Laura Skelding was forced to pay her first vet bill of £3,500 when her springer spaniel Otis was three months old, despite having pet insurance Pay this fee out of pocket.
After Otis swallowed a stone, Skelding immediately rushed Otis to a local vet in east London, where they charged £600 for an X-ray before sending them to a hospital on the other side of the city. Emergency clinic, results told her Otis needed surgery.
“They couldn't confirm at the time how much it would cost,” Skelding said, adding that because they were first-time dog owners, she and her partner expected £1,000 of cover to be sufficient. “We were really distraught and just told them to do it.”
Skelding's experience highlights how pet owners are willing to pay large sums to ensure their animals receive the best treatment. Meanwhile, pet ownership in the UK has grown steadily over the past decade and has boomed during the Covid-19 pandemic. The number of pet dogs will increase from 8.9 million in 2018 to 11 million in 2023, according to veterinary charity People's Dispensary for Sick Animals (PDSA).
Investment firms were quick to take notice, investing billions of dollars in hopes of profiting from reliable cash flow and the opportunity to consolidate a lucrative, fragmented industry.
Just a few decades ago, the veterinary profession was a cottage industry of independent clinics owned by veterinarians. Nearly 60% of veterinary clinics are now owned by large companies, compared with 10% in 2013, according to the Competition and Markets Authority, the UK's antitrust regulator.
The CMA said on Tuesday it planned an in-depth investigation into the business practices of veterinary firms, raising questions about how the “concentration” of thousands of small clinics is driving up the price of treatments and medicines. Serving 16 million pet owners in the UK.
Investors are unnerved by the possibility of regulatory intervention following the investigation. CVS shares fell more than 30% last week after the CMA announced the news, while Pets at Home shares fell nearly 8%. The CMA has broad powers when conducting market investigations: if it finds an industry is not working well for consumers, it can order a break-up of a business, or order measures such as maximum prescription charges, even if there is no technical breach of competition law. .
However, industry analysts believe the stock's move was an overreaction. Davie analyst Colin Grant was “surprised”. . . “The negative tone of the CMA's preliminary findings”, while RBC Capital said that most of the issues identified could be addressed through behavioral changes, while “localized over-consolidation could be addressed through asset swaps between large players”.
Meanwhile, three of the six largest veterinary groups — IVC Evidensia, VetPartners and Medivet — are backed or owned by private equity groups.
Buyout groups made a big push into the veterinary industry a decade ago after seeing an opportunity to build a large platform by merging dozens of smaller businesses, following similar forays into dental chains, eye doctors and children's care homes; benefiting from economies of scale, then Sell the larger combined business at a higher price.
The predictable cash flow generated by veterans also means buyout groups can use high levels of leverage to help boost returns and fund rollovers.
“The whole thesis is about buy versus build,” said one private equity lender. “You bought four times [earnings] Then flip the entire company 15 times [earnings]”.
The most significant cost for a veterinary clinic is the medications used during surgery or the medications they sell to their clients. Buyout groups believe veterinary chains have greater bargaining power than independent clinics when negotiating prices with drug companies, said RBC Capital analyst Charles Weston.
“Companies can add a few percentage points to profits on acquisitions [through group drug purchasing]. This is an immediate economy of scale. ” Weston added that the company was able to further cut costs by creating common functionality and infrastructure such as back office, employee training and equipment.
Weston said groups were also adding to their income by offering complementary services such as referral centres, laboratories, crematoriums and online pharmacies, meaning they could get more and more of their spend.
So far, this argument has been proven, and buyout companies have been able to build larger businesses and make huge profits from selling them.
Nordic Capital, for example, made about seven times as much money when it sold veterinary care business AniCura to Mars for €2 billion. When IVC Evidensia, the UK's largest veterinary chain, sold its stake to Silver Lake and Nestlé in 2021, the company was valued at more than €12 billion.
But the influx of money may now start to hurt consumers.
The CMA's initial review found a number of issues, including that large conglomerates behaved in a way that reduced choice and competition, and that pet owners did not have enough information to choose the right treatment for their animals.
The CMA also found that the regulatory framework governing the industry was outdated and had limited influence over large groups.
“It used to be that all veterinary medicine was owned by vets. Then we saw corporatization,” said Sue Patterson, president of the Royal Veterinary College, which sets standards for the profession. “Legislation has not kept up since then and we have a large part of the industry that is not regulated.”
The CMA found that while consolidation meant more cash for more sophisticated equipment and medical advancements, it led to rising costs, with some owners unaware they could get cheaper treatment for their pets elsewhere.
“What we need to do is let owners understand they have options,” Patterson said, adding that veterinarians can provide high-quality care at a lower cost. “They feel like they're not providing the best service for their pet without spending a lot of money.”
While the CMA has not yet identified concerns specific to the role of private equity in the industry, a comprehensive market inquiry may in time establish whether private equity players have had a significant impact on competitiveness compared with larger firms.
Rita Dingwall, business development manager at the Federation of Independent Veterinary Practices (FIVP), said that while private equity firms are more focused on cost-cutting measures, they are also prioritizing improving the quality of care.
Overall, consolidation in the industry has put pressure on independent clinics, resulting in pricing pressure for consumers, she said. She added that another major challenge facing veterinary clinics is the shortage of veterinarians, especially after the post-pandemic surge in pet ownership.
Meanwhile, pet owners already struggling with the cost of living crisis are having to rethink their decisions.
The Dog Trust, the UK's largest dog welfare charity, said one in seven pet owners surveyed in 2023 would consider skipping non-urgent veterinary treatment to save money, and the biggest financial stress for pet owners overall is vet bills .
“If we knew how much it cost each month to go to the vet, we might reconsider getting a dog,” said Otis' owner, Skelding.
Additional reporting by Suzi Ring in London
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