Vet care consolidation: is the CMA about to intervene?

Rapid consolidation in the UK veterinary care market, with seven major chains now accounting for nearly half of all UK vet practices, has brought with it an increasing risk of intervention by the Competition and Markets Authority (CMA) as concerns about local market monopolisation start to emerge. This could impact on both acquisitions of additional practices in areas where a major chain already has a strong presence as well as mergers between chain operators.

Until recently, concerns about the impact of vet care consolidation on competition in local markets seemed far fetched. The industry has been regarded as fragmented and, at a national level, the major chains’ share of practices has been relatively small. Independent Vetcare, which has the most practices, has a UK-wide market share of 12%, while Pets at Home and CVS Group have around 9% each (see table below).

Operator Share of UK vet practices
Independent Vetcare 12%
Pets at Home 9%
CVS Group 9%
Vet Partners 6%
Medivet 5%
Linnaeus Group 2%
Goddard Veterinary Group 1%

These relatively small national market shares, however, belie a strong presence in a significant number of local markets. In York, for example, 15 out of 24 vet practices are owned by a single chain, while in Newport, another chain operates seven out of nine practices (see maps below). This represents local market shares of 60-80%, and on any measure is more than enough to raise competition-related concerns.

These concentrations of vet care practices are not limited to single local authority areas either. In Greater Birmingham, one national vet care chain has 50% of vet practices in Birmingham, 58% in Wolverhampton, 53% in Walsall, 44% in Sandwell and 39% in Dudley (see map below). Further expansion by this provider in the West Midlands faces a much greater risk of CMA intervention.

There are nearly 20 local authority areas where a single operator has more than 50% of all vet practices. In each of these areas, further expansion by the operator in question faces significantly higher risk of future acquisitions being subject to review by the CMA.

Outside of these 20 local authority areas, there are many more where a small number of the national vet care chains operate a large proportion of vet practices. In North Tyneside, for example, three of the national vet care chains operate all ten of the local vet practices (see map below). There around 50-70 local authority areas where three out of the seven national chains operate at least 50% of all vet practices.

In these areas, expansion by the national chains through acquiring the remaining independent vet practices faces the risk of a CMA review, and even more, any merger between the vet chains operating in these areas is likely to face challenges in securing CMA merger clearance.

Will the CMA start reviewing vet sector M&A?

The CMA is yet to review vet sector M&A activity. Low profile consolidation, often through acquiring single practices, means many transactions may have passed underneath the CMA’s radar. (The only formal competition authority investigation in the sector was into vet medicine prescribing by the then Competition Commission in 2001-02.)

Increasing awareness of sector consolidation, however, and higher profile transactions (such as the acquisition of Linnaeus Group by Mars Petcare) has increased the risk of the CMA starting to review vet sector M&A activity.

While many individual transactions, involving single vet practices, are small in monetary terms, the CMA is likely to have jurisdiction in many cases where a national chain already has a significant presence. The CMA can review any transaction where the combined business has a local market share that is greater than 25%. (The CMA frequently uses local authority areas as the basis for this test, and our analysis indicates that in nearly half of all UK local authority areas at least one major chain owns more than 25% of vet practices.)

Having jurisdiction does not mean that the CMA will automatically decide to review any particular transaction. However, the risk of a CMA review increases where a chain already controls most of the practices in a local area, and our analysis of local vet care markets shows that this risk has increased significantly in recent times.

Mergers between the national vet care operators would also be likely to trigger a significant CMA review. Our assessment of the distribution of vet care practices of each of the seven major vet care chains shows that most combinations between these chains is likely to raise competition-related concerns for the CMA. The exceptions to this tend to be those transactions involving either Linnaeus Group or Goddard Veterinary Group given the former’s fairly even spread of practices across the UK, and the latter’s concentration in London.

Those operators hoping that the CMA will continue to ignore the vet care sector should be aware that this also a longer term risk, which is potentially even more significant. In other sectors where industry consolidation has occurred without there being any competition scrutiny, the CMA has subjected the industry as a whole to a ‘market investigation’. A market investigation allows the CMA to assess whether competition is operating effectively, and if not, the CMA has wide-ranging powers to restructure industries so as to inject greater competition. Perhaps the most recent notable example of this has been where the CMA forced the sale of Gatwick and Stansted Airports to create greater competition in what was previously a local monopoly, and in private healthcare, where after a two year investigation and multiple legal challenges it instituted a range of behavioural requirements on the industry.

While the analysis set out above has focused on the national vet care chains, it applies equally to the smaller regional chains that are also emerging. Our advice to all vet care operators planning to expand is to assess the competition risk associated with each acquisition. Upfront notification and clearance from the CMA is always significantly less painful than managing a CMA investigation into a completed transaction at a later date.

By Andrew Taylor and Nick Warren

Andrew and Nick are partners at Aldwych Partners, specialist advisers on competition risk in M&A transactions and CMA merger reviews.

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