This Is A Bit Scary

[Loving my Oldies]

http://www.smh.com.au/money/investing/greencross-credentials-can-only-get-stronger-with-merger-20131212-2z8ru.html

Fragmented industries can create profitable opportunities for the brave, and this has certainly proved the case for Greencross.

The veterinary services provider has grown impressively through acquisitions in recent years, delivering compound annual growth rates in revenues and earnings of 29 per cent.

With an aggressive acquisition strategy in the past five years Greencross now has 85 general practices, nine specialist/emergency centres and four laboratories.

Advertisement Outlook

We believe the company's successful roll-up model of vet clinics still has plenty of room to expand, with less than 6 per cent share of the available revenue market in Australia.

Management is looking to acquire 10 to 20 clinics in the next year with target multiples of 3.5 to 4.5 times earnings before interest and tax.

Acquisitions have not blown out the balance sheet with gearing set to remain below 65 per cent. The company has reached a scale whereby acquisitions can be funded out of cash flow rather than debt.

The company's growth profile could be further turbo-charged by a proposed tie-up with Petbarn, a big wholesaler of pet products which has 100 shops in Australia and 24 in New Zealand.

Petbarn has a robust revenue and earnings profile, and the merger would create strong synergies between the two.

The combination would create the leading integrated retail pet-care company in Australia, with 124 shops and 100 vet clinics in Australia and New Zealand.

The merged entity would have pole position in the industry which is estimated to be worth about $7 billion a year.

The combined company would have revenues of about $440 million and EBIT of about $40 million. The deal is subject to shareholder approval in late January.

Price

Shares in Greencross have been performing exceptionally, up 54 and 138 per cent in the past six and 12 months respectively.

The gains are even more impressive on a longer time horizon, and a testament to the impressive growth delivered by management's roll-up strategy in the lucrative but fragmented industry.

Worth buying?

We are attracted to the growth proposition Greencross already represents in isolation. We believe this will be only strengthened by the proposed combination with Petbarn. The integrated nature of the new business would be a first for Australia but has successful form in other countries such as Britain and the US.

Meanwhile, we do not regard the valuation of Greencross – either in isolation or after the merger – as demanding, given its enviable earnings growth, and the prospective market share gains. Consequently, we believe the stock is worth buying at about the present level.

Read more: http://www.smh.com.au/money/investing/greencross-credentials-can-only-get-stronger-with-merger-20131212-2z8ru.html#ixzz2ngQvmRpr

[Kirislin]

I certainly hope my local vet doesn't become a greencross vet.

[dragonwoman]

I certainly hope my local vet doesn't become a greencross vet.

I changed vets when mine went to a franchise

[Roova]

You'd have to think the only way you can make profits like that is to charge your customer much more than you're paying out. Im sure overheads are much the same for each clinic as any other. I know the aim of any business is to make money but most people have to believe their Vet when they say the charges are necessary.

I wonder how a partnership with PetBarn would go in the future? Would kittens dumped at the vets be sold in the pet stores??

[Little Gifts]

You'd have to think the only way you can make profits like that is to charge your customer much more than you're paying out. Im sure overheads are much the same for each clinic as any other. I know the aim of any business is to make money but most people have to believe their Vet when they say the charges are necessary.

I wonder how a partnership with PetBarn would go in the future? Would kittens dumped at the vets be sold in the pet stores??

I was thinking we would see a lot of crap for sale hanging in the reception areas and really, while you're spending money at the vets and your dog is looking sad because it just got a finger stuck up its bum why not buy it something high priced and cute to make it feel better?

I don't have pet insurance but can a vet become a preferred provider like a Dr or hospital? That would be another revenue raising idea for them. The other way to capture the market slowly and insidiously is open the clinic hours outside of those that can be offered by smaller clinics in the same town. I know my little vet has cut back on opening hours on weekends now because their third vet retired but I'm sure my local brand name vet keeps its door open and picks up the slack. My little vet used to also own huge premises and has downsized. They still offer the same services but it is not spread out like a hospital anymore. The brand name vets are doing the opposite so I'm not sure where they are making their savings if they aren't charging more for services? Maybe that's why the pet insurance industry is also growing - people buy a dog, need a vet visit and are horrified by what it 'might' cost in the future. So they get insurance and because they don't go to any vet frequently they are none the wiser about those exorbitant random visit charges.

[Guest Ams]

PetBarn already works with rescue organisations and has cats in cages for adoption.

[tdierikx]

I changed vets when my preferred clinic sold to Greencross. Upselling is rampant there now, and they will happily stoop to the guilt trips to get you to spend up big there...

My friend (a vet) who recently left there said she couldn't handle the pressure to upsell any more...

T.

[Loving my Oldies]

I was thinking we would see a lot of crap for sale hanging in the reception areas and really, while you're spending money at the vets and your dog is looking sad because it just got a finger stuck up its bum why not buy it something high priced and cute to make it feel better?

I imagine so , but worse than that, because the vets would be on a profit share, they might (just might now, nobody jump on me from a great height about how wonderful their vet is :D ) be tempted to push unnecessary treatments and/or operations.

(The latter is already being done for luxating patellas with some vets boasting that they make their money out of those operations. Although some dogs definitely do need the operation, for most it is a bit like the Scam thread going in general: they frighten the owner by telling them all the dreadful things the dog will suffer if they don't have the operation. )

With the Greencross expansion, it really worries me for the future pets and their owners, because I have seen this exact same scenario IRL, but with medical clinics. I worked for a venture capital organisation for many years and one of their investments was to bring a whole lot of medical clinics under the one banner. It was very successful and a lot of people made a lot of money.

However, they spent more time working out how to share the profits among the investors and management than they did on whether or not the venture was a good one or a necessary one. One of their selling points for the raising of future funds was the number of millionaires they created.

Edited December 17, 2013 by Danny's Darling

[Cougar]

This really worries me, I have to say, their acquisition rate is high and fast. My long term vet practice became a Greencross a while ago. While I haven't noticed a jump in prices yet, I figure it's not too far away. They still have 2 vets that I know and like, so will probably stick around for a while longer. The shareholder factor concerns me, in a business of this type. I know vets need to make money too - but I'd rather it go to the vets pocket instead of a corporation.

[OSoSwift]

Hmmmmmm not the sort of vet I would want to go to

[Loving my Oldies]

Hmmmmmm not the sort of vet I would want to go to

The trouble is in today's market, this is what we will be reduced to. Same as the strangle hold that Woolworths and Coles have.

I used to think I was supporting a small wine shop, only to find it was part of chain owned by Coles, I think.

[lillypilly]

The vet clinics will probably be placed inside the Petbarn stores.

This is happening already in Petbarn at Brookvale NSW and Fountain Gate in Vic.

xx LP xx

eta links re greencross clinics operating out of Petbarn stores

My link

My link

Edited December 17, 2013 by lillypilly

[dragonwoman]

Hmmmmmm not the sort of vet I would want to go to

The trouble is in today's market, this is what we will be reduced to. Same as the strangle hold that Woolworths and Coles have.

I used to think I was supporting a small wine shop, only to find it was part of chain owned by Coles, I think.

Even the local "family" funeral director we used recently is actually owned by one of the big undertaking companies

[moosmum]

I'm more worried about the marketing power this gives to corporate concerns within the pet industry.

So it begins in earnest.

[Loving my Oldies]

I'm more worried about the marketing power this gives to corporate concerns within the pet industry.

So it begins in earnest.

Yes, as I said above, it will be all about profits and the interests of the shareholders, most of whom probably couldn't tell a dog from a cat and won't care less unless it affects their dividend. :(

[mixeduppup]

I've been told they also pay nurses below average. Will happily stand corrected on that

Edited December 17, 2013 by mixeduppup

[tdierikx]

The local vet clinic that was taken over by Greencross started out only rebadging their clinic and paperwork - nothing changed at all... at first...

Over time, they introduced the upselling and wanting to order the most expensive things that would generate decent profit for the clinic. At that point I found another local vet who is excellent at what he does, and doesn't mess anyone about (least of all the animals)... the only thing he doesn't do is in-house pathology, so I have another vet further away that I use for that purpose if I need a quick result on pathology (like a fecal float)

T.

[Her Majesty Dogmad]

There was a British documentary made a couple of years ago about a chain of vets - think it was Greencross. They had evidence that they had been performing unnecessary procedures etc etc, none of it was good ...

[Cosmolo]

I am a bit amazed at the negativity surrounding Greencross. My vet has become a Greencross vet and there is absolutely nothing that has changed about the way we and our pets are treated. I'd never think about changing vets because they were taken over by someone else. I believe the vets have a choice about how they change things- no one can make them upsell or do uneccesary procedures.

Edited December 17, 2013 by Cosmolo

[Steve]

I certainly don't think that Greencross vets have a monopoly on potentially over servicing and many good things come from being able to have

cost sharing as they can buy supplies etc in larger quantities and spread through out the net work .

Having the whole admin side of it already structured would surely also take a huge burden off small vet clinics and help cover their advertising and website

expenses.

I utilise two vets who are not Greencross and Ive watched whilst both have radically put prices up and in my opinion also push much more these days for over servicing - its a sign of the times and with whole governments as in Victoria making over servicing of breeding dogs mandatory its not likely that only franchises will capitalise on the current market..

One of these is a small clinic with what appears to be limited expenses in comparison to the bigger ones - they dont even have a vet nurse or receptionist but prices for vaccinations and chips for a puppy are almost double what some charge in a close more populated area and they actively push throughout the community for yearly vaccinations of all pet dogs - no Greencross to blame there.