MWI Vet Acquires Micro Beef

MWI Veterinary Supply Inc. (MWIV - Analyst Report), has completed the acquisition of Micro Beef Technologies Ltd for $60 million. The total consideration includes approximately $53.4 million in cash and common stock valued at $6.6 million.

MWI aims to fund the acquisition through a combination of its credit facility and 94,359 shares of common stock. After considering all acquisition and integration related expenses, the deal is expected to be slightly accretive to MWI in fiscal 2012.

Micro Beef is a health products distributor as well as an innovator of computerized management systems for the production animal market. During fiscal 2010, ended in December 31, 2010, the company reported total revenues of $193 million.

In order to drive further market share, MWI has undertaken various initiatives over the past few years. The company has acquired many companies to either gain traction in under-penetrated markets or for targeting new areas.

Earlier in 2010, MWI Veterinary acquired UK-based Centaur Services, an animal health products supplier, to strengthen its UK operations. In March this year, the company acquired Midwestern US-based Nelson Laboratories Limited, a distributor of animal health products to over 1,100 veterinary practices. We believe these acquisitions are strategically fit for MWI and therefore hold immense potential for the company’s future growth.

Revenues of the company have grown at a CAGR of 20.2% over the last 10 years. MWI’s expanding sales force fueled higher market penetration on the back of new customer wins and increased sales to existing customers. Additionally, MWI has been trying to focus on value-added services such as the e-commerce platform, pharmacy fulfillment programs for both production and companion animal products and other value-added services.

Moreover, MWI is focused on preserving long-term customer relationships as well as building new ones. Organic revenues attributable to existing customers represented approximately 40% of revenue growth during the recently reported quarter while new customers contributed the rest. We believe all these key strategies will likely drive growth going forward.

However, the company faces stiff competition from key players like Henry Schein (HSIC - Snapshot Report) and Animal Health International. Further, its business in US and UK is under tremendous pressure given the prevailing economic uncertainty in the companion animal and production animal markets, coupled with tightening credit markets. We are also concerned about the vendor dependency of the company.

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