Thrive Pet Healthcare, a significant player in the veterinary practice management sector, is currently addressing financial headwinds as it seeks solutions for persistent cash flow deficits and challenges in retaining veterinary professionals. To navigate these complexities, Thrive Pet Healthcare has engaged Evercore, a financial advisory firm, according to sources familiar with the situation. This move comes as the company, backed by TSG Consumer Partners, confronts a tightening liquidity position that has developed over the past year amidst a challenging business environment.
Recent assessments indicate that Thrive Pet Healthcare is projected to experience a substantial cash burn, estimated between USD 80 million and USD 90 million, throughout 2024. This financial forecast was highlighted in an April report by S&P Global Ratings, which also led to a downgrade of the company’s credit rating to CCC+. The downgrade reflects concerns over negative cash flow and high leverage, with S&P suggesting that Thrive’s current capital structure is “likely unsustainable.” The ratings agency further cautioned that the cash deficit is expected to persist through 2025 and potentially into 2026, pointing to ongoing difficulties in attracting and keeping veterinarians, which in turn has led to reduced service volumes at Thrive Pet Healthcare locations.
Compounding the financial pressures, concerns over Thrive Pet Healthcare’s performance and liquidity have prompted a group of term loan lenders to seek legal counsel. In May, this lender group reportedly enlisted Akin Gump, a law firm specializing in financial restructuring, signaling increased scrutiny and potential negotiations regarding Thrive’s debt obligations.
Thrive Pet Healthcare’s network includes over 530 facilities, encompassing primary care, specialty services, and acute veterinary care providers, as detailed on the company’s website. While Thrive has expanded through acquisitions in recent years, it has also undertaken measures to consolidate operations, including the closure of certain facilities. Among these closures are a hospital in upstate New York and a location in California, with the New York facility reportedly shut down due to staffing shortages, specifically a lack of “ER doctors.” These closures reflect the operational adjustments Thrive Pet Healthcare is making in response to current challenges.
TSG Consumer Partners’ acquisition of Thrive Pet Healthcare, formerly known as Pathway Vet Alliance, occurred at the onset of the COVID-19 pandemic in early 2020. The acquisition was based on a valuation of 21 times EBITDA, considered high at the time, according to industry sources. Prior to the acquisition, reports indicated Pathway Vet Alliance was marketed with an EBITDA of USD 159 million, with financing options available up to 8 times EBITDA.
Despite the current financial pressures, industry analysts suggest that an immediate sale of Thrive Pet Healthcare is unlikely. One sector advisor noted, “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.” This perspective underscores the expectation that TSG will focus on operational improvements and strategic adjustments to address the challenges facing Thrive Pet Healthcare rather than pursue a sale in the near term.
In efforts to strengthen its leadership and operational efficiency, Thrive Pet Healthcare has seen considerable changes in its executive ranks. The company has had three CEOs in the past five years. More recently, in June 2023, Thrive Pet Healthcare appointed a new CFO and a new COO, signaling a significant restructuring at the top management level aimed at steering the company through its current financial and operational complexities.
Currently, Thrive Pet Healthcare’s financial instruments are trading at distressed levels. The company’s USD 1.55 billion term loan due in March 2027 was recently quoted at 78.375/79.75, and its USD 80 million revolver was quoted at 74.288/75.663, according to MarketAxess. These figures reflect the market’s assessment of the financial risks associated with Thrive Pet Healthcare as it works to overcome its present difficulties and reinforce its position in the pet care industry.
