Over the last decade, veterinary practices have dealt with changes and new obstacles to navigate, including an aging workforce, decreased talent pipelines, and increased demand from pet owners. Many of these challenges were exacerbated by COVID, as seasoned veterinarians made the decision to retire, leaving a significant gap during a time when demand for veterinary care was on the rise.
However, today’s pet owners are also more willing to spend money on their pet’s health. Over the past decade, medicalization rates, diagnostic testing, and standard of care have all increased, signaling the overall veterinary care market remains healthy.
Even so, the industry will continue to evolve, and these changes are impacting how it will operate in the future. It is critical veterinary hospitals, clinics, and offices understand the issues and opportunities, and most importantly, how to adapt their practices to ensure continued success. Here are three trends I see continuing to drive the future of the sector.
1) Workforce evolution
The labor shortage is one of the most prominent challenges in the industry, and there is a lot of existing research documenting the workforce issues that veterinary care businesses are dealing with today and will continue to face in the future. While it is not a new conversation, many businesses are still struggling to navigate a difficult labor market and need smart solutions they can implement now.
The veterinary industry will need nearly 41,000 additional veterinarians by 2030 to meet the expected 33 percent increase in pet health care spending, according to a recent study. Based on those estimates, and the current pipeline challenges, it is predicted a shortage of 15,000 veterinarians will still exist by 2030.1
Additionally, with nearly 2,000 baby boomer veterinarians retiring each year, the makeup of the veterinary workforce is changing.1 Millennials are now the largest generation, and women account for 78 percent of U.S. veterinary professionals.2 For an industry that has historically been dominated by men and older generations, this shift is leading to new and different expectations for business policies and workplace culture.
Short-term solutions for veterinary practices should focus on improving the day-to-day management of the business, and this includes investing in technology. Many veterinary businesses are behind human health care organizations when it comes to digital adoption, but even taking small steps to create more digitized processes can make a difference. Technology solutions, including management software tools, can aggregate administrative activities such as scheduling, record keeping, and revenue cycle management. These are typically time-consuming tasks, and leveraging technology to help complete them frees up employees, allowing them to spend more time caring
Veterinary businesses should also explore traditional lending services to help finance daily operations, such as wages, which continue to increase, and other administrative expenses.
Operating loans and credit lines can help companies meet working capital needs and take advantage of strategic investment opportunities, such as technology.
2) Industry growth
While labor will continue to be a longer-term challenge, business conditions across the industry are strong.
Valuations for veterinary care are getting back to pre-pandemic levels, and demand continues to increase, which positions the space well for outperformance in 2023. Additionally, valuations remaining stable or resetting to pre-pandemic levels present opportunities for independent practitioners who may be aging out of the industry over the next several years to make strategic decisions about their business.
Veterinary care has historically been a lucrative, cash-driven sector resilient during times of economic uncertainty. That financial success has extended to parallel lines of business in the veterinary space, including businesses that deliver critical products and services to veterinary practices, such as diagnostic tests and IT. These adjacent companies are also tapped into how the industry is evolving.
The challenges veterinary practices face trickle down to the adjacent companies, too and can directly impact their bottom line. However, longer term, they can also lead to business opportunities, including the ability to develop and sell products and services that help practitioners navigate these headwinds, such as capacity issues.
The industry’s strong reputation and performance also continues to drive compelling investment opportunities by private equity.
3) Industry investment
People will always want to ensure their pets have the care they need. As a result, the veterinary care industry has been an attractive investment in the private equity space over the last 20 years. The sector has seen more than $45 billion in private equity deals since early 2017.3 The industry remains highly fragmented and has distinguished itself by being a safe and profitable investment for private equity firms and other investors.
Veterinary care is also a recession-resistant investment, making it an attractive bet as we continue to navigate a potential economic downturn in 2023. I expect private equity firms will remain bullish on this industry even in a dynamic market, especially as owners of independent practices consider retirement, and valuations remain stable to high.
When veterinary hospitals, clinics and offices receive outside investment, there is a focus on how to run the business more efficiently. The American Veterinary Medical Association (AVMA) reports more than 60 percent of veterinary practices having severe inefficiency issues, according to data gathered between 2017 and 2021.2
Outside investments, such as from private equity firms, can implement more standardized structures and processes that create business proficiencies and help alleviate some of the issues driving people to leave the industry or have contributed to challenging work environments. This includes more controlled schedules and reducing hours for employees. These firms also offer additional services across other capabilities, such as marketing and recruiting, to help spur business growth.
Though the veterinary care industry has faced many challenges, practices can position themselves for success by investing in technology to help address short-term labor constraints and keeping a pulse on the overall business opportunities to understand not just how to navigate challenges, but how to take advantage of strategic opportunities.
Bret Schiller is the head of Healthcare for Corporate Client Banking at J.P. Morgan. Schiller has experience working with veterinary practices as well as companies that provide products and services to the veterinary industries, such as diagnostic tests and IT, that are also closely watching trends and challenges in this space.
- Mars Veterinary Health. 2022. Tackling the Veterinary Professional Shortage. https://www.marsveterinary.com/tackling-the-veterinary-professional-shortage
- Nolen, R. Scott. 2021. Practice inefficiencies compound veterinary stress. Journal of the American Veterinary Medical Association (American Veterinary Medical Association). https://www.avma.org/javma-news/2021-12-01/practice-inefficiencies-compound-veterinary-stress
- Prete, Ryan. 2022. Got a pet? There’s a good chance private equity backs your vet. PitchBook, September 14. https://pitchbook.com/news/articles/pe-deals-veterinary-clinics-pet-care