Going mutts! Consolidation and Regulation in Animal Health

I, for one, like many others during lockdown and beyond, decided two small children was not enough stress so opted (coerced) to get two brother cats. To my surprise, and never growing up with pets, it transpires that I absolutely love them. As a result, when it comes to cat food and vet bills, no expense is spared - only the best for our cats, he says!

As the industries continues its meteoric growth, the global market is expected to grow from $246 billion in 2023 to $368 billion by 2030. Spend in the US alone on veterinary services exceeded $38 billion in 2023 and this is discounting pet food and the associated accoutrements.

As demand grows and technologies advance, the need for greater efficiencies, access to capital for investment and streamlined back-office functions has propelled consolidation, leading to a loss of independent providers.

In the UK, 60% of the market is cornered by six large businesses, known as the “big six”: IVC Evidensia, Pets at Home, Medivet, CVS Group, VetPartners and Mars. Quite astonishingly, and to put this 60% figure into context, only 10% of vet practices belonged to larger groups in 2013. Therefore, since 2013, 1,500 of the 5,000 vet practices in the UK have been acquired by the “big six”.

This has pricked the ears of the Competition and Markets Authority (CMA), who, on 12th March 2024, officially launched a formal Market Investigation after receiving over 56,000 responses from the public (45,000) and vet industry (11,000) following its initial analysis. The review by the CMA highlights multiple concerns in the market, including:

• Consumers may not be given enough information to enable them to choose the best veterinary practice or the right treatment for their needs.
• Concentrated local markets, in part driven by sector consolidation, may be leading to weak competition in some areas.
• Large corporate groups may have incentives to act in ways which reduce choice and weaken competition.
• Pet owners might be overpaying for medicines or prescriptions.
• The regulatory framework is outdated and may no longer be fit for purpose.

The UK is not in isolation, with the Federal Trade Commission (FTC) in the US imposing restrictions on the activities of Mars and JAB especially and the Ordre National des Ve?te?rinaires (ONV) in France vehemently resisting the entry of large international companies into their domestic market. So much so that two recent Private Equity (PE) deals turned sour as a direct result of this resistance.

A poignant question for investors in the European markets will be whether domestic competition regulators will follow the UK’s CMA potential clampdown as their more fragmented markets start to rapidly consolidate too. One thing is certain - PE investment over trade seems to be the direction of travel, especially as trade are looking to restore their balance sheets after sustained and somewhat aggressive deal making over recent years.

With little sign of market consolidation abating, it is not difficult to see why independent practices are being drawn in by large sums being offered. With a severe shortage of labour in the industry, coupled with higher demand and intense hours, veterinary owners are allowing increased consolidation for good reasons, and you can’t blame them. What the larger businesses offer is something that is lacking across the industry - optimised workflows and investment for technologies to enhance diagnostics, telemedicine, treatment, and overall animal welfare.

Where the balance needs to be strengthened is in combining customer satisfaction and a personal touch with efficiencies (and profit). Pets are frequently seen as a member of the family and have been a close companion to some for many, many years. There is certainly reputational work to be accomplished by the “big six” if they are to continue their acquisitive ways whilst retaining the “community” feel that so many pet owners want and expect out of their local veterinary practice.

(token picture of said cats)