Much has been written and discussed about corporate consolidation of veterinary practices. Most of what has been put forth seems to predict doom and gloom for the veterinary industry and for the future of private veterinary practice. I do not believe this projection.
Corporate consolidation or acquisition of large numbers of veterinary practices is being driven by several trends. First, veterinary practices, when well-managed, can be very profitable, and even somewhat recession-proof, since consumers view their pets as family and will spend willingly regardless of the economic situation.
In addition, with consolidation of veterinary practices, the companies acquiring them have the ability to consolidate some portions of business operations such as accounting, inventory management, marketing, payroll and benefits as well as other services. By doing so, the enterprise can add a few points of profit to each practice, which enhances the value of each practice and the overall enterprise. In general, the larger the number of practices held by one company, the higher the valuation multiple those practices will be valued at.
Furthermore, for the larger acquirers, adding additional practices to their ownership has an accretive affect. In other words, if the aggregator’s enterprise is valued at 10 times earnings, and they are acquiring practices at six times earnings, then the newly acquired practices immediately become worth at least 10 times earnings, an increase from their acquisition price of six times earnings. Some might say ‘that is easy money’, which is why private equity investors have found veterinary practices an inviting investment destination at this time.
The unknown impact
What is not known is the impact that this consolidation will have on the veterinary industry for each stakeholder.
For customers of veterinarians, there are likely to be positives and negatives from corporate consolidation of veterinary practices. On the positive side, corporations typically provide more uniform products or services between locations, as that determines their brand. They develop their desired processes for delivering services, and consumers can seek those services knowing more often what to expect.
On the negative side, in any enterprise, you will almost always get better service if there is a local owner helping to drive the service delivery. In addition, in medicine, it is often feared that non-medical decision-makers will be making decisions that impact medical care, which is common in human medicine. This is probably one of the strongest arguments against corporate consolidation of veterinary practices by many veterinarians, as they are typically more focused on standards of care. Other negatives from a veterinarian perspective might be a decline in the number of ownership opportunities available to establish a privately owned practice. It has been reported repeatedly that many younger veterinary associates have no interest in owning a veterinary practice, so if this is true, corporate ownership may be the only answer as current owners transition out of their practices.
It is possible that based upon similar consolidation in other industries, such as the beef industry, that opportunities will likely develop where we least expect them. For example, when only a handful of companies now control almost all meat processing in the United States, it can be difficult for producers to negotiate prices that meet their needs. However, opportunities have developed in the form of numerous private label premium meat lines designed to fill the needs of consumers who also don’t like purchasing mass-produced food products from corporate giants. Thus, consolidation sparked a trend of more people purchasing locally grown food, with more transparency of how and where it was produced. And consumers are willing to pay more for that food. So, opportunities came about as a result of the consolidation that has occurred.
I would expect similar opportunities to develop in veterinary medicine, when entrepreneurs identify unmet market niches and build branded services to supply services to fill those needs. The key to the future of veterinary medicine will be to:
• Focus on customer needs and desires
• Develop innovative services to satisfy those customers
• Differentiate your offering from others in the market
• Avoid undervaluing your services
Consolidation has brought much capital and opportunity to the veterinary market. It’s up to veterinarians to utilize those opportunities to define and deliver the next generation of services to a growing customer base. If not, someone else will.