While more commonly associated with sweet treats, Mars has been taking a serious gamble on something else we seemingly can’t resist – pets. In the last week, the US global confectionary manufacturer has not only crossed the pond to acquire Sovereign Capital’s chain of specialist veterinary hospitals, Linnaeus Group, but also snapped up pan-European vet chain Anicura from Nordic Capital.
Both deals are rumoured to have been for eye-watering sums. This is easy to believe given Mars paid a staggering $7.7 billion for VCA last year, making it the dominant force in the North American animal healthcare market. But will the maths add up for Mars?
Given the current workforce and demand dynamics in the veterinary market, Mars has gambled shrewdly. The growing humanisation of our pets, along with scientific advances that means we can cure more ailments than before means there is high demand for veterinary services. (This has also been partly fueled by a growing pet insurance market to help pay for these treatments, although it’s worth noting, it’s only played a small part – our devotion to our companion animals opens purse strings.) The companion animal sector largely weathered the 2008 financial crash.
At the same time, the veterinary workforce has changed dramatically with women making up the majority. This matters because the sector is still largely made up of small practices owned by vets. As many women choose to become mothers this means their desire to buy partnership in a small practice (no cheap endeavour) from the mainly male practice owners who are now at retirement age, is small – they want salaries and flexible working opportunities so they can raise families. This leaves opportunity for more corporate entitles to buy out those retiring partners and consolidate.
National and international consolidation of course provides certain economies of scale in terms of purchasing power (although not for drugs at the moment, it should again be noted), opportunities to share scientific wisdom between experts at different centres and create career pathways for employees. In other words, non-organic growth should perpetuate organic growth. No wonder Mars are hooked.
Of course, becoming an international provider of pet care services will be far from plain sailing. Brexit has deterred many European vets from filling the gaps in the UK workforce. Then there is also the issue about branding – does the consolidator let the new acquisition keep its brand name and risk it not being integrated properly into the business? Or should it enforce its own brand upon it and risk the local reputation of the practice?
The sheer size of Mars’ war chest should mean though, with careful planning around workforce and integration strategies, these hurdles will not derail the US conglomerate’s expansion plans and leave it floundering in a sticky place.