DACH region opening up for PE activity in veterinary space

Ufenau Capital Partners launched the first ever buy-and-build by a private equity house in the horse veterinary space in July, acquiring a majority stake in two clinics as part of its Altano platform. It is not the first private-equity-backed consolidation play in DACH's wider veterinary sector, though. Nordic Capital-backed Anicura and EQT-backed Evidensia both expanded into the region, completing 22 and nine acquisitions of DACH-based facilities respectively. However, both focus on smaller animals.

In January, unquote" looked at some of the most high-profile transactions in the sector and predicted the trend would continue to be driven by deregulation.

Tobias Fenck of Bryan Cave worked on the Altano investment for Ufenau. He explains how North-Rhine Westphalia is one of the most heavily regulated federal states in this area: "The regulation in Westfalen-Lippe (part of North Rhein-Westphalia) is that on the newco level you require a board composed of a majority of vets, which has ultimate power to make company decisions relating to veterinary issues," says Fenck, adding that Berlin has similar regulatory provisions.

If the European Commission were to set a strong precedent with veterinary practices in Austria, I could see more regulated markets such as the German pharmacy sector opening up for private investment" – Tobias Fenck, Bryan Cave

Austria remains the most difficult market to penetrate. When Nordic Capital made its first acquisitions in the country through Anicura last July – buying clinics in Hollabrunn and Korneuburg – it drew public scrutiny. Kurt Früwirth, president of the national veterinary chamber, said the contracts may not be legal. The clinics remain under the group's ownership, but no further acquisitions have been made in the country to date.

National and regional variation in the regulation of these types of transactions is a problem for EU law, which, in principle, guarantees freedom of movement of capital and includes both investing in and owning non-domestic companies. This has emboldened some GPs to "buy assets now and ask questions later" in the veterinary sector, making the assumption that a challenge in the European court would be upheld in their favour, according to one source close to the situation.

If a challenge of this kind is upheld in a very highly regulated market such as Austria's, Fenck believes it could lead to the liberalisation of even more closed sectors such as architects and pharmacies. In Germany, all pharmacies must be owned by a qualified pharmacist; comparable stipulations apply to architects. "If the European Commission were to set a strong precedent with veterinary practices in Austria, I could see more regulated markets such as the German pharmacy sector opening up for private investment," he says. "Of course, each regulated market would be treated on a case-by-case basis."

Pet humanisation
According to market research business Euromonitor International, sales of pet products and services reached $103.5bn globally in 2016, a 4.7% growth compared to the previous year. This growth has been in line with what unquote" sister publication Mergermarket referred to as "growing pet humanisation" in a recent review of the industry. Fenck says this matches the experience with the Altano transaction: "We learned a lot of things about human behaviour in the course of this investment relating to the ultimate patients – horses."

This trend also creates many opportunities in related markets for premium pet products. These opportunities can be exploited by startups, as well as more established companies, which has been highlighted by venture capital investments in the past two years. Most recently, in June 2017, Heliad Equity Partners and Mountain Partners invested in a €13m round for Alphapet Ventures, a premium online retailer of pet food and related products. Index Ventures, Global Founders Capital and Project A Ventures are among other VCs with investments in this sector.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• DACH
• Investments
• Consumer
• Top story
• Germany
• Austria
• Ufenau Capital Partners