Stacy Fuchino became a veterinarian because he wanted to care for pets.
But after 20 years of owning P.V. Village Pet Hospital in Redondo Beach, Calif., the administrative side of his clinic was gobbling up too much of his time.
So about two years ago, Fuchino sold P.V. Village to Pathway Vet Alliance, an Austin-based company that has quietly grown into one of the largest veterinary clinic owners in the U.S. by buying up independently owned hospitals.
“I was looking for support so I wouldn’t have do to all the HR, accounting, marketing, and advertising,” Fuchino said. “I wanted to do what I know best, which is taking care of the patients.”
Pathway, he says, let him do that by managing the clinic’s business operations. “It’s been a weight off the shoulders.”
Founded in 2012, the company has grown from a single veterinary clinic on North Lamar Boulevard to more than 130 locations in 26 states.
The veterinary hospital group recently moved its support team headquarters to a 15,000-square foot office space at the former Seaholm Power Plant. The space is more than four times the size of the company’s previous office in Hyde Park.
Pathway has 2,700 employees nationwide, including 100 in Austin. It expects to add more than 45 workers in Austin this year.
Stephen Hadley, a veterinarian and CEO of Pathway, said the company has grown by focusing on clinics that fit its niche. Pathway looks for owners typically in their 40s to 50s who want to sell but also want to remain involved after the deal closes.
“If it’s an owner who just wants to sell for the highest dollar amount and then they’re off to the Bahamas, that’s not our ideal seller,” he said. “Our ideal partner is a little younger and still in love with the business and still practicing, but they feel bogged down by running the business. We step in to provide that support.”
Pathway was founded by Jasen Trautwein, an Austin veterinarian who started with his own practice and acquired a few more in the 2000s.
As he added clinics, Trautwein said, he became interested in finding better ways to manage them. He launched the company in 2012 to bring management support to veterinary hospitals and alleviate the administrative obstacles that were holding them back.
By 2016, the company had grown to 15 general and specialty veterinarian hospitals, and was ready for an outside investment to accelerate its growth.
Morgan Stanley Global Private Equity stepped in to acquire a majority stake in the company -- financial terms of that deal were not disclosed -- and Pathway ramped up its acquisition strategy.
Pathway acquired 16 more clinics as part of the Morgan Stanley investment and added about 100 practices in 2017.
The company’s plan for 2018 is to make six acquisitions a month, says CEO Hadley, who also holds an MBA from The Wharton School at the University of Pennsylvania.
In addition, Pathway is expanding Thrive, its chain of pet clinics that it touts as offering affordable and convenient care.
In its acquisition drive, Pathway is playing in a crowded market -- more than 20 companies are actively purchasing veterinary practices in the U.S. and globally, says John Volk, a senior consultant with Brakke Consulting, which serves the global animal health industry.
The largest consolidator by far is Mars Inc., which best known as a candy maker, but is also a growing pet care holding company.
Last year, Mars paid $7.7 billion to acquire VCA Inc., a national pet care brand with 800 animal clinics and 60 diagnostic labs, giving it nearly 7 percent of the pet services industry, according to analysts.
Volk ranks Pathway as the fourth-largest player, and says that despite the number of vet consolidators, there is plenty of room for growth. There are nearly 30,000 veterinary clinics in the U.S., and of those about 3,000 are owned by corporations, he says.
“If you figure over 50 percent are smaller practices that are not likely to be acquired, that still leaves somewhere between 7,000 and 10,000 practices that could still be available,” Volk said.
Several factors are driving the market, he said.
“There are a lot of private equity companies that have a lot of money to invest, and targeting industries that are primarily defined by small mom and pop businesses and rolling them up is a tried and truth method of building a larger company,” he said.
Veterinarian practices are attractive because they are recession resistant and they are cash businesses.
“Almost all services are paid for at the time of service, so they don’t carry the risk of major accounts receivable,” he said. “The veterinarian category has also been growing as people have more pets and are willing to invest in good health care.”
For clinic owners looking to cash out at a premium, the current bullish market is advantageous, Volk said. But for small clinics that want to remain independent, Volk said the growth of chains could present challenges.
“There’s a segment of veterinarians that would prefer to stay in independent hands,” he said. “Some fear having to compete with large companies that own lots of practices. That means they have better purchasing power and resources that are simply not available to smaller practices.”
Consolidators are also changing the way the model used to work. Traditionally, younger veterinarians purchased clinics from retiring owners. Now, with those owners getting top dollar from outsiders, it is more difficult for younger professionals, who often have college debt, to buy their own clinic.
“The same thing is happening in pharmacy, dentistry and other mom-and-pop professions,” Volk said.
Focus on partnership
Pathway says it sets itself apart by partnering with its clinics -- providing back office services like payroll management and accounting as well as business consulting -- while letting practices retain their name, identity and culture.
“Most all other consolidators are not necessary adding value, they’re just adding to their (bottom line),” Hadley says. “You can go out and buy a hospital and squeeze it to improve margins, but that doesn’t add value to the hospital. We believe we can add value and shareholder value at the same time.”
Fuchino, the clinic owner in California, said that after meeting with a number of interested buyers, the focus on partnering is why he sold to Pathway.
“Other corporate consolidators didn’t fit the mold of what I envisioned for my future,” Fuchino said. “They keep the management team but don’t offer support for them. For me, that’s an extra burden because you’re not only having to worry about what’s going on in the hospital, but also what the new owners have to say about the business.”
In addition to his continued role at his clinic, Fuchino has recently taken on a regional medical support position with Pathway, which allows him to meet and mentor other veterinarians.
“It’s a network of doctors that work together as a family, which in this day and age, you don’t see that so much,” he said.