MWI Veterinary Supply, Inc.

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MWI Veterinary Supply, Inc.

651 South Stratford Drive
Suite 100
Meridian, Idaho 83642
U.S.A.
Telephone: (208) 955-8930
Toll Free: (800) 824-3703
Fax: (208) 955-8902
Web site: http://www.mwivet.com

Public Company
Incorporated: 1980 as MWI Drug Supply, Inc.
Employees: 596
Sales: $496.7 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: MWIV
NAIC: 446199 All Other Health and Personal Care Stores

MWI Veterinary Supply, Inc., distributes animal health products to approximately 14,000 veterinary practitioners, clinics, and veterinary hospitals across the United States as well as to livestock producers. The Meridian, Idaho-based company offers a wide range of supplies, some 11,000 in total from more than 400 vendors, meeting the needs of animals of all sizes, from mice to cows. Products include pet food and nutritional products, pharmaceuticals, vaccines, parasiticides, dental, diagnostics equipment, grooming, apparel (including gowns, scrubs, masks, gloves, and eyewear), identification products, surgical equipment, X-ray machines, and even office fixtures, lighting, and flooring.

In addition, MWI provides such services as online ordering, pharmacy fulfillment, equipment procurement help, and inventory management. The company maintains pharmacies in Texas, Pennsylvania, and Idaho. Warehouses are located in nine states: Arizona, California, Colorado, Georgia, Idaho, Michigan, Pennsylvania, Washington, and Texas, which has facilities in San Antonio and Grand Prairie. About two-thirds of sales come from veterinary practices and the rest from the sale of supplies needed for the production of livestock. The $4.7 billion veterinary supply market is highly fragmented, and after going public in 2005, MWI positioned itself to be one of the major consolidators in the industry, as it seeks to not only expand the products and services it can offer to customers through internal growth but to also grow its business through acquisitions. Although MWI stock trades on the Nasdaq, the company is majority-owned by New York-based venture capital firm Bruckmann, Rosser, Sherrill & Co.

1970S ORIGINS

The man behind the MWI initials was Millard Wallace Ickes. Ickes was a practicing veterinarian in the early 1970s, working with partners at Caldwell, Idaho's family-run Kindness Animal Hospital. Like other clinics in the Northwest, Kindness had to contend with escalating drug prices. Moreover, being a small operation and located far away from the major distributors, it was not able to place the kind of large orders that would receive a discount, or decent customer service. According to Investor's Business Daily, Ickes "wisely started cutting costs by ordering his pharmaceutical supplies in bulk. What his customers didn't use, he sold to neighboring veterinarians and suppliers." MWI's chief executive officer, James Cleary, added, "After a while, he had more medicine in his cages than dogs and cats. So he turned it into a distribution business."

Founded in 1976 the enterprise was called Ickes Drug Co. At first it was very much a shoestring affair operating out of the hospital. According to company information, "A calculator and a few notepads were purchased, and they converted some of the kennels into storage rooms. News of the distributorship began to grow."

The business was received so well that it soon outgrew the hospital. Ickes was now faced with a decision: continue to practice veterinary medicine or take a chance on the distributorship. He opted for the latter and left the hospital he had served for more than 25 years. Ickes hired some salesmen, rented a small warehouse, and began to expand his product lines beyond the original drugs he carried. He also extended the company's reach so that soon the company was delivering to veterinaries and clinics throughout Idaho and made inroads into the neighboring states of Oregon, Utah, and Nevada. He found ready customers in veterinarians like himself, providing the kind of service he had always wanted. The company took pains to provide superior customer care, and it did not require customers to place large volume orders to receive competitive prices.

In 1980 Ickes incorporated the business in Idaho as MWI Drug Supply, Inc. A year later he sold control of the company to Agri Beef Company, which would take MWI to the next level and begin to grow the distributorship beyond the Northwest. Based in Boise, Idaho, Agri Beef primarily raised cattle but it had deep enough pockets to grow MWI. Over the next few years MWI was able to develop a robust data processing system to help the company efficiently buy and move greater volumes of merchandise, which continued to expand in breadth. Customer service also improved, as MWI purchased vans to accommodate an increasing level of next-day delivery service.

DENVER ACQUISITION: 1990

MWI steadily entered new markets in the 1980s. The company's expansion was accelerated in 1990 with the acquisition of Jones Veterinary Supply, a Denver based distributor. As a result, MWI's sales territory now covered 18 states. Because the company had expanded well beyond the basic drugs Ickes had once stockpiled in cages to include foods, supplies, equipment, and instruments, the name was changed to reflect this broader business mix. In September 1994 the business was incorporated as MWI Veterinary Supply Company, and it became a full-fledged subsidiary of Agri Beef.

Agri Beef continued to oversee MWI until the early 2000s, at which point it opted to sell the company, which was by now generating about $250 million in annual sales. Los Angeles investment banking boutique Grief & Co. was hired to broker the deal. Launched in the early 1990s by Lloyd Grief, a veteran of old-line San Francisco stock brokerage Sutro & Co., the firm specialized in helping middle-market companies in pursuing strategic acquisitions or putting themselves or subsidiaries up for sale. A suitable buyer for MWI was found in 2002 in New York City-based Bruckmann, Rosser & Sherrill Co. II L.P., a private equity investment firm. Bruckmann Rosser had been founded in 1995 by former investment officers of Citicorp Venture Capital, Ltd. It focused on middle market companies that exhibited strong growth potential and were leaders in their fields. MWI clearly fit the bill. The veterinary supply industry was large and growing and heavily populated with mom-and-pop operations. Along with Webster Veterinary Supply and a handful of other distributors, MWI was a dominant player in a field where consolidation was just beginning to take shape. Hence, it was no surprise that Bruckmann Rosser would find MWI a worthy acquisition.

COMPANY PERSPECTIVES

Our family of over 600 employees responds quickly to customer needs. This "What Ever It Takes" attitude is proudly felt by all departments within the company.

In June 2002 Bruckmann Rosser formed MWI Holdings, Inc., to acquire 71.5 percent of the MWI stock from Agri Beef at a cost of $19.6 million. Agri Beef retained nearly 18 percent of the business. When the transaction was completed James F. Cleary, Jr., was appointed chief executive officer. A 1990 Harvard Business School graduate, Cleary had spent six years with Morrison Knudsen Corporation, a construction and engineering firm, before joining Agri Beef in 1996. He became vice-president of demand generation before moving over to MWI in 1998 to become director of national accounts. He was then named MWI's president in 2000. In addition to serving as CEO, Cleary sat on the board of directors along with Bruckmann Rosser managing directors Bruce C. Bruckmann and Stephen C. Sherrill, and principal Brett A. Pertuz.

Under new ownership MWI over the next two years accelerated its already steady growth, driven in large part by the addition of new products and customers. In September 2000 the company had 8,000 products to offer. That number increased to 10,000 by September 2004. An important new source of revenue came from the 2002 introduction of a new line of diagnostic equipment and supplies. To land more customers, the company continued to beef up its sales force. Shortly after Bruckmann Rosser acquired control, MWI employed 82 field sales representatives. A dozen new reps would be hired over the next year and another 18 in fiscal 2004. The additional personnel helped the company to reach out to new markets, especially in the northeastern and southeastern parts of the United States. The positive impact of all these factors became evident on MWI's balance sheet. Sales increased from $281.2 million in fiscal 2002 (ending September 30, 2002), to $341.7 million in 2003, and $394.3 million in 2004.

MWI made its first move in pursuing external growth in November 2004 when it completed the $400,000 acquisition of a pet crematorium from Memorial Pet Care, Inc. Located in Meridian, Idaho, the crematorium would serve veterinary practices in the southwest portion of the state as well as eastern Oregon. Then, in January 2005, MWI spent approximately $5 million to acquire Vetpro Distributors, Inc. Based in Holland, Michigan, Vetpro was a regional animal health products distributor. Its addition allowed MWI to significantly expand its presence in the Midwest and improve its ability to distribute products in such states as Illinois, Indiana, Michigan, Ohio, and Wisconsin.

GOING PUBLIC IN 2005

With a strong track record of growth to promote, MWI was ready in 2005 to make an initial public offering (IPO) of stock. The IPO was underwritten by Banc America Securities LLC, Williams Blair & Company, LLC, and Piper Jaffray & Co. and took place on August 8, 2005. Demand among investors proved strong, and instead of pricing the stock in the announced range of $14 to $16 per share, MWI was able to command $17. With the sale of five million shares, MWI netted $76.8 million, money that was used to retire debt and redeem outstanding shares of preferred stock held by Bruckmann Rosser and Agri Beef. MWI stock was listed on the Nasdaq, and on the first day of trading soared past the $20 level. In keeping with Nasdaq listing standards that required a majority of independent directors, MWI's board of directors underwent some changes by the end of 2005. Sherrill and Pertuz resigned, and the first chairman of the board was also named (albeit a non-executive position). Director John F. McNamara was named chairman. He was the former CEO and chairman of AmeriSource Corporation and a 20-year veteran at McKesson Corporation, and was also well connected, having served as chairman of the International Federation of Pharmaceutical Wholesalers and Chairman of the National Wholesale Drug Association.

KEY DATES

1976:: Howard W. Ickes founds a pet drug distributorship.
1981:: Agri Beef Company acquires Ickes's business.
1994:: MWI Veterinary Supply becomes a separate Agri Beef subsidiary.
2002:: Venture capitalist firm Bruckmann, Rosser, Sherrill & Co. acquires company.
2005:: MWI is taken public.

Fiscal 2005 proved to be a banner year for MWI, and when the results were announced they reflected why investors had been so enthusiastic about the stock offering. Revenues grew 26 percent to $496.7 million and net income increased 80.5 percent to $4.6 million. Memorial Pet Care and Vetpo made important contributions, especially the field reps that came over from Vetpro, who were responsible for $13.7 million in new sales in fiscal 2005. Also helping out—and poised to provide greater benefitsf—was a new, larger, and more efficient distribution center that opened in Nampa, Idaho, in April 2005 and which would help serve northwestern customers. Other improvements to the distribution network was also in the works for fiscal 2006. In December 2005 a new 58,000 square-foot distribution center in Denver opened to better serve Rocky Mountain area customers. A new 30,000 square-foot distribution center in Orlando, Florida, would also open later in the year to help MWI expand its reach into the southeast. Furthermore, the company looked to build revenues through the addition of value-added services, such as the pharmacy fulfillment program, MWI's e-commerce platform, and its Sweep Inventory management system. Furthermore, the company was eyeing possible acquisitions. In May 2006 MWI found a purchase to its liking, paying $4 million in cash and stock to land Northland Veterinary Supply, Ltd. Northland was a Clear Lake, Wisconsin-based distributor of animal health products to 500 Midwestern veterinary practices. The addition of Northland was likely one of the opening moves in the next phase of MWI's growth, as it sought to fill out a national distribution network.