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Jan 1, 2009
Whose Economic Crisis Is This?

Whose Economic Crisis Is This?

Dick Goebel, DVM

Simmons Great Lakes

Clearly, a great deal of turbulence has been going on in the financial markets, large banks, a major insurer, and with the auto industry. Getting fallout are retailers. The media is having a heyday as they process and repeat dire financial news as if the world were coming to an end.

 

What if we step back and attempt to gain some perspective?

 

AAHA recently reported that in the third quarter of 08, practices reported an average increase in revenues of 4% with transaction numbers down 1%. NCVEI reported revenues growth thru first three quarters of about 5% compared to a “normal” 10% growth in revenues. And very recently, Brakke consulting reported that pet owners have reduced spending for boarding, grooming and veterinary care and that the number of visits was “flat overall”. Not a boom year, but hardly a disaster.

 

We should review some historical information in order to find some reason for optimism in the midst of a recession that is looking for signs of recovery.

 

In the last 77 years, there have been 12 recessions with an average of one every 6 years or so. Let’s take a look at the last five recessions and compare growth in veterinary spending with the growth in the US Gross Domestic Product.

                                           Veterinary  
                                            Spending              GDP

                                                                       

                                           % Change          % Change

          1974                             2.9%                   -0.5%

          1975                             8.1%                   -0.2%

          1980                             1.9%                   -0.2%

          1982                             3.8%                   -1.9%

          1991                             6.5%                   -0.2%

          2001                             5.7%                    0.8%

Average during recessions        4.8%                   -0.4%

 

Overall average since 1972      6.6%                     3.0%

 

Note: 74-75 were both related to a single recession period

 

Over the years, we can see that spending for veterinary services has held up quite well in the face of a national recession or major economic downturn.

 

For buyers and sellers of veterinary practices, there is clear evidence that the veterinary practice ownership transition market is quite active and healthy. If we look at practice sales (listings, facilitated internal sales, and buyer agency) transactions facilitated by Simmons offices in 2008, we find that in the last half and in the entire year, transactions were up by approximately 20%.

 

Transactions       2007       2008       Increase

 

     1st half               32           38            18.8%

 

     2nd half              29           35            20.7%

 

     TOTAL                61           73            19.7%

 

Clearly, quite a number of buyers and sellers are proceeding with confidence. Lenders are still quite impressed with the safety of lending money for veterinary practice transactions. Veterinary loans have the second lowest default rate of any industry as tracked by the Small Business Administration. Lenders continue to step up and lending criteria has not changed for most lenders.

 

Yes, as a country, as society and a culture, we are collectively experiencing unpleasant financial challenges. But at the same time, we in private veterinary practice can find encouragement in the evidence that shows that clients continue to spend money for veterinary services as they maintain their commitment to the health of their animals. For this we are all grateful.

 

An economic crisis? Yes, for some industries. But not necessarily for private veterinary practice.

Dick Goebel DVM is a specialist in practice sales and appraisals with more than 30 years of experience including practice ownership, consulting and teaching at Purdue.