A Baseball Framework for Retail Healthcare Sector Maturation
As shown in the figure, retail healthcare sectors tend to progress through three distinct maturation stages. During the first stage, such sectors typically are fragmented, with a mix of independent and small, newly created sponsor-backed platforms. During this phase, investors and buyers prioritize foundational capabilities such as core administrative functions and financial management operations.
As Smith and Knier describe above, the veterinary space has attracted sufficient investment to move into the next phase of maturation. That means operators are focused on building scalable platforms, putting in place more sophisticated infrastructure and technology, while making operational improvements.
They are also focused on people, says Smith: “We had several discussions at Little Fish about recruiting and retaining doctors of veterinary medicine (DVMs), which is one of the top challenges associated with running and growing these businesses. There is a substantial imbalance between new vets entering the workforce and older veterinarians retiring. There is also competition among hospitals for veterinarians.”
Competition is strong for the best hospitals as well, driving a shift in growth strategy. “We’re seeing an uptick in de novos as prices for individual practices are increasing,” explains Knier.
Going forward, Smith, Knier and Will see the potential for a few major platforms to emerge as leaders in the space. Those that rise to the top will do so through a sustained focus on clinical efficiency, back-office capabilities and steady growth in terms of scale. The ultimate winners will likely pull ahead by prioritizing veterinarian and customer retention, says Knier: “The two are very closely related. The best vets have strong customer relationships. Retaining them will be essential to achieving and maintaining share.”
As Smith points out, both areas provide opportunities for experienced investors and buyers to add significant value. “If you come into this space with strong capabilities in building a better physician and customer experience, you have a considerable advantage as the segment continues to develop.”
Robust and growing consumer spending on veterinary services continues to attract the attention of strategic buyers and investors. With the segment in the early-to-middle innings of its maturation, many opportunities exist to build differentiated platforms of scale through focused professionalization. The next phase of development for the sector will likely see a few major platforms achieve leadership status through a strong focus on physician and customer retention.
Published October 2018
1. Veterinary Services in the U.S., IBISWorld, May 2018.