The Guardian has created a fictional vet practice to explore controversial practices in private equity. The example is illustrative, focusing on three divisive aspects: debt, cost cutting, and short-term ownership.
Use of Debt in Leveraged Buyouts
In a typical leveraged buyout, a private equity firm offers £10m to buy a vet practice. The firm contributes 2.5% (£0.25m), investors provide 45-50% (£4.75m), and the rest (50%, £5m) is borrowed from a bank. The loan is repaid from the vet's cashflow, not the private equity firm. This debt can strain the company's finances. Michael Moore, chief executive of UK Private Capital, says private equity uses leverage responsibly, with lenders undertaking rigorous due diligence.
Cost Cutting and Profit Maximisation
Private equity often cuts costs by reducing non-clinical staff, leading to redundancies. Suzanna Hudson-Cooke of the British Veterinary Union says clinical staff end up doing reception work. Cheaper supplies and reduced services like 24-hour care are common. Vet bills in Britain rose 60% between 2015 and 2023, with private equity-owned groups charging 18% more than independents, according to a CMA investigation. Consolidation through roll-ups makes it hard for customers to shop around. Dr Scott Summers warns pet ownership could become unaffordable for all but the wealthy.
Short-Term Ownership
Private equity firms typically hold investments for four to seven years. Summers fears they may exit before the market declines, leaving companies saddled with debt and high prices. Moore argues private equity investment is long-term, with firms holding investments for over six years on average, and that financial health is critical. Dr David Reader notes benefits like investment in new technology and higher pay, but risks must be weighed, especially in care sectors.
