Been watching this trend over the past 7 years with dental, eyecare, and vet practices as I've seen them buying up independents and creating bigger chains, and have not liked the trend. I still look for independent operations but getting harder to find. Our vet is retiring this month because he didn't want to sell to them and decided to get out of the game (he is older so timing is right), and of the 5 alternative clinics we looked at, 3 are part of these private equity owned chains and 2 are still independent (only one is considering new patients/customers). For our dog's thyroid surgery in last year we had about $2K in diagnotstics/tests done with a few specialists at one of the corporate owned vet hospitals and the interactions didn't sit well with us so we went a different route. The actual surgery and follow-up turned out to be about half the first estimate even when factoring in we had to re-do several of the tests, X-rays, ultrasounds, and neurological consult (we didn't know what the second estimate was but assumed it would be in the ballpark of the first). wasn't about the money but more the "bedside manner", interaction, and just trying to get an empathetic opinion/recommendation (versus an a la carte menu).
Inside the corporate dash to buy up dentists’ offices, veterinary clinics and pharmacies
Fuelled by international private equity funds, consolidating firms have been on a tear in health-professional fields, buying up practices in fields such as veterinary medicine, dental care, optometry and pharmacies and assembling them into chains
GLOBE AND MAIL
CHRIS HANNAY
INDEPENDENT BUSINESS REPORTER
PUBLISHED JUNE 4, 2022
FOR SUBSCRIBERS
Jordyn Hewer had a plan: Go to veterinary school, get a decade of experience under his belt and then buy his own practice.
The first two steps went off without a hitch. He graduated from the University of Montreal’s veterinary school in 2011. He spent the next 10 years working as a small-animal veterinarian in private practices and shelters in Quebec and Ontario.
But it’s when he got to the third step – buying his own practice – that he ran into a serious problem. In the intervening years, the whole industry had changed.
Major corporate players had entered Canada’s veterinary industry, including VetStrategy – backed by U.S. private-equity firm Berkshire Partners, and recently merged with European pet-care chain IVC Evidensia – and VCA Canada, owned by international confectionery giant Mars Inc. The corporate chains were buying up independent veterinary practices, sparking bidding wars that saw the price of vet practices balloon from three or four times annual gross earnings to 10, 20, even 30 times that at the beginning of this year.
The buyouts meant multimillion-dollar paydays for veterinarians who already owned a practice. But for ambitious young professionals like Dr. Hewer, there was no way to compete. Even if he could somehow secure the funding to buy a practice at the prices they were now going for, he would be saddled with a mountain of debt he would struggle to pay off.
“It’s ridiculous,” said Dr. Hewer, who chose to leave the industry to work for a pet-food manufacturer. “When you translate that to how much debt that represents and how much you would need to pay that back in, let’s say, a five- to 10-year period, the numbers never add up.”
Fuelled by international private equity funds, consolidating firms have been on a tear in other health-professional fields as well, buying up practices in fields such as veterinary medicine, dental care, optometry and pharmacies and assembling them into chains. Practitioners who sell to corporate owners typically get back-office support through the firm’s technology and staff, help with marketing, and reduced management responsibilities. The buyers, meanwhile, get businesses with steady streams of revenue, and profits that can be boosted by centralizing equipment and administrative functions, and ordering supplies in bulk. In the vast majority of cases, the old branding remains intact after a purchase happens, so patients and customers have no idea their once-independent practice has been taken over by corporate ownership.
Consolidation within these fields is still relatively low in Canada, but it is building fast – in less than a decade, nearly a quarter of vet practices have been bought by corporate owners.
“I’ve never seen anything like it,” said Douglas Jack, a leading veterinary lawyer at Borden Ladner Gervais LLP. “I’ve been practicing law for 37 years. It just became a frenzy among the consolidators.”
The recent acquisitions are part of a wave of increased activity from private-equity firms across the globe, as they search for new fields to generate yield by consolidating fragmented industries and extracting profits. In Canada, consolidators have spent billions in sectors as varied as waste management and legal software.
The approach has fuelled greater corporate concentration, which critics say will reduce consumer choice and drive up prices by driving down competition. And private-equity’s drive for efficiency could also affect the quality of care, for example by reducing the time a professional can spend on procedures.
In countries where the trend is further along – such as the United States and Britain – some government bodies and regulators are raising concerns that corporate concentration is leading to unfair prices and unreliable care.
“What regulators need to start thinking about is when smaller deals accumulate to the point where a market concentration problem develops, either locally or nationally,” said Jon Shell, managing director of Social Capital Partners, and a veteran of the vet industry in Canada and Australia. “That can be bad for employees and consumer choice. They don’t seem to be looking at these smaller deals at all now, because it’s not a today problem.”
In the past, individual practices were responsible not just for offering health services but for operating business functions, too. Then provincial governments began allowing medical professionals to form corporations, often to access preferential tax treatment. This opened the door to outsourcing administrative services – often by hiving them off into a separate management corporation – and, ultimately, to ownership by for-profit companies. (While most provinces still require that a licensed professional own the medical operations of a practice, corporate buyers can find a workaround that enables them to acquire them. They might employ a licensed professional, for instance, who’s legally eligible to assume ownership of the medical assets.)
For example, Dentalcorp Holdings Ltd., which launched in 2011, has amassed nearly 500 dental practices (about 3 per cent of Canada’s practices) by offering dentists six-to-eight times their office’s annual earnings – about double what had once been the industry’s standard. The dentists are paid out 80 per cent in cash and 20 per cent in Dentalcorp shares.
Graham Rosenberg, chief executive officer of Dentalcorp, said he was drawn to the dental industry because it was highly fragmented and highly profitable.
“If you look at most of the practices we acquire, say $2-million to $2.3-million of revenue on average, they are very profitable,” Mr. Rosenberg said. “They have high margins, low capital expenditure requirements. They are great small businesses. And that’s ultimately the value we ascribe to them.”
Mr. Rosenberg founded Dentalcorp after working for Imperial Capital Ltd., a Toronto-based private-equity firm that invests in consumer businesses, including an optometry chain and a maker of pet food.
Imperial, which owns 7 per cent of Dentalcorp, told The Globe and Mail it was attracted to the dental industry because it offered an essential service that was insulated from the effects of cyclicality and recession.
The largest investor in Dentalcorp – at 41 per cent of shares – is L Catterton Partners, a U.S. private-equity firm with ownership stakes in consumer brands ranging from Birkenstock to Peloton that also made a nine-figure investment in Calgary-based optometry chain FYidoctors in 2020.
Rajan Shah, a principal at L Catterton and a Dentalcorp board member, said the firm’s aim is to improve and “consumerize” the patient experience, for example by upgrading a clinic’s technology so they can offer virtual appointments and online booking. “That’s where we believe we can drive value for everyone: physicians, patients and shareholders,” he said.
One risk of this model is that, in most cases, the roll-up companies rack up large debts during their acquisition sprees. Even after a public offering that raised $950-million, which went to paying down the cost of its acquisitions, Dentalcorp still had $752-million in debt remaining, according to a Bank of Montreal research note.
Neighbourly Pharmacy Inc., another roll-up company backed by private equity that went public last year, expects to have 271 pharmaceutical locations across Canada once a $435-million acquisition of Regina-based Rubicon Pharmacies is completed. The merger triggered an automatic review by the Competition Bureau because of its size. (The bureau said it could not share details of the review for confidentiality reasons. In a previous review of the pharmacy industry, the bureau said that standardized pricing could lead to collusion among businesses, which would drive up prices for consumers.)