VetStrategy, the largest consolidator of veterinary clinics in Canada, has begun to pull some offers to purchase practices, say those involved in the deals, a sign that hot bidding wars for independent health businesses may be starting to cool.
The vet chain is one of many private-equity-backed companies that is buying up small health practices, a process that is beginning to transform these industries that were traditionally owner-operated. Industry estimates put the current share of corporate ownership of veterinary clinics at about 25 per cent.
The veterinary sector has seen some of the most intense buying by large corporations in the past few years, with industry figures reporting purchase prices sometimes reaching nearly 30 times EBITDA (earnings before interest, taxes, depreciation and amortization) at its peak. That is far beyond the four- or five-times multiple a practice may have fetched in years past.
VetStrategy was founded in Canada in 2006 and bought by European vet chain giant IVC Evidensia last year in a deal that valued VetStrategy at $1.4-billion at that time.
The company had been one of the most aggressive in buying up practices, but some of those involved in recent deals say that has begun to change.
Douglas Jack, a lawyer at Borden Ladner Gervais who specializes in working with veterinarians, said three of his clients received letters of intent from VetStrategy to purchase their practices this summer that were subsequently walked back.
He said VetStrategy informed him that the offer letters were being “deferred” indefinitely and encouraged them to seek other buyers for their clinics if they could find them. He said the company did not offer an explanation for the change.
He said he could not share the value of those deals, but that recent purchases are in the range of 10 to 15 times EBITDA – lower than last year’s peak prices, but high by historical standards.
“The vendors in these transactions are going to be very disappointed, but no one should be surprised about this,” Mr. Jack said. “The marketplace just couldn’t bear these values, I don’t think.”
VetStrategy declined to comment about whether it had rescinded any offers.
“We’re continuing to pursue organic and inorganic growth,” Vicky Rivers, director of communications of VetStrategy, said in a statement.
Consolidators in health fields typically take on large debts to purchase the practices, and industry leaders in other markets have said the increasing cost of borrowing is putting pressure on that business model.
“With interest rates expected to increase, we may start to see multiples soften,” Michelle Kellaway, chief operating officer of Australia’s Greencross, told industry publication VIN News in June.
Brent Matthew, an Ontario veterinarian who consults others on how to run their practices, said he is aware of some practice owners who say their offers from VetStrategy have been put on hold but he has not heard from the company directly.
Dr. Matthew helps to value practices and says he has seen the market soften after witnessing intense bidding wars earlier in the pandemic.
“Multipliers have begun to tumble in 2022, on average, probably back to a more sustainable and consistent level,” he said.
“It certainly is a big change in the market. And certainly for the veterinary practice [sellers], not a welcome one.”
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Chris Hannay