A Member of Pat McKeough’s Inner Circle recently asked for his advice on henry Schein, a global distributor of dental and medical consumables with operations in 33 countries.
Pat likes the firm’s strategic acquisitions as a major new investor should spur positive changes. However, he also notes the risk of the company’s growth-by-acquisition strategy.
HENRY SCHEIN INC. (Nasdaq symbol HSIC; www.henryschein.com) is a global provider of healthcare products and services primarily to office-based dental and medical practitioners.
The company has more than one million customers worldwide and operations in 33 countries, including the U.S., Canada, and the U.K.
Schein manages a centralized and automated distribution network, with a selection of more than 120,000 branded products, and an additional 180,000 products available as special-order items.
The company conducts its business through two segments: (i) health-care distribution and (ii) technology and value-added services. These segments offer different products and services to the same customer base.
The health-care distribution segment (92% of sales) distributes dental and medical consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
The global technology and value-added services group (8% of sales) provides software, technology and other value-added services to health-care practitioners. Henry Schein One, the largest contributor of sales to this category, offers software systems for dental practitioners. This segment also includes a small medical software business known as MicroMD. In addition, the company offers physicians a broad suite of electronic health records, integrated revenue cycle management, and patient communication services.
Note, Schein’s value-added solutions include financial service offerings like arranging credit. Schein doesn’t take on the liability of such loans but instead receives a fee for coordinating loans between practice customers and third-party banking groups.
The company spun off its animal health business in February 2019. The spinoff then merged with the privately held Vets First Choice to form Covetrus Inc. (Nasdaq symbol CVET on Nasdaq). Schein shareholders received 0.4 shares of Covetrus for every Schein share they held. In October 2022, Covetrus was taken private by investment companies Clayton, Dubilier & Rice, and TPG Capital.
In the three months ended September 30, 2024, Schein’s revenue rose 0.4% to $3.17 billion from $3.16 billion. Earnings (excluding one-time items) fell 10.4%, to $155 million, or $1.22 a share, from $173 million, or $1.32. Earnings were hurt by increased acquisition-related expenses,
restructuring charges, and lingering effects from a cybersecurity attack in 2023. Challenging economic conditions in certain markets also lowered profits, particularly in the Dental business.
Henry Schein: Homecare medical supplies is a new growth market
Schein has spent more than $4 billion on acquisitions in the last five years. Most recently, on January 15, 2025, it completed the purchase of Acentus. The purchase price has not yet been disclosed. Headquartered in Tampa, Florida, Acentus has annual revenue of approximately $35 million.
Acentus is a U.S.-wide medical supplier specializing in the delivery of Continuous Glucose Monitors (CGMs). The acquisition helps to bolster Schein’s presence in the homecare medical supplies market. This has been a focus area for the company in recent years, as it also acquired Medical Products in 2021 and Shield Healthcare and Mini Pharmacy in 2023.
Homecare is still a relatively small component of Schein’s overall business, but it represents a substantial market opportunity. So far, the company’s homecare medical products platform has an annual sales base of about $350 million.
Meanwhile, in January 2025, announced a strategic investment by funds affiliated with KKR, a leading global investment firm. In addition to KKR’s current holdings, KKR will make an additional $250 million investment in the Schein common shares. As a result, it now owns 12% of Schein.
In addition, under the agreement between Schein and KKR, Max Lin and William K. “Dan” Daniel will join Schein’s board of directors as independent directors.
Lin is a partner at KKR where he leads the Health Care industry team within its Americas Private Equity platform. Daniel is an executive advisor to KKR and former executive vice president at Danaher Corporation.
Together, Schein and KKR will aim to collaborate to pursue additional opportunities to create shareholder value and drive growth at the company.
Growth by acquisition adds risk, but Schein aims to cut that risk by buying smaller competitors that it can easily integrate. Meanwhile, its recent acquisitions—including Acentus—should be good fits for Schein and add to its prospects.
At the same, the involvement and expertise of KKR is a big plus.
Recommendation in Pat’s Inner Circle: Henry Schein Inc. is okay to hold.
