Corporate consolidation and the rise of private equity

When Dr. A, a practice owner, was ready to retire after nearly 50 years doing the work he loved, he looked at his options. The practice he had originally created was thriving and ideally, he wanted his legacy to continue. So he told colleagues and others in his network that he wanted to sell his practice to a like-minded veterinarian, and a younger colleague had responded. But he wasn’t the only one who wanted to buy his practice.

In fact, a local veterinary group had also approached Dr. A. They were willing to offer him far more than he thought his practice was worth, and a lot more than the younger colleague could afford to pay. The transfer of ownership would be smooth, he was assured.

During the transition, while Dr. A was still involved in the practice, the veterinary group would take over the business aspects of the practice so he could focus on the work he loved. More so, they said they would keep the name of his practice intact, and his staff. It sounded like a deal too good to pass up. Was it?

Across the country, at another clinic, Dr. B, a new veterinarian, was also facing a similar decision. She had been offered several jobs since graduating from veterinary school. One was at a small-town practice that was a perfect fit for her skills and her dream of a simpler life. The other was at a corporate practice in a larger town.

The independent practice couldn’t compete with the salary and benefits the corporate practice offered. And with a large student debt hanging over her head, and a health issue that required good insurance, Dr. B was pulled in two directions.

Increasingly, as corporate consolidators enter the veterinary medicine industry, decisions such as those in the hypothetical situations above will become more common. And although the examples above are related to veterinarians, in fact, the choice about where and how to work, be it a corporate practice or an independently owned one, will touch everyone who chooses to work in the industry.

That’s why it’s helpful to make an informed decision about the priorities that drive those two types of practices and, more so, their owners.

Corporate consolidation: People or profits?

Being financially viable is the goal of every practice, be it a large corporate entity or the small independent practice. But each does it in different ways and at different speeds, with different priorities.

Independent practices generally balance making a profit with building the relationships related to the practice. In some cases, profits are also tempered with environmental concerns. (This is called the “triple bottom-line,” where people, profits, and the planet are equal “shareholders,” if you will).

In independent practices, practice growth is often slow and steady. The practice may add more staff to accommodate the demand. It may also introduce a new type of service or streamline an internal system such as inventory control. But always, relationships formed with colleagues, customers, and patients is a critical part of the profit recipe. Often there is also a service aspect, that is, a need to give back to the community in which the practice is located.

Many corporate consolidators that own corporate practices have a different priority: to build profits quickly. They may merge with other corporations, or acquire smaller businesses, such as multiple independent practices, under one business umbrella.

But all too often, the relationships in the practice are not necessarily a priority, as identified in a recent AVMA study. In fact, although veterinarians in corporate clinics received more benefits, such as health and dental insurance, they also reported feeling the pressure to generate revenue and see more clients per shift.

Conversely, the study found that those who work in private practice had higher job satisfaction. This included upper management knowing them as individuals, and a more satisfying hospital culture also contributed to that job satisfaction. Additionally, veterinarians who worked in a private practice also received more mentorship and autonomy when it came to firing difficult or abusive clients.

These pros and cons weigh heavily on those who are considering where they want to work, or how they want to exit a practice when they’re ready to retire. But understanding the playing field of corporate consolidation, and its major players and their motives and ways of operating, can go a long way in helping you make that decision.

The corporate consolidation playing field

Corporate practices, and the corporate consolidators who own them, are becoming an increasing reality in the veterinary industry. In fact, according to animal health consulting firm Brakke Consulting, corporate consolidators were estimated to control almost half of the veterinary care market share in 2021. Additionally, 25% of general practices and 75% of specialty practices are corporately owned, according to Brakke.

To make an informed decision about this trend and its impact on you, it’s helpful to know who the players are. There are generally four types of corporate consolidators, according to The Private Equity Stakeholder Project (PESP), a nonprofit watchdog organization.

One type of corporate consolidator is the veterinarian-led group. This is a group of local practices that are brought together under one business umbrella. The consolidator provides the business infrastructure to the various smaller practices so that veterinary staff can focus on clinic work.

Another category of players is wealthy families. In the veterinary industry, Mars Corporation, a family-owned business holds the lion’s share in the marketplace. It counts, as part of its veterinary clinic repertoire, Banfield Pet Hospital, Blue Pearl, and VCA Animal Hospitals to name a few.

Types of Corporate Consolidators

• Veterinary-led groups
• Wealthy families
• Retail-store based operations
• Private Equity firms

Source: Private Equity Stakeholder Project

A third type of corporate consolidator is retail-store based clinics, such as Walmart. Walmart and other retail-based clinics, offer in-store veterinary services. (Walmart has also added pet prescription delivery services to its services.)

Finally, the newest and most aggressive corporate consolidation player in the veterinary industry is private equity firms. Indeed, private equity poured $51.6 billion into the veterinary sector and another $9.3 billion in the first four months of 2024, according to Pitchbook, an intelligence database that provides data, research and news on venture capital, private equity, and mergers and acquisitions.

The first three types of players mentioned above—wealthy families such as Mars, retail operations such as Walmart, and veterinary-led groups—have fairly well-known profit-making strategies. And if you look closely, some of them do have people and/or the environment as part of their strategy. (For instance, Mars has begun to use wind-form energy at some of its practices, according to Brakke Consulting.)

Private equity, however, is a relatively unknown player in the industry. So, too, are its strategies for obtaining profits. But you would be wise to understand how such firms operate and just how prevalent they are. (Indeed, if you follow the thread from a local corporate clinic, more often than not, it will be owned by a private equity firm.)

How private equity firms work in corporate consolidation

If you ever wondered what happened to some of the stores you loved, such as Toys “R” Us, you have private equity to thank for their demise. Private equity firms are hungry for profits. And they obtain those profits, generally, by buying up smaller businesses and loading them with debt, notes federal prosecutor and author Brendan Ballou in Plunder: Private Equity’s Plan to Pillage America.

Once they’ve bought the business, the private equity firm has been known to reduce customer and employee services. They also raise prices. And often, when the smaller business can no longer meet its bills, it goes bankrupt and disappears from the marketplace.

Increasingly, private equity is in bed with the government, relaxing legislation so that private equity firms can thrive, notes Ballou. (Many former government officials become involved in private equity firms.)

Personal equity firms enter into vulnerable (and often unsuspecting) markets, such as nursing homes and prisons. Once there, they may gain access to government capital such as Medicaid in nursing homes. They protect themselves legally against any financial fallout, make their money and move on, notes Ballou.

The Federal Trade Commission (FTC) was created to protect consumers and ensure that competition thrives in the marketplace but given the increased ties between government and private equity firms, that hasn’t always happened. Additionally, smaller deals with the same monopoly-like effect, thrive, notes PESP.

Did You Know?

• Thrive Pet Healthcare, with 380 veterinary clinics, is owned by TSG Consumer Partners, a private equity firm.
• NVA, which boasts 1400+ veterinary hospitals, is owned by JAB Holding Company, a private equity firm.
• A planned merger between Mission Veterinary Partners and Southern Veterinary Partners, with 730 practices total, counts private equity firm Shore Capital Partners as a major investor.

Source: Washington State Standard, AVMA, PetCare

In the past few years, as pet ownership has soared thanks in large part to the pandemic and an increasingly younger pet ownership population, private equity has turned its interest to the veterinary industry. In fact, private equity firms such as Shore Capital Partners, KKR, TSG Consumer and JAB Consumer Partners have spent billions over the past few years on veterinary practices, specialty animal hospitals, pet insurance services and pet food companies, notes Stateline, a state-focused nonprofit news organization.

As a result, private equity firms and other corporations buy community clinics from the veterinarians who own them for two, five or even 10 times their value. Then the firms roll them up into a larger chain of clinics that can corner a regional market, notes Stateline in the article “Vets fret as private equity snaps up clinics.”

Business models, that is, how a business makes money, are different in different industries. As a result, private equity firms and the legal tactics they use to produce profits vary depending on the industry.

How to navigate corporate consolidation

Fewer than 15% of corporate consolidators put their brand on the practices they buy, notes Arizona consumer advocate Todd Nemet. As a result, customers are often left in the dark. They have the illusion that they are still doing business with a local, independent practice only to discover otherwise when they get a now-high vet bill.

But as a practice owner, such corporate consolidation tactics are also opportunities. As a practice owner, or a staff member in charge of marketing an independent practice, you can highlight that. Showcase that you are independently-owned and why that matters in marketing messages and your website. Your social media can show how you “walk the talk” of an independently-owned practice, be it the value you place on relationships or your community involvement.

As a veterinary professional looking for your next employer, do some research to uncover who owns the practice you are applying to. Because although its website may say it values relationships, if it’s owned by a private equity firm (which a quick Google search can reveal), those companies may not be as invested in the practice’s employees as an independent practice might. Of course, there are exceptions on both sides of the coin, but knowing who “the boss” is can help guide your choices.

In today’s complex veterinary industry, who to work for and who to sell to is not an easy decision. But knowing the landscape, and what’s important to you, can make reaching that decision easier.

M. Carolyn Miller, MA, is an award-winning writer and employee development consultant and thought leader. Her 30-year career as a narrative/instructional designer harnessed her “game brain,” love of learning, and deep knowledge of story. Find her at cultureshape.com.

Photo credit: © Hispanolistic E+ via Getty Images Plus

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