Saturday, June 4, 2022

Investors are snapping up veterinary clinics

The Globe and Mail reports that wealthy investors are snapping up veterinary clinics, paying prices that put them out of reach from graduates who want to own a practice.

Two of the investors coming to Canada are VetStrategy – backed by U.S. private-equity firm Berkshire Partners, and recently merged with European pet-care chain IVC Evidensia – and VCA Canada, owned by international confectionery giant Mars Inc., the Globe and Mail reports.

The bidding has pushed prices far beyond the normal range of three or four times annual gross earnings to 10, 20, even 30 times that at the beginning of this year.

The buyouts meant multimillion-dollar paydays for veterinarians who already owned a practice. But for ambitious young professionals there is no way to compete, says the newspaper.

“It’s ridiculous,” said recent graduate Dr. Jordyn Hewer, who chose to leave the industry to work for a pet-food manufacturer. “When you translate that to how much debt that represents and how much you would need to pay that back in, let’s say, a five- to 10-year period, the numbers never add up.”

Fuelled by international private equity funds, consolidating firms have been on a tear in other health-professional fields as well, buying up practices in fields such as veterinary medicine, dental care, optometry and pharmacies and assembling them into chains. 

Practitioners who sell to corporate owners typically get back-office support through the firm’s technology and staff, help with marketing, and reduced management responsibilities. 

The buyers get businesses with steady streams of revenue, and profits that can be boosted by centralizing equipment and administrative functions, and ordering supplies in bulk. 

In the vast majority of cases, the old branding remains intact after a purchase happens, so patients and customers have no idea their once-independent practice has been taken over by corporate ownership, the Globe and Mail said.

Consolidation within these fields is still relatively low in Canada, but it is building fast – in less than a decade, nearly a quarter of vet practices have been bought by corporate owners, it said.

“I’ve never seen anything like it,” said Douglas Jack, a leading veterinary lawyer at Borden Ladner Gervais LLP. “I’ve been practicing law for 37 years. It just became a frenzy among the consolidators.”

In countries where the trend is further along – such as the United States and Britain – some government bodies and regulators are raising concerns that corporate concentration is leading to unfair prices and unreliable care.

“What regulators need to start thinking about is when smaller deals accumulate to the point where a market concentration problem develops, either locally or nationally,” said Jon Shell, managing director of Social Capital Partners, and a veteran of the vet industry in Canada and Australia. “That can be bad for employees and consumer choice. They don’t seem to be looking at these smaller deals at all now, because it’s not a today problem.”

The article did not break down the trends to clinics focussing on pets and those focussing on farm animals and poultry.