My beautiful dog died last week. He was old and frail and riddled with arthritis but nothing can prepare you for the loss of a much-loved pet. The only consolation is the realisation that the only way to avoid the pain of losing a dog is to never have one at all and I would not have missed the joy and privilege of sharing my life with him for ten years for anything in the world.
Sadly though his end was made much worse by the vets. I have had dogs all my life and when their time comes, I have always given them the dignity of dying in the home that they know and love. So, I rang the vets to make arrangements only to be told that they were no longer doing home visits due to Covid-19.
This cruel and random rule just made no sense at all. I told them that he lived in a light airy room with patio doors on three sides where there was no risk of Covid at all. I even suggested that they treated him in the garden but they were adamant. Due to Covid, there were no home visits and no exceptions.
I went online and found another vet who was prepared to come to our house and she helped him to leave this world with compassion and kindness but I was left feeling very angry at the heartless attitude of our own vets. So I looked into it further. What I found was very disturbing.
It turns out that our vet is now owned by a private equity firm who seem to care about nothing other than maximising profit. The staff are under constant pressure to achieve this by raising prices, shortening appointment times, selling expensive treatments and cutting out unprofitable services such as home visits.
I came across an article in The Times on the subject. They had spoken to a number of vets and veterinary support staff who had been forced to leave their jobs because they could not bear to work in such an environment. They even found a paper written by a private equity backer which referred to their veterinary practices as CGUs which stand for “cash generating units.” I think that says it all.
Unfortunately, there is a risk that the same thing could happen in the letting industry. I am old enough to remember the first phase of mergers and acquisitions in the 1980s when banks and building societies bought up estate agency businesses in order to sell mortgage services to their clients. In the process of trying to achieve this, they stopped the staff from being good estate agents and we all know how that fiasco ended.
This time around, the mergers and acquisitions boom is focused on letting agents, not sales agents and it is built on careful research and logic. The fact that underpins everything is that an independent letting agent typically makes a profit margin of 10-15% of turnover but if their letting book is bought by a larger competitor, they will make a profit of 40-50% on this additional income. They can therefore afford to pay a generous price to acquire a competitor and still make a return on capital of 25-30%. But they will only achieve this if they retain the landlords.
Most of the acquiring companies are run by experienced and sophisticated people who understand the importance of maintaining customer service levels and as a consequence, they have been successful at retaining the clients post-acquisition, but some acquiring companies have not and we have seen the consequences of this.
A common trick is to use Covid restrictions or new compliance legislation as an excuse to reduce service levels and save money. For example, I know of one letting agent who still operates all their offices from behind locked doors “due to Covid.” No-one is allowed in for any reason. Their real motivation is that they do not want tenants or landlords visiting them in person because it is time-consuming and expensive. It is much quicker and cheaper to deal with them by email.
Some letting agents have gone further still and now insist that due to Covid and new compliance restrictions, all maintenance issues can only be reported by email. This is so that there is an audit trail of when the fault was repeated and when it was repaired. This is partly true but the main reason once again is cost savings.
Most of our buyers understand the importance of maintaining customer service and are doing a great job of running the businesses that we sell them. But, a small minority are not and we are increasingly reluctant to deal with them for good commercial reasons; if service standards slip, then landlords will leave and the turnover will reduce. If the turnover drops, the seller will not get their second payment.
The result is that the buyers stop buying businesses because they are not getting the expected returns. The sellers are cross because they were paid less for their business than they expected. And we are out of pocket because we have to make a pro rata commission refund.
The consolidation of the veterinary sector is much more advanced than the consolidation of the letting agent sector. Nevertheless, lessons can be learned. The independent vets are fighting back and are beginning to regain market share. I personally will be moving my custom to an independently owned veterinary practice. It is important that letting agents continue to recognise that service is key to the success of their business models.
Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years.