Whit Knier, managing director, and Taylor Will, vice president, both of the Healthcare & Life Sciences Group, recently participated in a webinar on the veterinary services market, hosted by Proskauer Rose LLP. Here we share highlights of this conversation, including consolidation trends, competition between strategic buyers and private equity investors, and the relative maturity of the segment in terms of M&A.
What are you seeing in the marketplace in terms of consolidation? How fast do you think that’s happening, and do you see that accelerating in the future?
Knier: There have been a number of platform trades, as well as the creation of new consolidator platforms. However, there remains ample opportunity from a fragmentation standpoint: There are tens of thousands of independent veterinary hospitals out in the market. There’s still considerable fragmentation when you compare veterinary services against some of the other multisite healthcare sectors.
Could you address the degree to which new entrants are coming in, specifically private equity sponsors versus the existing strategics that are consolidating in the market? How has that changed in recent times?
Can you comment on provider compensation? In some physician practice deals, physician compensation is normalized back to market rates. Are you seeing that in this market?
Knier: We haven’t seen that dynamic in the veterinary space like we’ve seen it in human healthcare. At least for the platform veterinary deals that we’ve done, the transactions tend to be fairly straightforward—cash at close. We do see sellers rolling over so they can continue to participate in the upside of the platform with the new buyer.
We’re also seeing, in more competitive processes, buyers giving some of these platforms credit for acquisitions that are under letter-of-intent but yet to be closed. In a frothy M&A market, and in a space with a lot of activity, some buyers are doing those sorts of things to prevail.
Let’s talk a little bit about the relative maturity of the veterinary space.
Will: In our view, there still is a significant “land-grab” factor, with new entrants and new platforms coming in. In parallel, there are also some platforms pushing the envelope in terms of professionalization. A lot of the institutional capital-backed platforms are professionalizing management teams, adding more robust business development and in-house M&A functions, and digging into the next layer of analytics to run their businesses.
However, that professionalization is not as widespread as it is in some human health sectors, such as dental or physical therapy. Overall, we think there is still plenty of runway for investors in this market.