While attending Harvard Law School in the late 1980s, DeFeo ran a family airfreight trucking company, so the allure of making a business prosper was never far from his heart.
“I had that entrepreneurial bug from pre-law practice days,” he says.
DeFeo never looked back after leaving Goodwin Procter in 1995 to work in-house as a key member of leadership teams at business ventures that captured his imagination.
That also explains why serving as general counsel occupies only about half his time at VetCor, which he co-founded with CEO Dan Adams in 1997. Based in Hingham, Massachusetts, VetCor is the third-largest owner and operator of veterinary hospitals in the country.
In addition to heading VetCor’s legal department, as the company’s chief development officer DeFeo is in charge of increasing VetCor’s “footprint” in the market through the acquisition of new veterinary practices.
DeFeo speaks with pride when he says VetCor recently added its 194th veterinary practice. He expects the company will have more than 200 by early January, and projects that VetCor will double that number in the next several years.
DeFeo recently spoke with New England In-House’s Pat Murphy about how he manages to balance his responsibilities as general counsel with core business functions.
* * *
Q. What is the VetCor business model?
A. There’s been a demographic shift in veterinary medicine in the last 15 to 20 years. Twenty to 30 years ago the expectation was that [younger veterinarians] would buy a practice from their bosses. That’s not the expectation anymore because the practices have become too large and too valuable. And with the current generation’s focus on work-life balance and the huge debt folks are leaving veterinary school with, it’s become challenging for large practices to find an exit strategy.
Companies like ours have filled that niche. Not only are veterinarians going to get a fair-market-value purchase price when they sell their practice [to us], but their legacy in the way they’ve dealt with their clients over the years and their staff are going to be preserved.
Q. Any regrets that you didn’t stay at a law firm or start your own practice?
A. Not at all. This has allowed me the right balance. I have very interesting legal work day-to-day, particularly with the transactional work. I spend a good majority of my days doing mergers and acquisitions. Granted, veterinary hospital acquisitions are smaller deals, but at the same time it’s transactional work that lends itself to a little bit of individuality. Each deal is a little bit different.
You’re dealing with small business owners. It’s both personal and professional with them. While it’s important for me to be a good lawyer, I also have to be a bit of a psychologist in working with the practice owners because they’re staying on to work with us after the acquisition; they’re not retiring. But at the same time, they’ve run this business for 25 years and they’ve never had a boss. So it’s a bit of a transition for them.
In most cases these veterinarians continue on as our landlord since we buy the hospital or the clinic and they still own the real estate. They’ve never been a landlord before, so there’s a little bit of hand-holding to work out the terms of the lease to fit the four-corners of the landlord-tenant relationship with the nuances of operating a veterinary hospital.
Q. Is there tension between being both general counsel and chief development officer for the company?
A. They dovetail pretty well. It’s more the challenge of managing both functions, particularly since in the last six years we have significantly enhanced our development, i.e., our acquisition activity. In February 2010, we were 40 practices. Here we sit in December of 2016 and we’re 194 practices.
Back in 2010 I was the only person in the company doing business development. I was kind of a one-man department. Now I have nine folks working with me in the field who are out there meeting practice owners and helping us build relationships to allow us to grow faster and expand our footprint.
Wearing my general counsel hat, that has certainly generated a lot more transactional work since we do all of the hospital acquisitions in-house. Along with that, there’s some of the day-to-day issues that arise both on the regulatory front in managing a business like a veterinary hospital, as well as dealing with a lot of human resources-related issues since we have more than 3,000 employees at our 194 locations. Our legal department has expanded [since 2010] as well. I have two other lawyers working with me.
Q. Is it a challenge dealing with the different regulatory environments of the 22 states in which you operate?
A. There are some differences from state to state as to how the practices are regulated and whether a limited liability company such as us or a non-veterinarian can own a practice. For example, on the human medical side there are special rules you have to follow as to how a business can be involved in the ownership of a practice. The rules are a little less strict for veterinary medicine, but in a lot of states there is still a level of regulation surrounding that.
In every state the one consistent rule that we see is that business people cannot interfere with the independent medical judgment of veterinarians. That’s part of our philosophy anyway, so compliance in that regard is not a problem.
For the last 19 years we’ve used an outside firm to monitor regulatory developments. They’re very familiar with the industry, and they do periodic reviews for us to keep us up to date.
Q. Do you often use outside counsel?
A. It’s limited. Since we do all of our transactional work internally, our outside counsel work is very specific, such as using an outside firm for regulatory work. We also use a large outside firm for our tax work. The litigation we have is limited, but the litigation that we do have is typically employment related, so we do use a boutique national firm for our employment cases.
Q. You’ve been an in-house lawyer for more than 20 years. Have you changed your approach to negotiating fee arrangements for outside counsel?
A. In my VetCor experience, we’ve had such limited experience with outside firms that there hasn’t been much of an opportunity [to try alternative fee arrangements]. But at the same time, we do have arrangements in place with our employment counsel.
For example, we get some discounted rates on a retainer arrangement. In addition, if a matter isn’t covered by insurance, we’re getting a discount baked in as well. But if our need for outside counsel increases in the future, I do see us becoming more aggressive in trying to negotiate alternative fee arrangements.