Healthcare for pets has proven time and again a highly rewarding segment to invest behind and now two private equity-backed networks of primarily specialty vet hospitals have become available for acquisition, PE Hub has learned.
Ethos Veterinary Care, backed by BBH Capital Partners, is working with BofA Merrill Lynch on a sale process, according to sources familiar with the matter. The process for the Woburn, Massachusetts, business recently kicked off, with first round bids coming up, some of the people said.
At the same time, Concord, California-based SAGE Veterinary Centers, owned by Chicago Pacific Founders, is in the market and a little further along in its sale process, the people said. Jefferies is running the SAGE process, sources said.
Ethos is marketing approximately $60 million in adjusted EBITDA and could command 25x to up to 30x that figure, sources estimated, implying a deal could be valued upward of $1.5 billion.
As for SAGE, bidders are likely to underwrite an EBITDA figure of around $50 million, some of the people said, suggesting a similar multiple range. That would imply a deal could be valued north of $1.25 billion.
Vet care bonanza
Ethos and Sage are not only similar in size. The two assets both play in the same, well-performing segment of veterinary care, comprising several specialty hospitals that offer everything from surgical care to internal medicine, in addition to emergency care. Specialty vet hospitals tend to command a premium when it comes to valuations, sources said.
The pair of companies are expected to draw significant interest from both large buyout funds eager to invest behind the multiple tailwinds fueling the popular vet industry, as well as large PE-backed strategics looking to build out their specialty operations.
Logical strategic suitors include the likes of KKR’s PetVet Care Centers and Pathway Vet Alliance, a portfolio company of TSG Consumer Partners and Morgan Stanley Capital Partners, sources said. There’s also Europe’s largest vet chain, IVC Evidencia, which, backed by EQT, Silver Lake and Nestle, could participate if it wants to make a big push into North America, some of the people said.
Sources expressed conflicting views on which of the two is more likely to go to a PE-backed platform, as opposed to pure play sponsor outcome. Regardless, both Ethos and Sage look poised for strong outcomes as capital continues to flood into veterinary care.
Further validating a market that investors have long touted for its durability and sustained growth regardless of market conditions, vet care has proven resilient through the pandemic. Alongside underlying trends including the humanization of animals, vet care providers were even declared essential services by the government in all 50 states early on in the pandemic.
In fact, in April, MSCP’s Aaron Sack told PE Hub that, based upon initial data, Pathway’s specialty and emergency pet hospitals in particular were holding up well in the early phases of the coronavirus crisis. Pathway last year was valued at approximately $2.65 billion, PE Hub reported, when MSCP sold a majority stake to TSG.
In more recent activity, Oak Hill Capital, eager to get back into the space after quietly exiting a stake in a larger industry asset, pre-empted a sale process earlier this year for American Veterinary Group. The firm struck a $400 million-plus deal for the company, PE Hub wrote in February.
Abandoning plans to list on the London stock market, IVC also recently scored an additional aggregate investment of €3.5 billion ($3.62 billion) that assigned the company an enterprise value of approximately €12.3 billion. The deal valued IVC at almost 30 times forward EBITDA, Reuters wrote.
Last summer, Berkshire Partners’ investment in Imperial Capital‘s VetStrategy values the Canadian veterinary services network just north of C$1.4 billion ($1 billion), according to people familiar with the matter.
Although most large general practice vet platforms also play in specialty, Ethos and SAGE are among the largest with an exclusive focus in specialty. Other notable players include MedVet, which is backed by Goldman Sachs Merchant Banking, SkyKnight Capital and Stonehenge Partners.
Ethos, for its part, was created in 2015 through fusion of four specialty hospital groups – IVG Hospitals in the northeast; Premier Veterinary Group in Chicago; Wheat Ridge Animal Hospital in Denver; and Veterinary Specialty Hospital of San Diego.
In only about six years, the company has grown to 23 hospitals, according to its website. Services include 24/7 emergency care, surgical procedures, radiology services and internal medicine, among other specialty offerings.
BBH Capital, which focuses on highly customized, one-stop junior capital solutions to lower mid‐market companies, completed its recapitalization of the business in January 2019, taking a minority stake. Following the deal, Ethos remained majority owned by its founders under the leadership of CEO and co-founder Ames Prentiss.
Although terms of the transaction weren’t disclosed, sources told PE Hub ahead of the 2019 deal that Ethos was expected to trade hands at an around $300 million value.
SAGE, also one of the largest specialty vet practices in the country, was founded in 1992 as Veterinary Surgical Associates. In 2018, SAGE partnered with Chicago Pacific Founders, a healthcare services PE firm, to grow and expand the business through recruitment and M&A.
With a full range of specialty services and treatments for pets, SAGE offers oncology, cardiology, neurology, internal medicine, and surgery, as well as 24/7 emergency care in each of its hospitals. SAGE comprises 12 hospitals primarily on the West Coast, according to its website.
Chicago Pacific Founders and BBH declined to comment, while Ethos, SAGE, BAML and Jefferies did not return requests for comment.