Thrive Pet Healthcare, a significant player in the veterinary practice management sector, is facing financial headwinds as it grapples with cash flow problems and difficulties in retaining veterinary professionals. To address these challenges, the company has enlisted Evercore as a financial advisor, according to sources familiar with the situation. This move comes as the company, backed by TSG Consumer Partners, experiences a tightening liquidity position, a situation that has worsened over the past year due to evolving business conditions.
Financial analysts project that Thrive Pet Healthcare could experience a cash burn of approximately USD 80m to USD 90m throughout 2024, as highlighted in a report by S&P Global Ratings in April. This concerning outlook led S&P to downgrade the company’s credit rating to CCC+ in the same month. The downgrade reflects negative cash flow and high leverage, with S&P stating that Thrive’s capital structure appears “likely unsustainable.” The ratings agency also cautioned that the cash deficit is expected to persist through 2025 and potentially into 2026, attributing the issues partly to challenges in attracting and keeping veterinarians, which in turn has impacted service volumes. These factors collectively hinder the company’s ability to truly help pets thrive.
Adding to the financial strain, a group of term loan lenders has engaged the law firm Akin Gump in May, signaling growing concerns around Thrive’s financial performance and liquidity crunch. This development suggests that stakeholders are taking a closer look at the company’s financial stability and future prospects.
Thrive Pet Healthcare’s network spans over 530 facilities, encompassing primary, specialty, and acute veterinary care providers, as indicated on their website. While the company has expanded through acquisitions in recent years, it has also undertaken measures to streamline operations, including the closure of some facilities. These closures include a hospital in upstate New York and a location in California, with the New York facility reportedly shut down due to a shortage of “ER doctors.” These closures raise questions about the operational efficiency and resource management within Thrive Pet Healthcare as they strive to provide quality care and help pets thrive.
TSG Consumer Partners acquired Thrive, formerly known as Pathway Vet Alliance, at the onset of the COVID-19 pandemic in early 2020. The acquisition was based on a valuation of 21 times EBITDA, considered elevated at the time, according to sources and sector advisors. Prior to the acquisition, reports indicated Pathway was marketed with a USD 159m EBITDA, with financing options available up to 8x EBITDA.
Despite the current financial pressures, industry experts believe a sale of Thrive Pet Healthcare is unlikely in the near term. One sector advisor commented, “I can’t see them selling anytime soon. No one would buy them, and TSG has way too much equity to let it go under. They need to fix their problems first.” The focus, therefore, appears to be on operational improvements and financial restructuring to ensure the long-term viability of the company and its mission to help pets thrive.
Leadership changes have also been part of Thrive’s recent history, with three CEOs in the past five years. More recently, in June 2023, the company appointed a new CFO and a new COO, suggesting a proactive approach to strengthening its management team and navigating the current challenges.
Currently, Thrive’s financial obligations include a USD 1.55bn term loan due in March 2027, along with an USD 80m revolver. Recent market quotes indicate the term loan trading at 78.375/79.75 and the revolver at 74.288/75.663, reflecting market sentiment and the perceived risk associated with the company’s debt.
Neither TSG, Evercore, Thrive Pet Healthcare, nor Akin Gump have provided comments on the current situation. As Thrive Pet Healthcare works with financial advisors and navigates its challenges, the focus remains on addressing the core issues of cash flow and vet retention to ensure it can continue to deliver essential veterinary services and support the health and well-being of pets.
