Take the Lead with Compassionate Petcare
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Take the lead with compassionate petcare SPOT ON | PETCARE | MARCH 2019 “Pets are family members. The way we treat our MARKET OVERVIEW (pg.2) The veterinary services market has drawn a lot of pets has never been more human. Caring has attention from corporates and investors alike. What makes this sector so attractive? become so important, especially as far as a petʼs health is concerned. SPOTLIGHT (pg.4) We track the M&A path of Mars, Inc., the global food giant — known for its iconic confectionary and petcare brands — to see how it became a People are not reluctant to spend an ever-growing leader in veterinary services. share of their wallet on drugs and medical M&A IN PETCARE (pg.7) procedures. This creates attractive market M&A activity in the petcare market is very high, both in terms of number of transactions and valuations. dynamics and and a promising growth profile. CASE STUDY (pg.9) Several corporates, as well as financial investors, Brown Brothers Harriman Capital Partners, have invested heavily in veterinary services. a private equity firm, has partnered with Ethos Veterinary Health, a provider of specialty They acquired single practices as well veterinary health services. as large chains.ˮ THORBEN WOELTJEN AUTHOR AND OAKLINS PETCARE SPECIALIST MARKET OVERVIEW Pet parents care more about the health and well-being of their pets than ever before. They are willing to spend heavily on medications as well as veterinary services, not only to improve their pet’s quality of life but also to extend its lifespan. (CONTINUED ON NEXT PAGE) Market overview WITH INCREASING AGE, thirds between the two, respectively. PETS — SIMILAR TO HUMAN However, the companion animals “There have been many large BEINGS — NEED TO RECEIVE subsector share is expanding the fastest. MORE MEDICAL ATTENTION, mergers and acquisitions in TAKE MORE MEDICATION AND Global veterinary services market the last few years, including CONFRONT THE CHALLENGES in 2017 Mars taking over AniCura OF NECESSARY SURGERIES. and BC Partners acquiring 27% In addition, pet pampering has led to VetPartners. Economies many first-world problems, such as of scale and interest in obesity. According to recent research, regional expansion are the a staggering 59% of the worldʼs pet main drivers, leading to a population is considered obese. This is increasing the number of visits to the vet consolidation of the market. 14% and the use of drugs. Existing structures are changing, which affects not Veterinary services, therefore, are highly 2% only veterinarians but also demand. According to Grand View 2% Research, a US-based market research 56% suppliers of food supplements and consulting company, the global and health products.” veterinary services market accounted for approximately US$92 billion in 2017. North America THORBEN WOELTJEN North America represented 56.0% of the Europe OAKLINS PETCARE SPECIALIST market, followed by Europe with 26.7% and Asia Pacific with 13.7%. Asia Pacific Latin America These figures include veterinary services for both companion animals MEA and livestock, with the market in North America split roughly a third and two Source: Grand View Research OAKLINS – Spot On · Petcare · March 2019 2 North America 56 Europe 26,7 Asia Pacific 13,7 Latin America 2 MEA 1,6 Market overview “Since the US has always been the most According to the American Veterinary In the past 10 years, the US veterinary advanced market, it is worth taking a Medical Association (AVMA), services (VS) market has grown by closer look at this geography to make approximately 55,000 veterinarians 52% on average, while the number of assumptions about global development.ˮ worked predominately or exclusively for companion animal veterinarians has The American Pet Products Association companion animal clinics or hospitals by grown by only 17%. Thus, the average (APPA) estimates the US spend on the end of 2018. Thus, on average, each revenue by veterinarian is around 29% veterinary services for pets in 2018 was veterinarian generated a revenue of higher than 10 years ago. roughly US$18.3 billion. Compared with a US$330,000 last year. year ago, it represents a growth of 6.9% or US$1.2 billion in additional revenues. US vet services market (in US$bn) Number of vets (in '000) 20 60 + 17% + 52% 18.3 55.3 15 45 47.1 10 12.0 30 5 15 0 0 2009 2018 2009 2018 Source: Oaklins, American Veterinary Medical Association (AVMA),Statista The total petcare market in the USA was number is challenging to assess. Besides Nevertheless, given the competitive estimated to be US$72.1 billion in 2018. several notable transactions, many tiny advantages of large groups in this Every fourth US dollar in the petcare deals took place. However, due to their segment, it seems clear that consolidation sector was spent on veterinary services. size, these have not been picked up is only a matter of time. It is likely that this share will increase by database providers. Furthermore, over time, as its growth was 1.8x faster the market is still highly fragmented. The share of independently owned clinics than the general market in 2018 (6.9% The three leading operators, VCA, and hospitals will decrease heavily in the vs 3.7%). Although many mergers and Banfield and NVA — with their 11,000 future. acquisitions have taken place in the veterinarians — account for a market veterinary services market, the actual share of only 20 to 30%. The US petcare market 2017 and 2018 (in US$ bn) 40 2017a 2018e 29.9 30 29.1 20 17.1 18.3 15.1 15.5 10 6.2 6.5 2.1 2.0 0 Veterinary Care Food Supplies/ Live Animal Purchases Pet Services OTC Medicine Source: American Pet Products Association (APPA) OAKLINS – Spot On · Petcare · March 2019 3 Spotlight COMMITMENT TO HAPPY AND Although less well known, Mars is also HEALTHY PETS TRANSFORMS the global leader in the veterinary “The biggest transformation THE SECTOR services sector, particularly in North that we’re continually America, but also with a significant pondering on is our portfolio Mars, Inc. is a global manufacturer of position in Europe. transformation. confectionary, pet food and other food products. The family-owned business In this edition of Spotlight, we tell We used to be very much a pet has its headquarters in McLean, Virginia, the story of how Mars has achieved food company. Now we are a USA, and is more than 100 years old. its leading position in the veterinary petcare company.” The company has a revenue of over business and look at which companies it US$35 billion a year and employs about has to compete against today. STEPHAN M. BADGER 115,000 people. CHAIRMAN MARS, INC. Mars is particularly popular for its category-leading iconic brands in the confectionary space, like M&Ms, Snickers, Twix and Wrigley’s, and in the pet food sector, such as Cesar, Pedigree, Royal Canin, Sheba and Whiskas. OAKLINS – Spot On · Petcare · March 2019 4 Spotlight: Mars, Inc. Number of veterinarians in Mars, Inc., 2018 2007 12,000 In 2007, Mars acquired a veterinary hospital chain called Banfield. The 10,000 company, founded in 1955, operated as a single veterinary hospital until 1994. 8,000 At that time, Banfield opened a second hospital in a PetSmart location. This led to a strategic partnership between 6,000 PetSmart and Banfield, with the goal of setting up further hospitals in other 4,000 PetSmart locations. 2,000 In 1996, the company already operated in 150 locations and employed more 0 than 1,000 people. In 1999, Banfield acquired PetSmart’s 114 non-Banfield veterinary clinics to become the retailer’s preferred veterinary provider. In 2007, Source: Oaklins research Mars became sole shareholder in the company, which, at that time, operated in roughly 700 locations. and management resources. Today it In the same year Mars acquired AniCura, operates roughly 80 practices in the a leading European veterinary services In the following years, Banfield USA, with more than 1,800 employees. provider, with operations in Germany, expanded — primarily organically — Sweden, Norway, Denmark, Austria, together with PetSmart, but it also Switzerland and The Netherlands. It started to operate its own clinics outside operates 250 hospitals and employs of PetSmart stores. Today, Banfield owns 2017 roughly 5,000 people, including 1,800 1,000 hospitals and employs 19,500 veterinarians. people, including 3,500 veterinarians. In 2017, Mars completed the acquisition of VCA Inc. — the largest takeover of a veterinary services firm ever, with an enterprise value of US$9.1 billion. TODAY 2015 VCA Inc. operates animal hospitals and laboratories for veterinaries in North Through its massive M&A activity, Although Mars went into the veterinary America. Today, it manages more than Mars has created a group of veterinary services sector in 2007, the company did 900 clinics and over 60 veterinary services companies with about 2,400 not become a consolidator before 2015, diagnostic laboratories. The company hospitals and 11,000+ veterinarians. when it acquired BluePearl Veterinary employs almost 23,000 people, To put this into perspective: the Partners LLC, which owned specialty and including more than 4,700 veterinarians. total number of veterinarians Mars emergency veterinary hospitals. While By combining Banfield and VCA, Mars employs is greater than the number BluePearl was able to take advantage of became the clear market leader in of veterinarians in Germany who Mars’ size and scale, it has continued to veterinary services in North America. specialize in companion animals. operate as a separate, distinct business unit under its own brand. Today, it Mars underwent a transformative change employs 3,150 employees, including in the past five years.