Got a pet? There's a good chance private equity backs your vetSeptember 14, 2022
Pet ownership is booming, with more than 90 million US households now including a pet, according to the American Pet Products Association. In recent years, PE firms have been snatching up veterinary clinics across the country—a trend accelerated by the pandemic—as investors flock to profitable industries that are resilient in the face of market downturns.
Since the start of 2017, private equity dealmaking in the US veterinary sector has totaled over $45 billion, according to PitchBook data.
For firms that are active in the industry, clinic acquisitions have mirrored the growth of human healthcare, according to Rebecca Springer, a private equity analyst at PitchBook.
"People have become more interested in pet humanization, in which owners are more interested in giving their pets more consumer goods which are similar to how we would treat humans, and therefore veterinary medicine more resembles the acyclical nature of healthcare services," Springer said.
Springer said the supply and demand of caring for pets has remained strong—especially as people adopted animals in greater numbers during the pandemic.
One PE firm in particular, Shore Capital Partners, has been a key player in the past few several, rolling up hundreds of veterinary clinics through two of its portfolio companies, Southern Veterinary Partners and Mission Veterinary Partners. Together, they own around 660 clinics nationwide, according to the firm.
Mike Cooper, a founding partner of Chicago-based Shore, said that private equity has been focused on vet clinics for more than a decade, but that interest has surged more recently.
"I think that what draws private equity investors to this sector is that the industry is very fragmented and presents a great opportunity for consolidation," Cooper said. "There's something like 30,000 veterinary clinics in the country, and around 15% of those are owned by corporate and private-equity backed companies."
Veterinary clinics are mainly cash-based businesses, making them especially appealing to investors, Cooper said. Unlike human healthcare businesses, which often rely on reimbursement from third-party payers like the government or private insurers, most customers at the vet pay upfront, avoiding potential obstacles, like the lengthy insurance billing process, that can delay payment and cash collections.
Alongside investing in veterinary practices themselves, firms are also accumulating the clinics' real estate. Shore and Vetley Capital, for example, are among those specializing in vet-related land deals.
Over the past five years, the value of vet practices and their real estate has skyrocketed, said Zach Goldman, president of Vetley. The Annapolis, Md.-based firm has acquired around 250,000 square feet nationwide since it was founded last year.
Goldman said he got his start in the sector working for his father's veterinary practice, which sold to a PE-backed company in 2020.
"This has long been called a recession-proof industry, through the 2008 financial crisis, more recently referred to as COVID-proof, since the pandemic hit," Goldman said, "so you have an industry that has withstood and even thrived through two of the greatest financial catastrophes."
Despite the industry's resilience and rising valuations of veterinary clinics, Cooper said risks do exist for investors.
"We're currently experiencing a labor shortage affecting all industries, and the popularity of the animal industry has created a lot of animal hospitals, so it's tough for groups to find veterinarians, technicians and other staff to fill positions," Goldman said. "Managing and operating animal hospitals comes with its own set of risks, and the more clinics you take on the more these issues magnify."
Related read: Pandemic puppy boom fetches deals in Silicon Valley
Featured image by Bachkova Natalia/Shutterstock
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