Portfolio: The Riverside Company and Simcro

When The Riverside Company first approached New Zealand-based Simcro about the possibility of a takeover, it found the company's ambition to be more than a match for its own - and far beyond the animal drug device manufacturer's rivals.

"The most that we could see in any competitor was an R&D team of three engineers. Simcro had more like nine or 10 engineers," says Steven Spiteri, a principal at Riverside. "That was an investment that the company had made predating our involvement, all with the philosophy of having that engineering competency so they could go out with confidence to the pharmaceutical companies."

This level of industry expertise and ability to engage clients in ways that competitors could not was just the kind of enthusiasm US-based Riverside was looking for as it sought to expand its portfolio in Australia and New Zealand. The GP ended up purchasing a controlling stake in 2013. Now with the three-year anniversary of the acquisition approaching, both parties are eager to see the company raise its global profile in the animal health industry.

Riverside's expectations are not based on any fanciful wish but on a very realistic view of the marketplaces that we compete in and our ability to build our competencies – Roger Wakelin

Simcro first came to Riverside's attention when Will Rouse, then the CEO and principal shareholder, was looking for a partner to help accelerate the company's growth. Rouse had invested in the company in 2007 and taken the CEO job at the same time; over the ensuing six years, Simcro had developed a number of well-regarded products, but Rouse was convinced it could do even better.

"Simcro had probably come to an end of what it could do without significant acquisitions, and without significant changes in strategy choice as well," says current CEO Roger Wakelin, who took over from Rouse in 2014. "The role Riverside has played in challenging the business to find new ways of doing business in the global marketplace has been very significant in helping Simcro overcome any inertia that might have developed."

Expertise required

One key requirement for the new owners would be positioning the company in the broader industry. Rouse felt he would not be able to do this, since he had no prior experience in the animal health industry before he joined Simcro. Though he had been able to draw on his history in financial services with Citibank and as CEO of industrial products importer and distributor Am-Tech, he believed the company needed an executive team with more relevant expertise. Riverside offered both the networking capabilities to recruit the top talent and the capital needed to support Simcro's other expansion goals.

For Riverside's part, Simcro represented an interesting way to take advantage of the rising global middle class and increasing demand for high-quality sources of protein. Though Simcro was not directly involved in the production of food animals, the GP knew that the animal health industry would benefit from the anticipated boom. A report by Cowan & Company estimates that industry sales, which were $23 billion worldwide in 2013, will top $31 billion by 2020.

Aside from the appeal of the industry, Riverside was drawn to Simcro for a number of reasons. One element was the company's philosophy of customer engagement: unlike many of its rivals, Simcro partners with drug developers and designs its hardware to meet the specific needs of the treatments they are working on. For instance, if two drugs are to be injected at the same time, Simcro can make sure a device with that capability is available so that the delivery process is as efficient as possible.

"We saw that partnership mentality as a disruptive model to what was otherwise an industry that just focused on producing devices and then going out and trying to sell them to the pharmaceutical companies," says Spiteri. "As a new pharmaceutical product gets through its regulatory hurdles, our device is standing there side by side."

The Sekurus injector is an example of Simcro's partnership approach. Developed for Pfizer Animal Health - now called Zoetis - the product provides a safer delivery method for the company's bovine and swine drugs. Previous methods required veterinarians to fold the animal's skin with one hand and administer the injection with another; if the animal moved during the procedure, users could accidentally inject themselves. The new design incorporates the folding into the device directly, eliminating the risk to the user.

Developing Sekurus around the needs of the end user is another hallmark of the company's business philosophy; Simcro engages with the farmers and vets who will have to put its products to use, to make sure the hardware is safe and reliable.

Change of leadership

The private equity firm's challenge when it took over, then, was to give Simcro and Rouse the support they needed for their growth ambitions, helping to reach new markets and recruit better management without stepping on the knowledge and talent that had taken the company to this point. One of the first tasks was to find a new CEO to replace Rouse, who intended to stay on as executive chairman and as a board member while stepping aside for a manager with more industry knowledge.

The firm conducted a thorough search over the next year, eventually finding Wakelin, whose background matched that of Simcro itself. Born in New Zealand, Wakelin had spent more than a decade working in veterinary practices for both production and companion animals in Ireland, the UK and South Africa, along with his home country.

After this phase, Wakelin had moved into the animal pharmaceutical industry, with stints at Pitman Moore, Bayer and Merial USA. His familiarity with animal health and with the pharmaceutical industry in New Zealand and globally made him a prime choice to lead Simcro as it tackled new geographies and new customers.

"Simcro has certainly got an enviable position in the marketplace that we are in, but there's clearly room for substantial growth," says Wakelin. "Riverside's expectations are not based on any fanciful wish but on a very realistic view of the marketplaces that we compete in and our ability to build our competencies."

Riverside's other priorities included updating the company's international business model. While Simcro had established relationships with many global animal health companies, Riverside felt that it could help improve its presence in regions where it was underrepresented. The GP took steps to strengthen these teams. So far Simcro has hired a regional sales representative for Asia and two representatives in Latin America, along with augmenting its existing employee base in the US and Europe.

"When we invested in 2013 Simcro had only one individual based overseas, and that was in our UK office. The sales and marketing team was based out of New Zealand, and flying into key markets," says Spiteri. "We've really helped challenge that sales and marketing model and migrate it to a truly global execution model."

Riverside is also intent on improving operations in existing markets by branching into new product segments. Currently Simcro is heavily focused on pursuing the companion animal health sector, which offers even stronger opportunities for growth than its traditional production animal market. The potential customer base here is much higher due to growing pet ownership worldwide. In addition, pet owners are more likely to see their animals as members of the family and therefore are willing to pay for higher quality care than farmers, who view their animals as commodities and their health as a matter of business.

The company has even considered entering the human health product field, though this is probably farther off due to the need to establish connections to the human pharmaceutical industry. For now Simcro sees its best opportunities in the animal health sector.

Along with expanding into new market segments, Riverside has pushed Simcro to invest in new sales channels. This has meant growing the company's retail footprint, which previously had not featured highly in management's thinking due to a focus on collaborating with pharmaceutical providers and marketing Simcro's products alongside the drugs themselves. Building competence in this area will require a greater understanding of a host of other areas.

"We don't want to be working through agents, so we're putting more feet on the ground to better understand the dynamics of how these products flow through distribution and wholesale into retail," Wakelin says. "We have to manage logistics, we have to manage importation, and we have to manage distribution in these markets and some elements of promotion."

Simcro's acquisition last year of New Zealand-based ISL Animal Health and Australia-based NJ Phillips is a big step toward this goal. The two companies were both previously owned by New Zealand holding company Forlong & Maisey, which has several animal health-related manufacturing businesses.

ISL and NJ Phillips are expected to help Simcro grow toward its ultimate goal, which is to become an end-to-end designer, manufacturer and distributor of animal health systems. Riverside played a major role in sourcing and financing the transaction. It is also assisting with the ongoing integration of the two companies with the parent.

Other overseas moves address Simcro's product pipeline. Riverside has helped the company expand its supplier network, most notably by opening a Shanghai office through which Simcro can communicate with suppliers and source parts to be assembled in its factories in New Zealand and Australia.

The PE firm's investment has been driven by its belief in Simcro's strong growth potential; with the company posting EBITDA of less than NZ$20 million at the time of Riverside's investment, the GP felt there was a lot of room to expand. Currently it is targeting an earnings increase of at least 40% year-on-year - an ambitious goal that Riverside believes Simcro can achieve as the new global initiatives come into place.

"For the better part of eight or nine months at this point, the team has been heavily focused on integrating those acquisitions into our business," says Spiteri. "So our primary objective at the moment is getting that locked down. We're getting closer and closer, and a lot of boxes are being ticked off, but we've probably still got some heavy lifting over the next three months to really fit them in."

Ideal owners?

Thought is also being given to Simcro's future, particularly after Riverside exits. Though this is not expected for at least another year - after ISL and NJ Phillips are fully integrated and the overseas teams have been further expanded - the GP has nevertheless held discussions with Simcro's management about what the company's next owner should look like. They agree on several attributes that a future buyer must have.

For one thing, the new owner must be able to commit to supporting Simcro's powerful research and development team. "It is an investment that the business makes, with long-term payoffs, and we really believe it's what makes Simcro special," says Spiteri. "I think Riverside has come in with this mentality, that you've really got to appreciate the investment into the research and development side, and understand the process and the benefits that come with that."

Another requirement is that the next owner must have at least an interest in the animal health market, if not experience with it. A buyer that is only interested in the financial returns it can get from Simcro will not give the company the support it needs to outmaneuver its rivals. Nor will a buyer that lacks a global reach and mindset be able to help the company in the international markets that will be key to its growth.

Whatever direction Simcro's trajectory takes, the company sees its partnership with Riverside as fundamental to its development. Management is confident the PE firm will continue to supply them with the backup that they need as they move forward.

"We certainly see and hear from Riverside that there's no end to the support for any and all opportunities for growth," says Wakelin. "I'm paraphrasing Will [Rouse] a little bit, but Will has said to me that Riverside has always delivered on its promises."

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• Topics
• Australasia
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• Buyouts
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• The Riverside Company