Thrive Pet Healthcare, a prominent veterinary practice management company backed by TSG Consumer Partners, has engaged Evercore as a financial advisor. This move comes as the company navigates persistent cash deficits and challenges in retaining veterinary professionals, according to sources familiar with the situation.
Over the past year, Thrive Pet Healthcare’s liquidity has faced increasing pressure due to deteriorating business conditions. A report by S&P Global Ratings in April projected that the company could experience a cash burn of approximately USD 80m to USD 90m through 2024. This financial strain led S&P to downgrade the company’s rating to CCC+ in April, citing negative cash flow and high leverage. The ratings agency expressed concerns about the sustainability of Thrive’s capital structure, predicting that cash deficits could persist through 2025 and potentially into 2026. A key factor contributing to these financial difficulties is the challenge Thrive Pet Healthcare faces in attracting and retaining veterinarians, which has resulted in reduced service volumes.
These performance concerns and the liquidity crunch prompted a group of term loan lenders to seek legal counsel from Akin Gump in May, according to two sources. This indicates growing unease among creditors regarding Thrive Pet Healthcare’s financial stability.
Despite operating a substantial network of over 530 veterinary providers, encompassing primary, specialty, and acute care, Thrive Pet Healthcare has recently undertaken measures to streamline its operations. While the company has expanded through acquisitions in previous years, it has more recently moved to close 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 suggest a strategic shift in response to the current challenges.
TSG Consumer Partners acquired Thrive Pet Healthcare, formerly known as Pathway Vet Alliance, at the beginning of the COVID-19 pandemic in early 2020. The acquisition was based on a valuation of 21 times EBITDA, considered elevated at the time. Prior to the deal, reports indicated Pathway was marketed with a USD 159m EBITDA, and financing was available up to 8x EBITDA.
According to a sector advisor, a sale of Thrive Pet Healthcare is unlikely in the near future. The advisor suggested that potential buyers would be hesitant given the current financial situation, and TSG has significant equity at stake, making a complete withdrawal less probable. The focus, therefore, needs to be on resolving the company’s existing operational and financial issues.
Thrive Pet Healthcare has experienced significant leadership changes, having had three CEOs in the last five years. In a move to address its challenges, the company appointed a new CFO and COO in June 2023, signaling a renewed effort to strengthen its financial and operational management.
Market indicators reflect the financial pressures on Thrive Pet Healthcare. As of Tuesday, the company’s USD 1.55bn term loan due March 2027 was quoted at 78.375/79.75, and its USD 80m revolver was quoted at 74.288/75.663, according to MarketAxess. These figures indicate investor concern and a potential perception of increased risk associated with Thrive’s debt.
Neither TSG, Evercore, Thrive Pet Healthcare, nor Akin Gump have provided official comments on the situation. The engagement of Evercore suggests that Thrive Pet Healthcare is proactively seeking solutions to its financial challenges, and the coming months will be critical in determining the effectiveness of these strategies and the future trajectory of the company within the competitive pet healthcare market.
