Lincoln International experts in the animal health sector share their perspectives on considerations for investors interested in cross-border mergers and acquisitions in the space.

Subsector Consolidation to Watch

In the diverse world of animal health, four subsectors in particular have been active in exploring cross-border consolidation—pharmaceutical manufacturers, diagnostic and lab organizations, veterinary hospitals and distributors.

Five large pharmaceutical players dominate the animal health manufacturing market—Merck, Elanco, Ceva Animal Health, Zoetis and Boehringer Ingelheim. With antitrust regulations preventing these companies from making additional large acquisitions in the pharmaceutical markets, these players are forced to look outside their core businesses and core geographies to make acquisitions that will move the needle and continue to push growth.

Diagnostic and lab organizations are in similar positions. Mars, Heska Corporation, Zoetis and Idexx Laboratories dominate the diagnostic and lab sector and need to expand their geographic reach and diversify their capabilities to continue their organic growth. For example, in 2020 U.S.-based Zoetis acquired UK-based Virtual Recall to offer improved service and communication offerings to veterinary practices. The driver was partly diversification but also to expand relationships with the vet and be seen as a service ‘partner,’ rather than someone pushing a product or a drug—driving growth in their core business through the relationship. Additionally, Heska entered Europe in 2020 with the acquisition of Scil from Covetrus.

For veterinary hospitals, consolidation has occurred at a rapid clip and at some point players will need to look across borders to continue to grow. This is especially true in the UK where significant consolidation has already occurred, leading to searches for targets in Europe with providers like Vet Partners, IVC, Mars and recently Medivet, all spending time and money to grow their European footprint.

Distributors are feeling the margin pressure from the large pharmaceutical manufacturers supplying the product and from the continued consolidation of the veterinary hospitals buying the product. Distributors will have to diversify their current business models if they are to remain competitive.