This blog represents the first of a series of blogs on how the investment community views and assesses businesses in the veterinary industry. It is intended to be informative at a high level but also thought provoking. The aim is to help veterinary professionals to understand how the broader investment community functions whilst dealing with its vast idiosyncrasies.
From an investor’s standpoint, veterinary businesses are rare and predominantly hidden gems. Thus far, few relatively specialised corporates have ventured into this space. The consolidation of operational structures for existing vets aiming to centralise services that are often seen as “getting in the way of taking care of the animals” appears to be a big driver. Realising locked values of relatively small businesses is often also sought. Larger scale sales, such as those of Specialist Referral practices are arguably very palatable to those corporates wishing to own more sizeable assets and goodwill (embedded expertise) directly.
Setting aside for now the substantial services associated with the pure veterinary world such as pharma, pet food, equipment/toys etc. which are arguably better covered in the investment world due to their respective sizes, the decade-long consolidation of veterinary practices does introduce the uninitiated investor to greater nominal (i.e. size), larger aggregate investment metrics (measurable profitability) and certainly access to what remains a very granular market.
Investors define attractiveness of an industry through the analysis of data and its characteristics. The characteristics of the veterinary industry are pretty straight forward to grasp. This however is greatly contrasted by a near complete absence of any meaningful publicly available set of performance and profitability data.
In the absence of long term aggregate data, investors can retrench to a bunch of assumptions based on those specific characteristics to understand how attractive an investment can be. The substantial barriers to entry such as qualifications required, technical equipment, knowledge, geographical targeting and relatively high margins, can be seen as hitting quite a few of the buttons that would make any investor very excitable.
One important characteristic is the industry’s relative insulation to financial crises. There is very little that suggests that pet owners / pet parents would stop entirely taking care of their pets in cases of equity (stocks and shares) market falls. Anecdotal evidence does suggest the opposite, if anything. Ironically, the same appears to apply to pubs and alcohol stocks. There could be something there!
Beyond the profitability aspects of the industry, that perceived lack of correlation to equity markets is of huge value to investors. Any asset that continues to perform whilst other parts of the investment spectrum fall is THE prized asset.
Investors can be seen as obsessively driven by profitability and therefore relatively fickle with short term objectives and little appetite for poor or sub-par performance against expectations. Set against highly ethically minded veterinary professionals with a long-term view of their personal careers, there is little doubt that this has and will continue to create frictions. A new reality of constant commercial pressures and the search for returns from investors, coupled with these caring ambitions of veterinary professionals, can make for uneasy bedfellows.
One attractive option, is for the entire veterinary industry to adopt policies and standards aligned to ethical or Socially Responsible Investment (SRI) principles. This could open the door to a rare breed of investors who have accepted that the sole search for profit and short timeframe may not be entirely beneficial to society and have accepted some of the perceived financial drawbacks associated with this view.
The fact is that these apparent financial trade-offs associated with ethical investments have not been fully verified and in some cases quite the contrary is true. Therefore, going forward, this type of investment approach could potentially make for a more suitable companionship between the two industries.
Rafe is the Head of Investments for Investec’s Private Office and has well over 20 years’ experience in Investment Management in London, Switzerland and Jersey. Rafe started his career as an Economist for the European Commission (Science Research Funding – DGXII-B) in Brussels.
Rafe is a Chartered Wealth Manager (Chartered MCSI), holds a number of professional investment qualifications (including as a US advisor) and undergraduate and postgraduate degrees in Economics from two of Scotland’s ancient universities.