Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Rolling Up Veterinary General Practices
Transcript
- Lucas: So there's a pattern we've seen across dental, eye care, and even funeral homes — private equity finds a fragmented industry of independent professionals, buys up a bunch of small practices, and rolls them into a single platform. The logic is always the same: centralize back-office, negotiate better supply contracts, and drive revenue through cross-selling. Luna: Right, and we've done episodes on all of those. But I keep hearing about something that feels a little different — veterinary general practice. Not the emergency specialty hospitals we covered in episode 44, but the everyday vet where you take your dog for shots and a checkup. Lucas: Exactly. That's the next big frontier. And it's huge. There are roughly 30,000 companion animal veterinary practices in the US, and the vast majority — something like 80 percent — are still owned by a single veterinarian or a small partnership. Luna: So it's like dental was a decade ago. Lots of small operators, lots of fragmentation. Lucas: Exactly. And the biggest player in this space is actually not a private equity firm in the traditional sense — it's Mars Inc. Yes, the candy company. Back in 2017, they bought VCA Inc., which owned animal hospitals and diagnostic labs, for about 7.7 billion dollars. That deal made Mars the largest owner of veterinary practices in the world. They now have over 2,500 clinics under their Banfield and VCA brands. Luna: So the Snickers company is your dog's vet. That's wild. Lucas: It is. And it's been incredibly profitable for them. Mars's pet care division now generates more revenue than their chocolate business — about 20 billion dollars annually. But the really interesting action right now is on the independent side. Private equity firms are buying up the mom and pop clinics that haven't been absorbed yet. Luna: And I imagine the pitch to those vets is pretty compelling. You get to keep practicing medicine, you don't have to worry about payroll and marketing... Lucas: Exactly. The typical independent practice does somewhere between 1 and 2 million dollars in annual revenue, with profit margins of 15 to 20 percent. That's decent, but not great. The owner-vet is also the CEO, the HR manager, and the IT department. So when a roll-up platform comes in and offers 3 to 4 times EBITDA — call it 600,000 to a million dollars — it's a tempting exit. Luna: And the acquiring firm then centralizes all that overhead, negotiates better prices on vaccines and lab work, and pushes the practice to offer more services like dental cleanings or specialty diets. Lucas: Right. The industry calls it 'upselling the pet parent.' And it works. A consolidated practice can see revenue per visit increase by 15 to 25 percent within the first two years. But here's where it gets controversial — some veterinarians argue that the care model changes. Instead of treating the animal, you're treating the wallet. Luna: And that tension is real. We saw it in dental too — dentists feeling pressured to recommend more procedures than they would as independent owners. But with pets, it's even more emotional. People will spend almost anything on their animals. Lucas: Exactly. And the numbers bear that out. Pet spending in the US hit 150 billion dollars in 2025, up from about 100 billion just five years earlier. Veterinary care is the fastest-growing category within that. So the tailwind is enormous. Luna: Let's talk about one specific roll-up. National Veterinary Associates, or NVA, started with 20 clinics and now owns over 1,400. How did they do it? Lucas: NVA is a great case. They were acquired by a Canadian pension fund, the Public Sector Pension Investment Board, in 2018 for about 2.5 billion dollars. Since then, they've been on an acquisition spree — buying up small chains and individual practices, mostly in suburban and rural areas where there's less competition from Mars. Luna: So Mars dominates the cities, NVA focuses on the heartland. Lucas: More or less. And there are other players too — VetCor, Thrive Pet Healthcare, PetVet Care Centers. All of them are backed by private equity. The total number of corporate-owned clinics has gone from about 5 percent of the market in 2010 to roughly 25 percent today. And analysts expect that to hit 50 percent within the next decade. Luna: I mean, look, if these conversations have moved your work forward in some small way — maybe you're a vet considering an offer, or just someone who likes understanding how business works — honestly, if today was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep the show ad-free and independent. Appreciate anyone who does. Luna: Alright, back to the roll-up. So why is this happening now, as opposed to ten years ago? Lucas: A few reasons. First, the average age of a practicing veterinarian is around 50. A lot of the baby boomer vets are looking to retire, and they don't have a clear succession plan — their kids often don't want to take over the practice. So selling to a corporate platform is the easiest path. Luna: Second, the cost of starting a practice from scratch has gone up. Real estate, equipment, malpractice insurance — it's harder for a new grad to go independent than it was 20 years ago. Lucas: Exactly. And third, the private equity fundraising environment has been very favorable. There's a lot of dry powder looking for stable, recession-resistant cash flows. And pet care is about as recession-resistant as it gets — people cut back on their own healthcare before they cut back on their dog's. Luna: There was actually a study during the 2008 recession that showed pet spending barely dipped. Lucas: Right. So the investment thesis is solid. But there are risks. The biggest one is talent retention. If you buy a practice and the founding vet leaves — or worse, retires — you can lose the client base. Pet owners are loyal to the vet, not to the brand. Luna: So how do the roll-ups handle that? Lucas: Typically, they structure the deal so that the selling vet stays on for two to three years as an employee, often with an earn-out tied to revenue growth. They also offer equity in the larger platform, so the vet has a stake in the overall success. But it's still a challenge. Turnover among associate vets in corporate practices is higher than in independents — about 25 percent annually versus 15 percent. Luna: And that's partly because the culture changes. You go from being your own boss to having a regional manager. Lucas: Exactly. And there's also a growing pushback from consumer advocacy groups. Some are raising concerns about over-diagnosis and unnecessary procedures — the same criticisms that have been leveled at corporate dental chains. A few states have even started looking at regulations to require more transparency about corporate ownership of vet practices. Luna: So what's the bottom line for an investor listening? Is this a good space to be in? Lucas: I think the secular trends are strong. Pet ownership is rising — millennial and Gen Z households have higher pet ownership rates than boomers did at the same age. And they spend more per pet. So the demand side is solid. But the execution risk is real. The winners will be the platforms that can maintain high-quality care while achieving the cost synergies. The ones that squeeze too hard on margins will see their best vets walk. Luna: And the practice owners listening — if you're a vet in your 50s with a successful clinic, what's the right move? Lucas: Well, valuations are still high. Multiples of 5 to 7 times EBITDA are common for good practices. But I'd say, don't just take the highest bid. Look at the platform's track record with clinics they've already acquired. Talk to vets who sold three years ago. Because once you sell, you can't undo it. Luna: Sound advice. So what's next — do we see private equity moving into pet insurance? Pet food? Pet pharmacies? Lucas: All of the above. Pet insurance is already consolidating — Trupanion and Nationwide have been buying up smaller players. And there are roll-ups in pet food distribution, especially the premium raw-food segment. The pet industry is essentially being rebuilt along corporate lines, one category at a time. Luna: And I guess the question is — is that good for pets? Or just for investors? Lucas: I think the honest answer is: it depends on execution. Done right, consolidation can mean better equipment, lower prices for routine care, and more access to specialists. Done poorly, it means assembly-line medicine. The next decade will tell us which version wins. Luna: Alright, that's a good place to leave it. Thanks for the breakdown. Lucas: Always a pleasure. Keep your pets healthy, and we'll talk next time.