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Article United Kingdom: Competition Authority Publishes Report on Veterinary Business Mergers

On February 22, 2023, the Competitions and Markets Authority (CMA), an independent non-ministerial government department that is responsible for competition and consumer protection in the United Kingdom (U.K.), announced a decision stemming from its investigation into Independent Vetcare Limited’s (IVC’s) purchase of eight independent veterinary businesses. Some of these businesses operated on multiple sites, so the investigation included veterinary practices on 19 different sites. The CMA found that the acquisition resulted in, or is expected to result in a “substantial lessening of competition” for 15 of these sites.

To avoid an “excessive regulatory burden,” the merger control regime in the U.K. is voluntary, meaning that businesses may choose whether to notify the CMA of a merger. The CMA has a duty under the Enterprise Act 2002 to track merger activity to determine if any mergers have resulted in, or may be expected to result in a substantial lessening of competition. Merger activity occurs where two or more enterprises stop being distinct, and either the turnover of the acquired enterprise is more than 70 million pounds (about US$84.3 million), or the enterprises together supply 25% of goods and services to either the entire U.K. or a substantial part of it, and the merger increases this supply.

The CMA investigates mergers that are referred to it “if it believes that there is a reasonable chance that the test for a reference to an in-depth phase 2 investigation will be met.” In this case, the CMA was not notified of the transactions, but the CMA Mergers Intelligence Committee identified concerns with the acquisitions in the course of its monitoring duties, and the CMA opened an initial (phase 1) investigation in November 2022 under its own initiative.

The phase 1 investigation “determines whether [the CMA] believes that the merger results in a realistic prospect of a substantial lessening of competition.” If the CMA finds there is a substantial lessening of competition, it may negotiate a modification to the transaction with the parties to resolve competition concerns, which are known as “undertakings in lieu,” and if the CMA accepts the undertaking, it will not continue with a phase 2 investigation. In phase 2 investigations, the CMA conducts an in-depth investigation to determine whether the acquisition will result in a substantial lessening of competition and, if so, it then determines the remedies to resolve the issue. Remedies can range from prohibiting the merger to the sale of parts of the business.

In the IVC case, the CMA found that while the revenue did not meet the turnover test to examine a merger, the IVC and the new acquisitions supply more than 25% of small animal and equine veterinary services in part of the U.K. The investigation revealed “competition concerns in the supply of veterinary services for small animals (typically household pets) in 23 local areas. … Concerns were also found in relation to the supply of out-of-hours emergency care for small animals in [two] local areas … and in the supply of equine veterinary services in four local areas.” In each of these areas, the CMA determined that IVC accounted for a significant proportion of veterinary services, which could lead to a lack of competition, resulting in higher prices for consumers, lower standards of service, limited treatment options, and reduced hours.

IVC had five business days to submit undertakings to the CMA under section 73 of the Enterprise Act to address the competition issues raised by the CMA. The CMA then had five working days to determine whether it would accept the proposals or refer the case to a phase 2 investigation under section 22 of the Enterprise Act. While the decision is pending, the companies remain subject to an initial enforcement order, served on each practice in November 2022, that requires them to operate independently as if the purchase had not taken place.

The CMA has noted that its investigation was set “against a backdrop of increased demand for veterinary services, a shortage of vets and veterinary nurses in the UK and an increasing trend towards consolidation in the veterinary industry.” The pet industry is substantial in the U.K. Approximately 62% of homes across the U.K. own at least one pet, and in 2021 these households spent almost 4 billion pounds (about US$4.75 billion) on veterinary and other pet services. As the CMA acknowledged, there has been a substantial decrease in independent veterinary practices across the U.K. In 2013, 89% of veterinary practices were independently owned. In 2021, a small number of corporate groups purchasing large numbers of independent and local chain practices caused the percentage to fall to 45%.

This is not the first time the CMA has investigated a merger of veterinary practices. There have been two other occasions where the CMA found competition concerns, and in both instances the purchasers agreed to sell the practices to remedy the concerns of the CMA. The CMA is also currently in the phase 1 investigation of the acquisition of 17 separate independent veterinary practices by Medivet.

Clare Feikert-Ahalt, Law Library of Congress
March 16, 2023

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Feikert-Ahalt, Clare. United Kingdom: Competition Authority Publishes Report on Veterinary Business Mergers. 2023. Web Page.

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