The CMA has thrown a very large spanner into CVS’s acquisition of The Vet with adverse findings in five of the eight areas where The Vet has practices. CVS will likely have to sell all five practices unless it opts for a more detailed second phase investigation by the CMA and gets a better outcome. [Update: CVS has told the CMA it will sell the entire The Vet business in response to the CMA’s findings.]

The CMA’s findings are, no doubt, quite painful for CVS given that so many acquisitions of smaller vet care businesses, by CVS and other large corporate vet businesses, have previously sailed through without any CMA scrutiny. Moreover, the scope of the CMA’s adverse finding, which takes account of the larger size of CVS and The Vet practices, is greater than we predicted.

The CMA’s findings potentially have some important implications for the sector. Our thinking, in summary, is that:

  • further acquisitions of small animal, first opinion, practices by the UK’s large corporate vet businesses will be subject to much greater regulatory scrutiny, raising the cost of acquisitions even when the CMA considers that there are no significant competition-related concerns;
  • acquisitions of other animal care businesses, such as equine and farm animal practices, out-of-hours practices, referral services, diagnostics services, pet crematoria, pet insurance and vet medicines by the UK’s large corporate vet businesses are similarly more likely to be subject to regulatory scrutiny than previously;
  • securing regulatory clearance for mergers between any of the UK’s large corporate vet businesses is likely to prove challenging (e.g. the amount of time being taken for the CMA’s review of Vet Partners’ acquisition of Goddards, even with the limited geographic overlap between these two businesses, is potentially indicative of this);
  • smaller scale aggregators of vet care practices also potentially face much greater scrutiny; and
  • the likelihood of a market investigation leading to significant structural and regulatory intervention by the CMA has increased markedly.

Our expectation of a more challenging regulatory environment stems from the CMA’s approach in CVS / The Vet, which indicates that it may view ownership in the sector as more concentrated than earlier analysis, including by ourselves, has suggested.

Set out below is a comparison between our earlier analysis of ownership concentration in the vet sector and the results implied by the CMA’s findings in CVS / The Vet.

Reassessing ownership concentration in the vet care sector

Our earlier analysis identified local authority areas where a single vet care business owned a large proportion of practices. (In the absence of a CMA decision on geographic markets we used Local Authority areas as a reasonable, if imperfect, proxy.)

We found around 90 local authority areas across the UK where one of the large corporate vet businesses owned more than 40% of vet practices. (We thought 40% to be a useful threshold for CMA concerns about ownership concentration.) In CVS / The Vet, however, the CMA has used a 30% threshold for identifying local markets where it had concerns about ownership concentration. Using this lower threshold, there are around 165 local authority areas across the UK where one or more of the large corporate vet businesses owns vet practices in excess of this threshold.

The CMA also found that the practices owned by CVS and The Vet were larger than their local competitors, and used full-time equivalent (FTE) vet employees, a proxy for practice size, as the basis for measuring post-acquisition market shares in each locality. This boosted CVS’s post-acquisition market share, and meant that more local markets tipped over the CMA’s 30% threshold than if it had used shares of the number of local vet practices.

If the UK’s larger corporate vet care businesses consistently employ more vets than other practices, then there are likely to be more local markets where the CMA is concerned about the extent of ownership concentration.

To get a sense of the significance of this issue, we have looked at the effect of larger corporate vet care businesses each employing 20% and 50% more vets per practice than other UK vet care businesses. In summary:

  • A 20% size premium means there would be around 190 local authority areas where one or more of the large corporate vet care businesses owned more than 30% of all practices (compared to 165 areas when there is no size premium).
  • A 50% size premium means there would be around 210 local authority areas where one or more of the large corporate vet care businesses owned more than 30% of all practices.

These figures are, of course, purely indicative. It seems unlikely that the large corporate vet practices consistently employ this many more vets at each of their UK practices.

Nevertheless, taking together the CMA’s lower threshold for concern about ownership concentration, and the likelihood that larger corporate vet practices employ more vets, the number of areas where the CMA might be concerned about the extent of ownership concentration has approximately doubled compared to our earlier analysis.

Some important caveats

There are some important caveats and details to note about the analysis set out above.

  • First, the CMA’s finding that the geographic market around each vet practice in an urban area is 9-12 minutes’ drivetime means that we can identify local economic markets in urban areas, and market shares, on this basis. However, to maximise comparability with our earlier analysis, we have continued using local authority areas in this blog.
  • Second, the analysis above is based on vet care practice ownership data that is around two years old. Using this data allows us to show the effect of the CMA’s findings , without having to disentangle the effects of recent practice acquisitions, sales and closures. However, it also means that our analysis is, as intended, indicative only.
  • Finally, we have used Local Administrative Unit Level 1 boundaries in our analysis, which broadly match local authority districts, with a few exceptions in larger areas. There are approximately 400 LAU Level 1 areas across the UK.

We look forward to publishing further thoughts in the coming days and weeks, particularly once the CMA has published the full text of its findings on CVS / The Vet.

As always, Aldwych Partners is happy to discuss our analysis. Please get in touch if we can help on this or other matters.