Veterinary Consolidation On the Rise
During the last three decades, corporate consolidators have acquired numerous privately owned veterinary hospitals, and the pace of these acquisitions has only increased over the last two years. According to Brakke Consulting, which presented their 2022 Animal Health Industry Overview at VMX, consolidator ownership is estimated at 75% of specialty and emergency practices and 25% of general practices, which likely accounts for 40% to 50% of all client visits because these practices tend to be large. The veterinary industry is appealing to big corporations because purchasing a cash business, such as a small animal practice, is considered a safe and lucrative investment for organizations looking to diversify their portfolio and make a profit. In addition, mergers and acquisitions are easy to handle, since numerous small veterinary hospitals are available, and more owners are burned out, or looking to retire.
What is veterinary practice consolidation?
Veterinary consolidation is an investment strategy where a large veterinary group acquires smaller groups or independent practices to increase profits. Some corporations resell a revitalized business in five to seven years. Types of veterinary consolidators include:
- Veterinarian-managed groups — These are veterinarian-owned hospitals or clinics that have merged with fellow practices. Their patient-focused perspective means they typically grow more slowly, but they tend to develop more solid networks. Examples include Ethos Veterinary Health, AZ Pet, and MedVet.
- Private equity-backed consolidators — These companies are typically focused on rapid growth, maximizing returns, and additional mergers and acquisitions. Examples include VetCor and Pathway Veterinary Alliance.
- Wealthy family enterprises — Affluent families are purchasing veterinary practices to diversify their portfolios. Examples include the Mars and Desmarais families.
- Veterinary groups buying pet store-based clinics — This business model provides more affordable pet care, which benefits clients, and the company benefits by combining retail and veterinary care at multiple locations. Examples include VIP Pet Care at Walmart and Thrive at Petco.
Who are the most active veterinary consolidators?
Currently, more than 60 veterinary consolidators are operating, with the most active recent acquirers including:
Mars — Mars, known for their candy-making, began purchasing veterinary practices in 2007 when they bought Banfield. They expanded in 2015 by acquiring BluePearl and in 2017 by buying Veterinary Centers of America, Inc. (VCA). They currently own around 2,500 animal hospitals. In 2021, Mars expanded in the veterinary industry, and acquired a controlling interest in Vetsource, an online pharmacy and prescription management company. In September 2021, they acquired the cat litter company PrettyLitter.
IVC Evidensia — Backed by the Swedish private equity group EQT, IVC Evidensia acquired Canada’s VetStrategy in September 2021 and France’s VetOne in November 2021. They now own close to 2,000 practices worldwide.
National Veterinary Associates (NVA) — NVA is backed by the German private equity firm JAB, and recently spent billions of dollars to acquire Sage Veterinary Centres and Ethos Veterinary Health. NVA now owns nearly 1,200 veterinary practices.
Southern Veterinary Partners — This company was founded in 2014 with three Alabama hospitals, and is backed by the private equity firm Shore Capital. Inc. Magazine named Southern Veterinary Partners one of the fastest growing private U.S. companies. They currently own 303 hospitals, and have allotted $200 million in debt funding for more acquisitions.
How are veterinary consolidators incentivizing practice owners?
When veterinary consolidations first started, a practice seller would be approached, a price was set for the buyout, and the seller was required to work for two or three years for a generous salary. However, this strategy led to a revenue decrease for the practice, because the seller tended to lose enthusiasm for maximizing profit once they received their big payout, and associates were less inclined to work long hours for owners they didn’t know. New incentives were needed to ensure the practice continued to do well, and included:
- Production/salary compensation — The more revenue an employee generates, the more money they receive. This method works well for associates, but former owners who received a large buyout check may not need or want the extra work.
- Equity in the consolidator — This incentive is more commonly offered to practice owners selling their practice, as opposed to associates. The seller is offered a portion of the practice’s selling price to acquire the company’s stock. The goal is for the seller to work hard during the post sale work commitment to ensure the veterinary clinic remains profitable, to increase their value in the company.
- Equity in the clinic — This incentive is frequently offered to associates to encourage them to stay at an acquired practice. The associate can buy shares in the clinic, so they will work to maximize profitability and receive a dividend on their equity.
What does this mean for independent veterinarians?
Independent practitioners are forced to compete with large corporations at a time when supply chain bottlenecks are increasing operating costs. More than 500 independent U.S. practices have joined the Independent Veterinary Practitioners Association (IVPA), founded in 2018 to offer members services to compete more effectively with the big corporations. Their assistance includes:
- Retirement plans
- Employee benefits plans
- Marketing services and discounts from suppliers and service providers
The IVPA also educates veterinary students on the value of working for or owning an independent practice.
Veterinary consolidation is progressing, and if you are considering cashing in during this lucrative time, ensure you have a sound exit strategy before declaring your intentions. In addition, be transparent with your staff about any future acquisition, to prevent undue stress and discord.
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