CMA offices

U.K. government photo

The U.K.'s Competition and Markets Authority, based in these offices at Canary Wharf, London, has started coming off the sidelines to intervene in veterinary takeover deals.

For the second time this year, the United Kingdom's competition regulator has moved to block a veterinary takeover deal, in a sign that antitrust authorities are growing increasingly uneasy about the rising power of big corporations in the profession.

The Competition and Markets Authority (CMA) said VetPartners' acquisition of Goddard Veterinary Group, which owns 47 clinics in Greater London, could shrink pet owners' choice to an unacceptably low level in 11 local geographic areas.

Private equity-backed VetPartners has amassed around 550 veterinary clinics across the U.K. as part of an aggressive growth drive that also has seen it expand into France, Italy, Spain and Switzerland.

The CMA's intervention comes just two months after it torpedoed corporate consolidator CVS Group's acquisition of Quality Pet Care, which trades as The Vet and owns eight practices in England.

"Like CVS's recent acquisition of The Vet, VetPartners' acquisition of Goddard would result in too many vets' practices in the same area being under the control of a single company, raising the risk of higher prices or lower quality services," CMA senior director of mergers Colin Raftery said in a statement.

The regulator's latest intervention is of particular significance because, with 47 sites, family-owned Goddard was the largest independent veterinary company left in the U.K., the CMA said in its decision.

The regulator again noted that the market share of independent practices in the U.K. plummeted from 83% in 2013 to 45% in 2021, primarily because many were bought by large corporations including VetPartners, CVS, IVC Evidensia and Linnaeus, which is Mars Inc.'s British unit.

More recently, cost-of-living pressures have become a primary concern for consumers worldwide, as the war in Ukraine and supply-chain bottlenecks caused by the Covid-19 pandemic drive rampant inflation that is forcing central banks to hike interest rates. The CMA alluded to those pricing pressures in its reasoning for intervening in the Goddard deal.

"Close to 60% of U.K. households own a pet and, when veterinary care is needed, the cost of care can have a significant impact on already-stretched household budgets," Raftery said.

The regulator has completed a so-called phase 1 investigation into the Goddard acquisition. It has asked VetPartners to address its concerns, potentially by pledging to sell some practices. If VetPartners wants to press on as planned, the CMA will launch a phase 2 investigation. It is uncommon for the regulator to reverse decisions in a phase 2 investigation if it raised serious competition concerns in the first phase.

VetPartners' founder and chief executive, Dr. Jo Malone, said in a statement that the company is disappointed by the CMA's decision and is considering its options.

Practitioners eye implications of tougher regulatory landscape

Mike Clare, the chief executive of English veterinary consultancy VetRunner, isn't surprised to see the regulator start cracking down. "To be honest, I think greater CMA intervention was inevitable in the industry," he said. "It's just not possible for so few big players to consolidate a market and not raise flags."

Clare said many other cities and large towns in the U.K. are "dominated by one or two corporate vets" and suggested that independent practices looking to sell might have to be savvier with their exit strategies.

For instance, Clare said, independents could potentially target the corporate buyers that have a lower presence in their neighborhood, so as to attract less regulatory scrutiny. "They might be able to negotiate better terms," he said.

The CMA's recent interventions could benefit smaller veterinary companies with growth aspirations, Clare said. Sellers, he added, might also consider directly courting smaller private-equity players that are trying to get a foothold in the booming veterinary sector.

Steve Headon, a director at speclalist accountancy group Moore Scarrott Veterinary, said corporate buyers already were being more selective before the CMA's interventions. Still, he contends the market for selling practices in the U.K. "remains perfectly viable and healthy," noting, like Clare, that smaller, independent players can buy other independent practices. "On the flip side," he said, "we are seeing a significant increase in independent practice startups in many areas across the U.K."

Whether the British watchdog's crackdown foretells interventions by antitrust regulators in other countries remains to be seen. The U.K. has one of the most concentrated veterinary markets in the world, though consolidation continues apace in countries including the United States, Canada and Australia.

U.S. antitrust authorities have not blocked a deal in that country's veterinary sector. Still, 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. In that case, the divestitures represented a relatively small percentage of clinics at play: Mars currently owns more than 2,500, according to its website.

In the ensuing years, corporate consolidators such as Mars, NVA and Thrive Pet Healthcare, have tightened their grip on the U.S veterinary market, with merger deals accelerating during the Covid-19 pandemic.

"I don't think the concentration of general practices in the U.S. has reached the level that regulators would be concerned, and the U.S. still has a large number of corporate consolidators," John Volk, a senior consultant at Chicago-based animal-health firm Brakke Consulting, said.

However, referencing the FTC intervention in Mars' purchase of VCA, Volk noted that the ownership of specialist practices in the U.S. is much more concentrated than that of general practices. "There is a risk [of government intervention] there, in the specialty practice market, if some of the larger consolidators were to merge," he said.

Brakke estimates that 25% of general practices and 75% of specialty practices in the U.S. are corporately owned, and that a little less than half of the total revenue volume flows through those clinics.