An investor syndicate featuring the well known names of Bruce Dixon and Vita Pepe have identified vet clinic operator Apiam Animal Health (ASX: AHX) as their next investment project after acquiring 13.44% of the Company.
On Wednesday, AHX shares were strangely active with 15% of the Company changing hands and no fanfare in a move that may be foreshadowing institutional interest as an M&A prospect if Dixon and Pepe’s previous trading history is a sign of things to come.
27.9 million AHX shares were traded on the day. To put that into perspective, the average amount of AHX shares traded per day is just 192k for the Company with a market cap of $81 million with 80 clinics across Australia that employ more than 330 veterinarians.
A large block trade has since been disclosed as being a syndicate of associated investors taking a substantial interest in Apiam, headed by Dixon and Pepe, but also including Paul Waterson and a variety of the trio’s associated investment trusts and funds.
Dixon and Pepe are long-time business partners having worked together at Healthscope and Spotless in executive leadership positions over the past 20 years. Together, they most recently built a portfolio of pubs and hospitality venues that are now part of PAG’s Australian Venue Co.
Apiam Animal Health, which specialises in delivering veterinary services across Australia’s regional and rural areas, is seen as a strong player in the pet care market, having reported $204.8 million revenue for FY24 which was a 6.2% increase on the previous year. This flowed down to $20.3 million in underlying EBITDA (up 22.3%) and $7.2M underlying NPAT (up 12.3%).
This major stake in Apiam is not Dixon’s first foray into the animal health sector with Dixon purchasing Macedon Lodge for $20 million in 2023 from Lloyd Williams.
Macedon Lodge is best known as one of the world’s finest thoroughbred training facilities, having produced two Melbourne Cup winners and countless Group 1 winners while occupied by Williams and his private trainers. Since acquiring it, Dixon has continued the thoroughbred business by leasing out stables to access the pristine facilities to several smaller trainers.
Coincidently, the thoroughbred industry is rapidly rising as one of Apiam’s most valued customer segments with its vets servicing the racing and breeding industries throughout Victoria, New South Wales, Queensland and Western Australia.
The veterinary sector’s growing appeal to private investment
The veterinary industry has been one of the hottest sectors for private equity investment globally, particularly as pet ownership rates have skyrocketed during and after the COVID-19 pandemic. In Australia alone, pet ownership jumped 15% in 2021 with ongoing spend proving immune to pullbacks in discretionary spending as evidenced by Apiam’s FY24 results.
One of the best-known acquisitions in this space took place in 2018 when private equity giant TPG Capital acquired Greencross, an Australian veterinary and pet services provider that operated a very similar business model to Apiam. Greencross was valued at approximately $675 million at the time.
In 2022, TPG sold a 45 per cent stake in Greencross to AustralianSuper and the Healthcare of Ontario Pension Plan at a $3.5 billion valuation.
Dixon and TPG are well known to each other, with Dixon having led Healthscope at the time of its sale to TPG and The Carlyle Group in 2010.
Similarly, VetPartners which at the time was owned by US-based National Veterinary Associates, expanded their Australian market in 2019 by acquiring ASX-listed National Veterinary Care (NVC) for $250 million in an all-cash deal that represented a 56.8% premium on NVC shares at the time.
In a sector where small, independent clinics were the norm, consolidation has allowed for improved economies of scale, greater negotiating power with suppliers and consistently high margins with ongoing demand as a consumer staple within Australia’s economy.
The trend continued in 2023 when global private equity firm EQT purchased VetPartners for $1.4 billion, taking ownership of their 240 vet clinics across Australia, New Zealand, and Singapore.
The momentum hasn’t slowed either, with Woolworths Group (ASX: WOW) making a notable foray into the veterinary space in 2022 by acquiring a controlling stake in Petstock, a pet products retailer that also operates a small number of vet clinics across some of their stores.
At the time, Petstock Investments also held a 12.18% stake in Apiam, effectively bringing Woolworths onto Apiam’s share register.
Global M&A activity in veterinary services
Australia is not the only country witnessing a surge of investment in the veterinary industry. North America, too, has seen several high-profile deals as private equity firms and corporations recognise the long-term growth prospects of the sector.
One of the largest transactions in recent years was IVC Evidensia’s acquisition of VetStrategy, a Canadian veterinary group, in 2021. The deal created one of the world’s largest veterinary groups, with a significant presence in Europe and North America.
Meanwhile, Mars Inc., best known for its confectionery products, has quietly become a dominant player in the global veterinary industry. Mars owns Banfield Pet Hospitals and VCA, two of the largest veterinary chains in the US. It also owns leading pet food brands including speciality vet recommended Royal Canin. The candy giant then acquired Heska in 2023, a leader in animal diagnostics, to solidify Mars’ presence in the sector adding to its already substantial veterinary services and pet food portfolios.
The growing interest in the veterinary sector is expected to continue, driven by rising pet ownership and increased spending on pet healthcare, with further growth forecast as the COVID-19 pets enter their late adult and geriatric life stages over the next ten years.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, bloodstock enthusiast and former Analyst.
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