A boom in pet ownership, spurred by the pandemic, is fueling veterinary service providers to join forces, rolling up a fragmented industry into ever larger and more efficient players.
Simple supply and demand metrics show why vet groups and vet hospitals are in high demand, particularly for private equity funds which value steady, leverageable cash flows and bolt-on acquisition opportunities. There are 50,000 or so vets focused exclusively on pets, while 70% of US households, or about 90m families, own at least one pet, virtually all of which must visit a vet at some point, according to industry figures.
Pet owners, who increasingly humanize and coddle their pets, are willing to pony up to care for them, often in cash, since pet insurance is still an evolving market. According to the American Pet Products Association, pet owners spent USD 104bn in 2020 on vet care, pet food and other supplies, up from USD 90bn in 2018, with dogs and cats taking the biggest share.
High sale multiples
The growth market has produced high sale multiples for large, well-managed veterinary groups and spurred a bevy of new assets coming to market.
This year’s largest deal was the USD 1.6bn sale of AmeriVet Veterinary Partners by Toronto-based Imperial Capital to AEA Investors and the Abu Dhabi Investment Authority. AmeriVet generated around USD 60m in EBITDA, according to sources, which gave it a whopping 26.5x EBITDA multiple.
Other recent transactions for undisclosed sums included Alliance Animal Health’s sale to L. Catterton late last year and Veterinary Practice Partners’ sale in December to Audax Private Equity. SAGE Veterinary Centers also sold to National Veterinary Associates, a multinational vet group owned by Netherlands-based JAB Holding, which also bought Compassion-First Pet Hospitals in 2019.
Several vet groups are exploring sales, according to Mergermarket. They include Encore Vet, a North Castle Partners-backed vet group with 63 locations in 18 states and around USD 50m in EBITDA. Another is CareVet, a Compass Equity Partners-backed operator of veterinary hospitals in more than 30 states with around USD 50m in EBITDA. A third is Rarebreed Veterinary Partners, with around USD 38m in EBITDA, which backers Halle Capital and Trilantic NA put on the block, Mergermarket reported in October.
Consolidation in vet practice groups is following a similar trajectory as doctor groups. As the administrative burden and complexity of running medical practices has ballooned in recent years, doctor groups of all stripes have been merging into practice management umbrella groups providing myriad support services like billing, patient management, and IT.
As vet groups become larger through consolidation, public listings are one likely outcome. JAB Holding, for instance, was considering listing its pet care business, Bloomberg reported in May 2021. Such plans may have to wait with the IPO market in a bit of a lull, however.
Instead, large vet-focused groups could sell to strategics in the pet products and pet care space, reflecting similar moves by large doctor groups in recent years, such as Walgreens Boots Alliance’s[NASDAQ:WBA] USD 5.2bn investment last October in doctor group VillageMD.
Bankers will be working their tails off.
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