Who Is Buying Veterinary Hospitals?

For a long time, the biggest group buying veterinary hospitals was VCA.  As a publicly traded company, it was easy to get information about their growth and their purchases.

In the last 3 years, the landscape has dramatically changed.  The biggest player in the veterinary industry is now a chocolate company owned by a single family (MARS).  Their purchases have been so large that it triggered review by the Federal Trade Commission and a forced sale of 12 practices to avoid being a monopoly.

However, MARS is not the only story in the veterinary industry.  There are an increasing number of private equity backed veterinary consolidators looking to take advantage of the coming “Silver Tsunami” and make a return over the next 5-7 years.

What is Private Equity?

Capital is needed if you want to purchase or expand a business.  The two main sources of capital are debt and equity.

Debt financing

This is a loan.  The loan might be from a family member, a friend, or from a bank.  The money is given to the business for use over a set time frame and in exchange for a set interest rate (i.e. 10-year loan at 5% interest).  The bank, friend, or family member does not have a management position or ownership.  In the past, this had been the most common source of outside capital for veterinarians looking to purchase a practice.

Equity financing.

In this funding scenario, capital is used to purchase ownership.  In the simplest case, an individual uses their own savings to open a business which makes them the owner.  Profit from the business that is reinvested for expansion is another source of equity financing.   However, equity financing can also be money from a friend or family member who asks for a share of the business rather than interest and principal on a loan.

Private equity is capital from funds and investors who are looking to increase wealth by directly investing or buying companies.  The money is from individuals who are wealthy enough to be considered “accredited” or from institutional investors that invest for others.  These individuals or investors have money they want to grow but are looking for an alternative to stocks, bonds, real estate, etc.  Private equity firms have a 5 to 7-year horizon and are often looking to buy businesses, improve them with investments in needed equipment, improve their operations, and increase their net profit margin.  As I discussed in a previous blog, the ultimate goal is to buy a number of hospitals, increase the profit margins, and re-sell the larger business for a profit within 5 to 7 years.

The veterinary market has become a target for private equity investment as it is seen as a cash business in a fragmented market (lots of small hospitals), with many owners looking to retire.  The increasing debt load of new veterinarians means that it is harder for them to purchase practices, which is a positive for the private equity industry. In fact, a recent article in Forbes, describes private equity firms as “drooling” over the veterinary space.

Private equity is providing an appealing way to retire for owners looking to sell. However, it is creating an industry with less veterinary ownership, which can decrease quality.  Private equity also leads to a focus on short term profit  in order to maximize returns for investors outside the industry.

Who is buying veterinary hospitals and where does their money come from?  The marketing materials don’t always tell the full story.  I thought it would be worthwhile to attempt to compile a list of current consolidators and where their financing is coming from.

The Main Player:

As mentioned above, The MARS Company is the largest buyer in the veterinary market. This 4^th generation business is owned by the  3^rd richest family in America.   They purchased Banfield in 2007, BluePearl in 2015, Pet Partners in 2016, and VCA in 2017.  They have continued their purchasing spree overseas. Mars recently announced acquisitions of the 87 practice Linnaeus Group in Britain  and AniCura, the owner of 200 hospitals in seven European countries.

The Other Players:

The table below lists the other main consolidators in the market, their date of founding, number of locations, and their main private equity (PE) or financial backers if I could find the information .  Because of the constant change, this is a snapshot in time of the market.

A comparison to a similar article in DVM360 in 2017 illuminates the speed of  acquisitions .

Buying Veterinary Hospitals – What Might be Next?

Many independent veterinary hospitals will survive and continue to be run well by their veterinary owners.  New ownership models are also possible that could create true equity for a new generation of veterinarian.

However, in the coming years, many of the private equity backed consolidators will reach the end of their investment time frame and will need to provide a return to their investors.  They may merge, sell to Mars, or sell to other outside buyers.  Many predict that within 6-10 years, there will just a handful of incredibly large groups.

The recent article in Forbes also notes, “There is some speculation that pet food manufacturers such  as Nestle and Blue Buffalo may get into the business”

Did I miss a consolidator or do you have information that would fill in the chart? Contact me at bdavidow@vetidealist.com.