UK competition regulator questions veterinary merger

CVS stock sinks as acquisition of The Vet put in doubt

Published: February 22, 2022
The Vet photo
The Vet was founded in Bristol, England, in 2013 and has eight practices in the country, including in Bristol (pictured). Corporate consolidator CVS Group acquired The Vet and its holding company Quality Pet Care last year, but the deal is now in doubt after the U.K.'s antitrust regulator found it raised competition concerns.

A check has been placed on the rapid consolidation of veterinary hospitals in the United Kingdom after the country's competition regulator raised concerns about a takeover deal there.

CVS Group, a corporate consolidator that has rapidly amassed 475 veterinary practices in the U.K., last August acquired Quality Pet Care, which trades as The Vet and owns eight practices, for £20.4 million (US$27.8 million).

The U.K.'s Competition and Markets Authority (CMA) quickly launched an investigation into the deal, forcing the parties to delay integrating the businesses until its probe was completed. On Friday, the CMA said its so-called phase 1 investigation determined the takeover raises competition concerns in five geographic areas in England — Bristol, Nottingham, Portsmouth, Southampton and Warrington.

Although the deal is relatively small fry for CVS, shares in the company plunged 15% in London on Friday and remained down Tuesday amid concerns the decision has implications for other prospective mergers in the British veterinary realm.

In a strongly worded decision, the regulatory agency noted that the market share of independent practices in the U.K. tumbled from 83% in 2013 to 45% in 2021, primarily because many were bought by large corporations including CVS, IVC Evidensia and Linnaeus, Mars Inc.'s British unit.

"The CMA has received a number of complaints in recent years about higher prices or lower quality services as a result of too many vets' practices in the same area being under the control of a single company," Colin Raftery, CMA senior director of mergers, said in a press release. "This deal could lead to customers facing more limited treatment choices for their pets or paying over the odds for services in these areas."

The regulator has asked CVS to address its concerns, potentially by pledging to sell some of its practices. If CVS wants to press on as planned, the regulator will launch a phase 2 investigation into the deal. It is relatively uncommon for the CMA to reverse decisions in a phase 2 investigation if it raised serious competition concerns in the first phase.

CVS, in a statement to the London Stock Exchange, said it was "naturally disappointed" by the decision and had "good grounds for believing that it would ultimately be overturned" should the company commit to a phase 2 investigation.

"We are reviewing the decision in detail before deciding on the most appropriate course of action," CVS said.

In a sign the decision could have broader implications for CVS's acquisitive growth strategy, the company said that "this particular case will be helpful in the group's own appraisal of a number of future acquisition opportunities in the U.K."

The U.K. has one of the most concentrated veterinary markets in the world. Consolidation also continues apace in countries including the United States, Canada and Australia.

Chicago-based animal-health firm Brakke Consulting estimates that about 25% of all companion animal practices in the U.S. are owned by corporate consolidators, Brakke analyst John Volk told the VIN News Service in December. But that accounts for at least 40%, and perhaps closer to 50%, of all client visits, Volk said, because corporations tend to own larger practices than independents, including a majority of U.S. specialist referral centers.

When Mars purchased U.S.-based VCA in 2017, it agreed to an antitrust settlement with the U.S. Federal Trade Commission to sell 12 emergency and/or specialty referral hospitals. The hospitals were in markets that the FTC determined Mars would otherwise have a local monopoly. In that case — in contrast with the CVS case — the divestitures represented a tiny fraction of clinics at play. After giving them up, Mars owned some 2,000 hospitals in the U.S. and Canada, nearly double the number it had before acquiring VCA.

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