A Canadian private-equity company has sold its majority stake in a chain of veterinary clinics in a deal the seller’s executives said generated a hefty return partly because of the business’s resilience during the COVID-19 pandemic.
Imperial Capital Group Ltd. sold its 70-per-cent stake in VetStrategy to Boston-based Berkshire Partners in a transaction that values the business at a reported $1.4-billion. The deal includes 161 vet clinics in Canada, most purchased in small acquisitions over the past seven years since Imperial bought in through two of its investment funds.
Toronto-based Imperial, which invests in health care as well as business and consumer services companies in Canada and the United States, declined to give a price for the sale, citing a confidentiality agreement. But the industry website PE Hub reported the figure, quoting people familiar with the matter.
Imperial had hired a financial adviser to start seeking buyers for its stake before halting the process when the pandemic hit and stalled many deals due to fears of how the contagion, and the lockdowns aimed at taming it, might harm the economy.
It restarted the auction a couple of months later, targeting both private-equity investors as well as veterinary industry competitors, and closed the deal with Berkshire on July 31.
The result far exceeded Imperial’s expectations, said Justin MacCormack, managing partner at the private-equity company.
“I think that is typical of strong assets in good industries, where we believe you will continue to see COVID premiums,” Mr. MacCormack said, referring to higher prices for companies that have proven they can thrive during the pandemic.
“There’s a lot of dry powder on the sidelines right now and people need to find really good homes for it,” he said.
In the case of vet clinics, they are seen as near-essential services and families’ focus on their pets’ health has intensified across North America among many owners who have spent the past five months working from home. Pet ownership has also increased as people deal with their isolation or seek companions for their kids.
It became more complicated treating pets as clinics adopted COVID-19-related health and sanitation protocols for dealing with owners, said Jeffrey Rosenthal, Mr. MacCormack’s fellow managing partner. “But over all, relative to many other industries out there, I think it was not significantly and adversely impacted once systems were revamped to address the COVID scenario,” he said.
Private equity investors and advisers have said that many merger and acquisitions deals were put on hold after the coronavirus contagion took hold in March, and some were scrapped altogether as financial projections became moving targets based on guesses of when the economy would rebound. The deal flow, meanwhile, has been held back by concerns about corporate health as well as government support programs that have propped up some businesses that would otherwise seek buyers.
That is not the case with the health care sector, including for animals, Imperial’s executives say. VetStrategy proved resilient, selling for 22 times its annual earnings before interest, taxes depreciation and amortization, according to PE Hub. That is up from two to three times in 2013. It was Imperial’s second largest deal after the sale in 2018 of a major interest in Toronto-based DentalCorp., which acquires dental practices.
VetStrategy and its Quebec affiliate, Groupe Daubigny, expands by buying clinics, largely from practitioners that operate one or two locations and seek to exit the business or concentrate on providing medical care rather than administration. It is led by chief executive officer and co-founder Orin Litman.
“[Berkshire’s purchase] will give us the ability to further invest in our exceptional network of clinics across Canada and provide us with flexibility to continue to grow through acquisition for years to come,” Mr. Litman said in a statement.
Berkshire has a similar focus for its investment targets as Imperial, having dental, laboratory services and fitness companies in its portfolio.
Imperial will remain in the business as an investor in a similar company in the United States, AmeriVet Veterinary Partners Inc. of San Antonio, Texas.
Private-equity’s interest in such businesses should only increase after the pandemic, with large sums of investment capital seeking safe and profitable investments, Mr. Rosenthal said. Globally, that war chest is pegged at US$2-trillion, driven up by a boom in investments by institutional investors, pensions funds and wealthy individuals seeking stable long-term returns.
Imperial, meanwhile, expects to exit some of its other investments at similar scale, Mr. Rosenthal said.
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