there isn't a robust insurance system within veterinary medicine, cost of care is always at the center of these conversations about what do we do when a patient is sick, how do we address this, what are our options and those options? Unfortunately, the conversations have to center on cost of it's not just going to get billed to insurance, unless somebody happens to be in the sub 2% of pets that are covered by insurance in the US. And even in those cases, pet insurance in the US typically is a reimbursement model rather than a coverage upfront model. So folks still have to. Even if they have pet health insurance, they have to come up with cash at the time of service.

Speaker 4: 37:56

Talking about money is, frankly, is very emotionally charged. You end up finding yourself as a member of a veterinary healthcare team. I talk a lot about veterinarians, but these are issues that stretch across the profession as a whole. Technicians, receptionists, assistants everybody within the profession feels these strains. It puts you in the firing line of having to be both the person who talks about what care needs to happen and how much it costs, and clients end up often not being the kindest in terms of how they receive that, which I understand to a point of it's. This is a family member and you're being told that it's going to be very expensive to take care of them. So I understand the emotional responses, but that doesn't make it easier to be on the receiving end of it. So in a lot of ways, this perfect storm of also a I like to, in my biased opinion, consider us a very high profession of just a lot of compassionate individuals who got into a values-based profession in the first place for a reason it all snowballs together. We've got folks who, because of this high EQ aspect, are maybe more prone to mental health issues in the first place, now being put in very challenging mental health scenarios where you're having to navigate a lot of complex emotional decisions and ethical decisions, and that snowballed into we've seen that mental health outcomes across the profession have been very poor and seemingly not getting better and, if anything, getting worse across the profession.

Speaker 4: 39:18

Not One More Vet is a fantastic organization. It's the largest mental health advocacy organization within veterinary medicine and an organization that I was paying a lot of attention to. There goes the dog.

Speaker 4: 39:33

Before the start of ABP, and when Dimitri and I were sitting down and thinking about what we wanted to do as an organization beyond just a business model of how can we add value to the profession, supporting NAMBI just seemed like a no-brainer for us if there was an organization that really spoke to the values that we wanted to bring to the table as a group.

Speaker 4: 39:53

Nambi was right on the nose with that, and it's something that I think there's still a ton of work to be done in terms of improving mental health awareness and outcomes within the profession.

Speaker 4: 40:03

It's going to be a profession-wide effort that's going to need to happen. We certainly are trying to do our part, both in partnership with NAMVI and just on our own as a group, to support our teams as well as possible, but it is a big challenge ahead for veterinary medicine to make sure that we're taking care of our people, because it's a profession that spent so much time thinking about how we take care of animals. That, yeah, I think we're finally having a moment of that put your put your oxygen mask on before you put it on the person next to you scenario. But I think we're having that moment in veterinary medicine where we need to put our own oxygen mask on and say we can't care for our patients unless we're caring for ourselves as well. So something that's been front and center for a lot of conversations around the profession over the last decade, but still a lot of work left to do.

Speaker 3: 40:49

Yeah, yeah, so a little bit of a loaded question, but where do you guys see things going, both macro and then in terms of your group and then just anything that you guys want to add that we didn't get a chance to talk about?

Speaker 1: 40:59

Maybe I'll take the first one. I think the veterinary profession has a bright future. The veterinary industry has a bright future. Veterinary consolidation has a bright future. I think across the board there is more and more focus on the well-being and mental health of the professionals, and that's doctors, technicians, support team, which is super important. There is increasing standards of care, so the care that our patients get is getting better and will continue to get better, and that's when your consolidation is still a very attractive financial piece. Right, there's a runway 10, 20, maybe probably 20 plus years of this to continue happening. So they're excited about that. And so what was the? I'll let Bill take the second question.

Speaker 3: 41:44

Yeah, just yeah. Anything that we didn't get a chance to talk about, you guys want to talk about.

Speaker 4: 41:47

Yeah, and apologies about the dogs barking, although I guess it wouldn't be a call with a veterinary consolidator.

Speaker 3: 41:52

You must, yeah, you got to have some sort of AI engaged, because I didn't even hear him.

Speaker 4: 41:56

Oh, yeah, it's, I've.

Speaker 4: 42:11

As always, that makes all the noise.

Speaker 4: 42:12

The big one's not too bad at the barking, but yeah, no, I think to echo Dimitri I'm filled with a lot of optimism for the future of the profession.

Speaker 4: 42:15

I think that consolidation has, especially some of the more aggressive stages of consolidation that happened early on and the early to mid-innings introduced maybe some new layers of challenges for the profession of a bit of a disconnect of culture and values between some of these larger groups and the clinics within their network.

Speaker 4: 42:31

But I do think that a lot of the newer generation of veterinary consolidators, which we consider ourselves among certainly we're one of the newer ones, I think are thinking about the challenges of the profession in a different way, in a more thoughtful way. So I do think that there is a pendulum swing already in motion here of just a more thoughtful approach to consolidation that is really designed to understand what made these businesses so special to invest in the first place and how do we make sure that we preserve and carry that forward. And a lot of that is the culture and the ethos and the values of those clinics and really making sure that those things stay strong locally, and that's something that the partnership model has really been designed to work with. So, yeah, no, it's something that I think we've got a bright future ahead for AVP, for sure, and just the industry as a whole. It's an exciting time to be involved in leadership in veterinary medicine. I think there's cool things ahead.

Speaker 3: 43:38

Great. What's a good resource for people who want to reach out and learn more about what you guys are doing.

Speaker 4: 43:43

So you can check out our website, dot com. So there is a contact form where, if you're interested in partnering with AVP at your clinic, you can utilize that form. We do have a careers page on there as well for anybody who's interested in joining one of our partner clinics. I do have a blog on there, which is at least partially for my own benefit of. It's become a bit of a mental exercise for me to work through a lot of challenges that kind of the industry is facing and so forth, but I do write some articles on there that I think folks around the profession might find interesting on many of the topics that we've covered today, whether it's mental health or the state of veterinary consolidation and improving performance at clinics and so forth. Yeah, they can certainly check out our blog as well if they want to get a better sense of who we are as a group.

Speaker 3: 44:26

Okay, awesome. Hey, this was really fun. Appreciate you guys coming on the show and, yeah, looking forward to continuing the conversation later. Yeah, thank you for having us.

Speaker 1: 44:35

Awesome. Appreciate the time.