MILLBROOK IS SEEKING TO MAKE WAVES WITH ACQUISITIONS

CHRISTINA VEIDERS

LEICESTER, Mass. -- With an investment firm soon to be its new owner, Millbrook Distribution Services, one of the largest nonfood service merchandisers in the country, headquartered here, now eyes acquisitions to increase its business.

"The strategy we want to employ is growth by acquisition," Bob Sigel, Millbrook's president and chief operating officer, told SN.

This has not been possible under the ownership of McKesson Corp., San Francisco, whose focus is on acquiring other health care supply management companies rather than packaged-goods distributors, Sigel pointed out.

McKesson completed its $400 million acquisition of the Dallas-based FoxMeyer Drug last November. Last month, it announced the acquisition of General Medical Inc., a distributor of medical and surgical supplies. It also has divested itself of Armor Products Corp., a maker of car care products.

"While McKesson had a lot of capital to deploy it didn't want to invest it in businesses that weren't health care related. We were stagnating in terms of our ability to execute our strategic plan," Sigel noted.

McKesson announced on Feb. 21 it would sell the $500 million Millbrook division to R.A.B. Holdings, a privately held New York investment group. Terms of the sale, which will be completed next month, were not disclosed.

"We have effectively restructured our portfolio of businesses to focus on health care by divesting noncore businesses," said Mark A. Pulido, McKesson's president and chief operating officer, in making the announcement that it was selling the service merchandiser.

Millbrook distributes more than 36,000 health and beauty care items, general merchandise and specialty and natural food products to more than 15,000 retail outlets in 42 states. Approximately 80% of its business is to supermarket retailers.

"The track record of R.A.B. and its ability to access the capital markets and our strategy of growth by acquisition are a perfect fit. They will help us accomplish our goals," Sigel further stated.

Companies that Millbrook is interested in bringing under its fold are other packaged goods distributors, especially those in specialty foods, Sigel said. "We're interested in whatever fits with the core competencies we have in materials handling and distribution."

In addition, Sigel expects backing for the company's initiatives, which are to upgrade its distribution and materials handling facility and develop new computer systems and technology.

Under the agreement, Sigel is to remain at the helm of Millbrook and become a partner in R.A.B. The company is to maintain its nonfood inventory and its four distribution centers here and in Harrison, Ark.; Greenville, N.C.; and Ozark, Ala. The company has more than 2,100 employees.

R.A.B. has focused on achieving long-term capital appreciation through equity investments. Through affiliated entities, the investment group and its principals have experience in wholesale distribution, having at one time owned General Medical Corp., now under McKesson, and Harris Wholesale Drug Co., which was acquired by FoxMeyer.

Concurrent with this acquisition, R.A.B. will form Artemis Capital Partners LLC, a private equity investment fund, with an objective to achieve long-term capital appreciation through equity-oriented investments and acquisitions. The venture hopes to raise up to $300 million in aggregate commitments.

Richard A. Bernstein is R.A.B.'s chairman and chief executive officer. Bernstein formerly held the same title at Western Publishing just over a year ago.

Commenting on the Millbrook acquisition, he said: "We will pursue an aggressive expansion of Millbrook's geographical coverage, markets and product lines, while seeking complementary acquisitions. Millbrook provides an excellent platform upon which we can expand our wholesale distribution capabilities to take advantage of those segments of the market that are enjoying greater growth or are characterized by less competition."