The cost of owning a pet: Why UK regulators are taking aim at pricey vets

Private equity has piled into a veterinary market that is consolidating fast.

Laura Skelding’s springer spaniel, Otis, was three months old when he incurred his first vet’s bill of £3,500, which she was forced to pay out of her own pocket despite having pet insurance.

Skelding had rushed Otis to her local vet in east London after he swallowed a stone, where they charged £600 for an X-ray before sending them across the city to an emergency practice, which told her he would need surgery. “They couldn’t confirm what it would cost at that time,” Skelding said, adding that because they were first-time dog owners, she and her partner had expected insurance cover of £1,000 would be sufficient. “We were really distraught and just told them to do it.”

Skelding’s experience highlights how pet owners are willing to pay large sums to ensure their animals receive the best treatment. Meanwhile, pet ownership in the UK has grown steadily over the past decade, and boomed during the Covid-19 pandemic. The number of pet dogs increased from 8.9mn in 2018 to 11mn in 2023, according to veterinary charity, the People’s Dispensary for Sick Animals (PDSA).

Investment firms have been quick to take note, investing billions of dollars in a bid to profit from the reliable cash flows and opportunity to consolidate a lucrative, fragmented industry.

Just a few decades ago, the vet sector was a cottage industry made up of vet-owned independent clinics. Almost 60 per cent of veterinary practices are now owned by large companies, up from 10 per cent in 2013, according to the UK’s antitrust watchdog, the Competition and Markets Authority.

The CMA said on Tuesday that it is planning an in-depth probe into the business practices of veterinary companies, and has raised the question of how the “roll-up” of thousands of small clinics may have forced up the price of treatments and drugs for the 16mn pet owners in the UK. The possibility of regulatory intervention following the investigation has spooked investors. CVS’s share price dropped more than 30 per cent last week following the CMA’s announcement, while Pets at Home fell nearly 8 per cent. The CMA has sweeping powers when it undertakes market investigations: it can order break-ups of businesses, or order steps like maximum prescription fees, if it finds sectors are not working well for consumers - even if there has been no technical infringement of competition law.

However, sector analysts believe the share moves to be an overreaction. Davy analyst Colin Grant was “surprised . . . by the negative tone” of the CMA’s initial findings, while RBC Capital said most of the issues identified could be addressed through behavioural changes, while “local over-consolidation could be resolved through asset swaps among large players”. Meanwhile, three of the six largest vet groups - IVC Evidensia, VetPartners and Medivet - are backed or owned by private equity groups.

Following similar forays into dental chains, ophthalmologists and children’s care homes, buyout groups swept into the veterinary sector a decade ago after spotting an opportunity to build large platforms by merging together dozens of smaller players; benefiting from economies of scale and then selling the bigger, combined business at a higher price. The predictable cash flows that vets generate also means that buyout groups can use significant levels of leverage to help juice returns and fund the roll-ups.

“The whole thesis is around buy and build,” one lender to private equity firms said. “You buy in at four times (earnings) and then flip the whole company at 15 times (earnings).” The most significant cost for a veterinary practice is the medicine used during surgery or that they sell to the customer. Buyout groups saw that a chain of vets has far greater bargaining power when it comes to negotiating prices with pharmaceutical companies than an independent clinic, said RBC Capital analyst Charles Weston.

“A company can add several percentage points of margin into their acquisition (through group drug purchasing). It’s an immediate economy of scale,” said Weston, adding that companies were able to further cut costs by creating common functions and infrastructure like back offices, staff training and equipment. Groups have also boosted revenues by offering complementary services like referral centres, laboratories, crematoria and online pharmacies, which meant they could capture more and more of the spend, Weston said.

The thesis has so far borne out and buyout firms have been able to build sizeable businesses and make massive profits from their sale. For example, Nordic Capital made around seven times its money when it sold vet care business AniCura to Mars in a €2bn deal. IVC Evidensia, the biggest vet chain in the UK, was valued at more than €12bn when EQT sold stakes in the company to Silver Lake and Nestlé back in 2021. But the influx of money may now be starting to hurt consumers.

An initial CMA review identified multiple concerns, which included large corporate groups acting in ways that reduced choice and competition and by pet owners not having enough information to pick the right treatment for their animals. The CMA also found that the regulatory framework governing the sector was outdated, and had limited leverage over large groups. “All vets used to be owned by vets. Then we saw corporatisation,” said Sue Paterson, president of the Royal College of Veterinary Surgeons, which sets standards for the sector. “Since then the legislation has not kept up and we have a huge part of the sector which is not regulated.”

While consolidation has meant more cash for more sophisticated equipment and medical advances, it has led to higher and higher costs, with some owners not aware that they can access cheaper treatments for their pets elsewhere, the CMA found. “What we need to do is make owners understand they have a choice,” said Paterson, adding that vets could offer excellent care at a low cost. “They feel if they aren’t spending huge amounts of money they aren’t doing the best for their pet.”

While the CMA has not identified concerns that are specific to private equity’s role in the sector, a full market investigation may in time establish whether private equity players have had an outsize impact on competitiveness compared with large corporations. Rita Dingwall, business development manager for the Federation of Independent Veterinary Practices (FIVP) said that while PE firms brought an increased focus on cost-cutting measures, they had also prioritised improving care quality.

Overall the consolidation of the sector had placed pressure on independent practices, leading to pricing pressures for consumers, she said, adding that another key challenge for vet practices was a shortage of vets, particularly after the spike in the pet ownership following the pandemic. Recommended LexPrivate equity Private equity’s pet problems are a sign of things to come Premium content In the meantime, pet owners already struggling with the cost of living crisis are having to rethink their decision.

The Dogs Trust, the UK’s largest dog welfare charity, said one in seven pet owners it surveyed in 2023 would consider skipping non-emergency vet treatments in a bid to save money, while the top financial pressure faced overall by pet owners was veterinary bills. Otis’s owner, Skelding, said: “If we’d known how much it would cost us each month on vet bills, we might have reconsidered getting a dog.”