CVS Group, one of the UK's largest veterinary groups, is facing increased pressure from activist hedge fund Converium Capital to improve its performance after competition regulators concluded a probe into high prices in the sector.
Activist Investor Demands
Canada-based Converium Capital, which holds a two per cent stake in the FTSE 250 group, threatened to rally shareholders to nominate directors to the board if CVS did not comply with its demands, according to people familiar with the matter. In a letter to CVS's board, seen by the Financial Times, Converium called on the group to launch a £100m share buyback programme to 'capitalise on its currently languishing share price'.
CVS's market value stood at £785m at market close on Tuesday, with its share price tumbling 11.4 per cent since January. Converium argued that a £100m share buyback would leave room for CVS to pursue up to £45m worth of acquisitions while remaining within its debt targets, describing repurchasing the 'materially undervalued stock' as the 'highest-return use of capital available'.
CMA Findings and Reforms
The intervention follows the UK's Competition and Markets Authority (CMA) unveiling a package of reforms in March imposed on five large petcare groups, including Pets at Home and CVS, citing 'weak competition and high prices'. The new rules include enhanced transparency standards and a cap on prescription charges on veterinary medicines, following an investigation that began in September 2023.
Together, the five groups control 60 per cent of the £6.3bn sector. Pet ownership rocketed in the last six years, following the Covid 'puppy and kitty boom', coinciding with large operations, including those owned by private equity firms, snapping up individual practices. The regulator found that a lack of information made it difficult for pet owners to make informed decisions, leading to soaring prices—prices rose by 63 per cent between 2016 and 2023, significantly above inflation.
CVS halted UK acquisitions last year and shifted its focus to expanding in Australia following the probe.
Converium's Disappointment
Converium's managing partner Michael Rapps expressed disappointment in CVS in the letter, noting that the group's share price has failed to improve after the watchdog's investigation and the company's move into the FTSE 250 index earlier this year. Converium stated: 'The market is valuing CVS Group as if it were a single-location clinic rather than a multinational company with nearly 500 locations and a high-margin diagnostic lab business.'
CVS Group was contacted for comment but did not respond.
