Pandemic puppies driving the veterinarian services industry
One afternoon during senior year of college my roommate came home from the vet, his dog wearing a plastic cone and his wallet $700 lighter. At that point it was far too late to change my major to animal health (not that I could’ve passed intro chemistry anyway), but I was intrigued.
Veterinarian services is a ~$30bn subset of the $100bn US pet market benefiting from a number of trends including a) the continued humanization of pets, b) increasing focus on complex care as well as c) pandemic tailwinds that drove pet ownership.
The U.S. vet market remains highly fragmented with ~30K practices, 80%+ of which are independently owned
The largest consolidators are Mars (Confectionary & pet conglomerate) and JAB (Conglomerate that owns Panera, Krispy Kreme, etc.) with ~2,600 (9% market share) and ~1,200 (4% market share) locations, respectively.
Platforms of significant scale have traded as high as mid-20s on an EBITDA basis while subscale, one-off private practices or small groups typically command high-single to low double-digit multiples. Valuations across the board have steadily increased as the market has seen increased consolidation.
“We all know there’s a humanization of pets and the number one pet owners in today’s world are the millennials. They have less children, they have more pets and they care better for their pets, so the areas that we saw grow during the pandemic certainly were everything related to emergency and urgent care. People are spending more on their pets, they’re visiting the hospital more, and if we didn’t have the extreme labor shortage, who knows how high we could be?”
~ Former VP, Strategy at VCA Inc (Mars)
Key industry stats at-a-glance (US)
# of Veterinarians: 110K (3% CAGR)
Average vet salary: $95 — $120K
Practice types: Hospitals, ambulatory, mobile clinics
US pet spend is a $100bn TAM growing at high-single-digits, with veterinary care roughly ~30%, driven largely by the “humanization of pets”
Recent consolidation has been dominated by one strategic and a handful of sponsors
Valuation multiples have crept up over the last five years into the low-twenties on an EBITDA basis
Vet clinics have been an attractive area for investors given their business characteristics (organic growth profile, lack of cyclicality, limited reimbursement risk) and sound unit-level economics
The industry’s overwhelming challenge is labor scarcity driven by surging demand and constrained supply (fewer graduates, aging of the vet population, burnout)
Approximately 3K veterinarians graduate from the 30 U.S. veterinary colleges each year, while a similar number enter retirement. Since 1978, the US has added just five vet schools and graduation rates have been largely flat, dramatically lagging the pace of the pet population. Further, the industry has some of the highest rates of suicide and burnout compared to other medical professions.
“It is a true battle out there to find and retain staff. It is even harder to find qualified veterinary technicians that are certified than it is for veterinarians. It is as bad as it’s ever been. I think Banfield [Mars-owned platform] would take 1,000 veterinarians today if they could. It is the one thing that is slowing down the growth potential, and so if they’re able to grow 20% year to date YoY, then how much more could they do if they had another veterinarian and two technicians??” ~ Former VP, Strategy at VCA Inc (Mars)
“The nation is expected to face a shortage of nearly 15,000 vets by 2030”
“About 1 in 4 vets are quitting annually industrywide”
The overall pet health ecosystem has attracted significant investor interest in recent years
Venture and private equity interest in vet services is robust and valuations remain steep given attractive business characteristics and industry tailwinds.
The PE-backed consolidators are counting on buying down these premium multiples through a combination of accretive M&A as well as de novo clinic development, with further upside from a potential multiple arbitrage in the public markets, particularly given a scarcity of pure-play pet health assets. We’ll likely see a number of these platforms IPO in the near to medium term, especially as some of scaled PE platforms reach their “harvesting period”.
Disruptive players like Bond Vet and Small Door Vet are taking a slightly different approach, eliminating key friction points of the incumbent vet model through tech-enablement, price transparency, convenient hours and elegant spaces. They’re creating a modern experience for consumers while attempting to become the employer of choice for chronically burnt-out veterinarians.
PE or venture-backed, vet services is poised for growth on the back of incredibly strong industry tailwinds and fundamentally sound business characteristics. It will be an interesting area to watch over the next couple years, especially as new models take share, the market continues to consolidate and emerging technologies like telehealth come into play.
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