Shares in veterinary practices operator CVS (CVSG:AIM) cheapened 2.2% to £18.32 on news its acquisition of Quality Pet Care, which trades as The Vet, could now be referred for an in-depth probe by the Competition and Markets Authority (CMA).
The CMA has published the findings of its phase one investigation into last August’s £20.4 million takeover and decided the acquisition may have resulted in a substantial lessening of competition in Bristol, Nottingham, Portsmouth, Southampton and Warrington.
However, CVS insisted it has ‘good grounds’ for believing the CMA’s decision ‘would ultimately be overturned should we commit to a phase two investigation’.
The CMA opened an investigation into CVS’ Quality Pet Care purchase in December last year.
Both firms are veterinary services providers, though deal-hungry CVS is a major industry player with 467 practices in the UK compared to The Vet, which operates a modest 8 practices across England.
In its statement, the CMA said its investigation found that the combined businesses would account for a significant proportion of veterinary services in the aforementioned areas. While the CMA conceded practices owned by CVS and The Vet currently compete for customers at each of these locations, it was concerned that the combined businesses ‘would not face sufficient competition after the merger’.
Colin Raftery, the CMA’s Senior Director of Mergers, added the competition watchdog had received ‘a number of complaints in recent years about higher prices or lower quality services as a result of too many vets’ practices in the same area being under the control of a single company.
‘This deal could lead to customers facing more limited treatment choices for their pets or paying over the odds for services in these areas. Should CVS fail to address our concerns we will refer the deal for an in-depth investigation.’
NATURALLY DISAPPOINTED
In response, AIM-listed CVS said it was ‘naturally disappointed’ with a decision it was reviewing in detail ‘before deciding on the most appropriate course of action’.
The CVS board believes this is ‘the first case in which the CMA has assessed local competition in the veterinary sector’.
While the £1.3 billion cap firm recognised the CMA would assess each case on its merits, it nonetheless said it believes ‘the understanding gained as to the basis of assessment used by the CMA in this particular case will be helpful in the group’s own appraisal of a number of future acquisition opportunities in the UK.’
ROOM FOR EXPANSION
Covid-induced lockdowns have driven a boom in pet ownership with consumer expenditure on vets and other services for pets in the UK estimated to be around £4 billion between July 2020 and June 2021.
Meanwhile, the ownership of vets’ practices across the UK has changed in recent years with many practices being hoovered up by a small number of consolidators including CVS.
Interestingly, CVS drew attention to the latest data from the Royal College of Veterinary Surgeons, which had identified roughly 5,300 registered veterinary practices in the UK.
In other words, despite a series of takeovers CVS’s share of UK veterinary practices by number remains quite modest at around 9%. CVS also ‘remains confident in the future growth prospects of the group’ and will issue an update on current trading and the outlook for the full year when it publishes its first half results next month (24 March).
