Veterinary Practice Consolidators – 2026 and 2027 Outlook

How will private equity-backed veterinary practice consolidators navigate 2026 and 2027?

You can also read the 2024 and 2023 iteration of this outlook.  As the operating environment is continuous, and change tends to be marginal, many of the themes I covered at the beginning of 2023 and 2024 still apply.

Key Themes

1. Higher interest rates continue to weigh on sector valuations which are delaying private equity exits within veterinary services, as well as in many other sectors
2. High debt levels and a more challenging operating environment have caused many consolidators to step back from growth-through-acquisition. Those that remain in acquisition mode know that there is less competition.  The attitude of those on the sidelines is varied.  For some, the pause is temporary.  These parties seem more than happy to “window shop”, going through the initial motions of evaluating an acquisition in order to see practice data and deal flow, typically for free, with no real plan to transact. Others face deeper challenges to getting back to growth mode.
3. Creative destruction continues with new service models and new consolidators appearing and ramping up. Some offer true innovation, others are just more of the same with a different investor and management team.
4. Consolidator consolidation. SmallDoor and BondVet announced a merger in July 2026.  Chewy acquired modern Animal.  On my Buyer list, there are at least 10 consolidators that will likely be owned by another, more efficiently managed consolidator within three to five years.  What prevents this from happening now is not the absence of a compelling strategic rationale, it is that the private equity owners don’t want to realize the weak gains such mergers might lock-in.  Something will have to give, and I think when the dam breaks, there will be a flood of the stronger operators absorbing the weaker.

 

When the music starts to skip…

Warren Buffet has said “Be fearful when others are greedy, and greedy when others are fearful.”  However, having the capital to be greedy when others are fearful requires foresight befitting an oracle.  On the face of things, with some exceptions, the private equity professionals who manage veterinary services investment have not acted with the foresight of an oracle.  Large players and small players alike purchased individual hospitals aggressively in 2019 to 2022 while interest rates were low and valuations were peaking.  Now interest rates are higher, and same store volume growth has leveled out.  Valuations are lower and there is, generally, less competition for high-quality assets but many of these players are finding that they do not have the capital to be more greedy.

 

How did they get here? 

Debt financing is a two-edge sword.  When times are good, financing acquisitions with debt allows the owner’s equity to grow faster than it would without debt.  Here, debt provides “leverage” to equity growth, which is why “leverage” is a term people use interchangeably with “debt”.  When times are tough, the leverage works in the opposite direction.  As profits decline, debt service eats up a larger and larger chunk of free cash flow and equity value shrinks.

Private equity backed veterinary corporates generally get their debt financing in the form of term loans. Terms loans are 5 to 7 year, senior secured loans that carry a floating interest rate (sometimes with a cap or floor) based on Libor. These loans typically have a balloon, or bullet repayment schedule (the principal is paid back, mostly, at maturity), and are therefore almost never paid back in full outside of a refinancing or business sale.

These loans also carry covenants, including, in some cases a maintenance covenant mandating a maximum sustained Debt to EBITDA ratio.  If the EBITDA declines to the point where the debt covenant is breached the loan is in default.   The rigor of these covenants (Debt to EBITDA is one of many possible covenants) tends to lessen if credit markets are good (as they were in 2021) or tighten as credit markets weaken (as they have in 2026).

Any corporate that accessed this term loan market in 2020 to 2022 may be facing an upcoming maturity cliff.  Even if they have growth their EBITDA healthily, the debt package available to refinance any maturities carries a higher interest rate, and likely tighter covenants.  If they have struggled to grow EBITDA the debt package available to refinance may be substantially less favorable in all ways or not available at all.

 

Choppy Waters Ahead

Many consolidators are managing through their debt with implications for the capital they have available to fund acquisitions.   In the more benign cases, debt to fund new acquisitions is unavailable temporarily until more existing debt is paid down, or EBITDA increases.  In the more serious cases, Companies are on the edge of a restructuring.  The debt has become too substantial relative to EBITDA.

 

Consider a Company like United Veterinary Care, which was recapitalized by Nordic Capital in 2021 with substantial leverage (possibly up to 7x EBITDA).  On April 30^th 2021, the yield on the 10-year treasury was 2.629%.  Today the yield on that same note is 4.6%.  Likely, United is seeking to refinance some of the debt its owner borrowed when it was acquired in 2021.   The debt at which it can refinance will “cost” nearly twice as much as the debt it is repaying.   Whether a refinance is even possible also depends on how the Company has performed since 2021.  If the EBITDA has not grown since 2021, a refinance of all of the outstanding, and soon to expire debt is likely not available in the market.  In such a scenario, the Company must find ways to generate more cash to pay down principal, or achieve meaningful increases to Company EBITDA without purchasing it.

Consolidators with uncertain prospects in a debt refinance, of which there are certainly some right now, will focus on driving profit growth and cash flow from internal operations, which is not always easy to do.  More marginal measures may mean a focus on driving operational effectiveness and efficiency in hospitals that are under-performing peers and moving forward list price increases.  More drastic measures may mean lay-offs or hospital closures – several consolidators have laid off their business development staff in the last two years, and hospital closures are becoming increasingly common – top-down mandates and micro-managing.  Anyone who sold to VetCor or PetVet in 2020 to 2022 and still works at their practice knows what this is all about.

 

What to do?

To the extent that internal initiatives are successful in increasing cash flow, or the market environment improves the Company may find its access to debt capital at favorable terms is restored allowing a resumption of the growth through acquisition strategy.  For those that fail to improve operations and do not experience an improvement in market conditions the situation could get worse and worse. If the situation gets bad enough, the options for getting things on track become more limited.  Nearly all of these can result in a material diminution of the owner’s equity value.

1. Sell assets and use the funds raised to pay down debt. This is a one-off solution.  Once a practice is sold, it cannot be sold again.  Ideally, the Company sells only “non-strategic” assets.  This might mean practices in markets that the consolidator doesn’t like, or practices that have under-performed.  The problem is that these assets tend to have low valuations since they are probably not practices that are growing fast and / or have high profits, plus finding a buyer and consummating a deal is no small task and takes time.  (Plug for VetValue Connect:  low-cost, discreet and efficient, our discount brokerage services is tailor made for these kinds of practice sales)
2. Brow-beat your lenders into concessions. Certain large private equity firms do a lot of business with key lenders.  Sometimes, threatening to curtail future business can compel lenders to grant concessions on existing debt.  Smaller private equity firms are unlikely to have this lever available to them, but firms like Apollo, KKR (owner of PetVet) and Blackstone use this lever all the time to shift losses to debt holders from equity holders.
3. Sell the Company to a better capitalized competitor. Such better capitalized competitors are out there in today’s market and include Western Veterinary and Mission.  The issue is that those better capitalized competitors are not fools.  They are unlikely to pay a price that will allow the current owner to realize a gain on their equity investment, particularly those current owners that bought at the peak of the market in 2021 and 2022.  Private equity owners, do not like to sell assets for weak gain, or a loss since their ability to raise new funds is impacted by the performance of their previous investments.
4. Raise new cash equity from an existing, or new private equity sponsor to pay down debt. No one likes to throw good money after bad money.  Unlike when this path is taken to fund growth, this path to pay-down debt nearly always precedes the realization of a poor return for the selling owner.

In today’s market, it seems that the majority of consolidators are showing some symptoms of over-leverage.  In most cases, the symptoms are mild and can likely be cured.  In other cases, the stress is severe and the patient may not recover.

The Return of the Consolidator?

For those mild cases, I think about what catalysts could cause them to become more aggressive in the acquisition market.  Certainly a roaring economy that drives higher same store sales in veterinary services paired with lower interest rates will make everyone more aggressive.  Always a possibility, but this outcome doesn’t feel likely without a cessation or reduction in global conflict and more transparency and consistency in economic policy.  Plus, inflation is tricky to tamp down once it has appeared.  More likely, is that some, but not all find success in their operational initiatives.  They find sustainable levers to drive same store growth at their hospitals and increase efficiency.  Not all will succeed.

Going through the Motions

Those consolidators who currently have a limited capacity to fund acquisition through debt, will participate less meaningfully then they had in the individual practice acquisition market.  Likely such parties have trimmed down their business development staff and will do only a few acquisitions in 2026 and 2027.  While they may only acquire five hospitals in a twelve-month period, that doesn’t mean they won’t continue to monitor the deal flow and receive information when the cost to obtain it is low.  Having access to detailed information on a business that may compete, or is comparable to a hospital you own, is always useful for a potential buyer.  From the seller’s perspective, facilitating such “window-shopping” serves no business purpose, and may actually hurt a seller’s business. (Link to new article).

Such buyers will be extremely selective about the hospital acquisitions they choose to pursue.  Selectivity may mean paying up for a few very strategic acquisitions.  More often it means finding situations where a strategic practice can be purchased for a substantial discount to market value.  Usually such a situation means that the buyer has an “angle” such as a long-standing relationship with the seller, or a pre-existing lending relationship that allows for the practice purchase to happen without any other buyers allowed to bid.  The business development staff that call practices all day or send out letters offering to buy, tend to be the least expensive staff to employ.  Those folks are still active trying to find good deal situations for buyers.  If you sell your practice in response to such outreach without high quality representation, don’t be surprised if you get a buyer friendly deal.

The Wheat from the Chaff

Recently the owner of Western Veterinary Partners completed an exit of its investment through a continuation fund sale.  This is a transaction where the private equity funds sells some portion of its ownership to another fund managed by the same private equity firm and possibly others.  This allows the private equity firm to realize an exit in its current fund, but it’s not the same as selling the Company to a true third party.  Other than this sale, there has been no true recapitalization of a growth through acquisition veterinary consolidator since 2022.  There have been new investments behind start-up platforms, and mergers among growth through new build platforms, but no true exits for traditional growth through acquisition consolidators in veterinary services.  This state of play cannot continue indefinitely.

What may be a catalyst for an acceleration, or unlocking of more consolidation among the growth through acquisition consolidators?  Again, a drop in interest rates pared with a booming economy.  Secondly, JAB completing an IPO of NVA, or another veterinary services IPO.  NVA is a reasonable purchaser of many of the smaller consolidators but being a public Company confers additional advantages in the acquisition game because the market-valued stock is a high-quality currency for acquisitions.  Thirdly, a re-organization or bankruptcy of a large consolidator.  If such an event were to happen, the Company would almost certainly be sold, at whatever price the market was willing to bear.

In the meantime, I encourage all practice owners to look for ways to capture demand they see in their markets, and provide better service for less in a sustainable way.

Recap

I expect the remainder of 2026 and the beginning of 2027 will be a choppy market for veterinary consolidation.  Keep your eyes on the IPO market as well as the debt markets, particularly for news of one, or more consolidator entering a restructuring process.  In the mean-time, if you are considering a practice sale, please consult with an expert.  It has never been more important to closely vet potential buyers. Connect was designed to do exactly that.