Mar 4, 2022 - Economy & Business

Pet care unleashed

Cat with money sign
Illustration: Brendan Lynch/Axios

The COVID pet boom is unleashing more opportunities for investment across the burgeoning veterinary care industry, sources tell Axios.

Why it matters: Veterinary care is one of the largest pockets of spending for pet parents — and arguably the most important. And, like medical care for humans, it faces a big labor shortage.

  • The market anticipates a 33% increase in pet health care spending over the next decade, but a shortage of nearly 15,000 veterinarians will likely still exist by 2030, according to a study published this week by MARS Veterinary Health.

Driving the news: North Castle Partners has kicked off a sale process for Encore Vet Group, a Saratoga Springs, New York-based network of veterinary clinics, sources tell Sarah.

  • Harris Williams is advising on the sale of Encore, marketing approximately $52 million of EBITDA for the 63-location platform.

Yes, and: Compass Group Equity Partners' CareVet is poised to hit the market later this year via Lincoln International, sources add.

  • Led and co-founded by former L Catterton operating partner Greg Siwak just four years ago, CareVet is now close to some $50 million of EBITDA, sources say.
  • CareVet has built a successful model centered on small practice acquisitions in markets with strong demand, scaling them with new vet hires. This lends to cheaper acquisitions and typically a large ROI, one source notes.
  • In contrast, most vet platforms grow by acquiring larger specialty or general practice group practices, where they can generate more cost synergies while less at-risk if one vet leaves a practice.

State of play: Traditional vet chains have long enticed private equity investment at big price tags (and they keep ticking higher).

  • Deal multiples for general practice vet groups are trading around the upper teens to 20x EBITDA, while specialty platforms are fielding as much as 25x EBITDA.
  • Most recently on the general practice side, L Catterton invested in Alliance Animal Health at a $750m-$800m valuation, based upon $39 million of EBITDA, sources told Axios in December.
  • Large industry consolidators (and eventual IPO candidates) include JAB Investors' NVA, TSG Consumer Partners' Pathway Vet Alliance and Europe's IVC Evidencia, backed by Silver Lake and EQT.

Meanwhile, early-stage investors are injecting fresh capital into emerging vet tech models looking to consumerize the industry.

  • The Vets, an at-home vet tech company, scored $40 million in January in a funding round led by Target Global.
  • Warburg Pincus in October injected $170 million into Bond Vet, a tech-powered urgent care startup not unlike a CityMD for pets.
  • Modern Animal, a Los Angeles startup banking on pet parents' demand for convenience and affordability, raised $75.5 million in July 2021.
  • Small Door Veterinary, a New York-based membership model, raised $20 million in Series A funding led by Toba Capital in June 2021.
  • “There is a lot of modernization that still needs to be done, but some [startups] are more focused on tech hospitality versus care — you need a balance of both,” says one source.

The bottom line: Whether an established industry player or a newcomer, veterinarians are facing more volume than they can handle. Expect more M&A, investment, and ultimately public market activity to follow.

North Castle declined to comment, while Compass Group, Harris Williams and Lincoln International didn't return requests for comment.

Sarah Pringle co-authors the Axios Pro Health Tech deals newsletter. Start your free trial at AxiosPro.com.

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