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Henry Schein Sparkles Under Stanley Bergman~article from

June 20, 2016 Since Bergman took Henry Schein public in 1995, the stock has returned more than twice as much as Warren Buffett’s Berkshire Hathaway. Photo: Rick Wenner for Barron's Henry Schein ’s name might not ring a bell, but the company’s products are ubiquitous. Your dentist probably pulls on a pair of Henry Schein gloves before poking around your molars, and your vet might use Henry Schein software to remind you to bring your dog in for a checkup. Led since 1989 by Stanley Bergman, a grandfatherly, South Africa–born accountant, the medical-products wholesaler has snarfed up market share and grown from a family-run enterprise into a flourishing multinational concern. Schein’s success has made its stock (ticker: HSIC) one of the century’s best performers. Shares are up 22% a year, on average, since 2000, compared with a gain of 4% in the Standard & Poor’s 500 index. Since taking the company public in 1995, Bergman has produced a 1,400%-plus return for investors, more than double the performance of Warren Buffett’s Berkshire Hathaway (BRK/A). “He has set the tone and culture of a company that has become a model of execution in a competitive marketplace,” says David Francis, an analyst at RBC Capital Markets. “He has done a great job of keeping the company focused on the long term while knocking out the quarter.” Barron’s caught up with Bergman, 66, at his apartment near the United Nations in Manhattan; it occupies half a floor in a high-rise building, with thrilling views of the city. Yet Bergman, who pads around in stocking feet, is down to earth, despite running a company with 19,000 employees. His home is filled with framed photos of his wife, a pulmonologist, his grown children, and young grandchildren. In the hallway are paintings of South African landscapes and market scenes. Bergman spends half the week in the city and the other half at his home in Long Island near Henry Schein’s Melville, N.Y., headquarters, a no-frills building off the Long Island Expressway. In April, Bergman signed a three-year contract to extend his tenure as Schein’s CEO. Known for patience, persistence, and affability, he is upbeat about the business of distributing products for dentists, veterinarians, and doctors. “Each one of our businesses is a terrific opportunity,” he says. “The whole theory behind health-care reform and driving better quality care is [avoiding] the noncommunicable diseases through wellness and prevention. If we keep people healthier, they will live longer. All three relate to keeping procedures out of the hospital.” Bergman’s connection with Schein began in 1978, when his then-employer was tapped to create the company’s information-technology system. Two years later, Jay Schein, a former Wall Street lawyer, became CEO of the dental mail-order supply firm that his parents, Henry and Esther, had founded as a corner drugstore in Queens, N.Y., during the Depression. Schein, who had become a mentor to Bergman, hired the young accountant, and eventually promoted him to chief financial officer. Enlarge Image At the time, the company had a generic-drug division, but the dental products it distributed were especially popular. Dental offices didn’t have lots of space to store supplies: Schein did, and delivered them quickly and reliably. By the late 1980s, it had about 10% of the dental-supply market. In 1989, when Jay Schein died of cancer, Bergman became CEO. BERGMAN AND HIS TEAM, including Jim Breslawski, now president, swung into action. First, the company spun off its drug unit. Despite its popularity, the supply business was only minimally profitable, Bergman recalls, partly because other distributors had followed Schein’s low-cost, catalog model, and partly because a new IT system had caused distribution snafus the previous year. Schein decided to expand the product line, supplying equipment and service contracts to dentists, along with software to help them with billing and scheduling. In 1989, Bergman attended a dental show in Germany and walked around handing out business cards. But the dentists already knew Schein because they often visited the U.S. for continuing education. Why not expand internationally? Schein was already in Canada, but in the 1990s an entry into the Netherlands gave the company a foothold in Europe. There, in the absence of a large competitor, Schein expanded rapidly. Next, it entered Australia and New Zealand. Bergman also decided to reach out to other types of customers. Veterinarians were an easy target; like dentists, they had small offices and were already performing dental services for pets. Physicians were next. Says Bergman: “Our goal is to help practitioners operate a better business, so that they can provide better clinical care.” In 1996, the year after its initial public offering, Schein earned $19 million on sales of $830 million. Last year, the company earned $501 million, or $5.96 a share, on sales of $10.6 billion; it is expected to earn $6.63 a share in 2016. About 50% of revenue comes from dental, 27% from animal health, 20% from medical, and 3% from technology and value-added services. Schein has plenty of headroom, given an available market of about $45 billion. It also has many competitors, including Patterson Cos. (PDCO), McKesson (MCK), Idexx Laboratories (IDXX), AmerisourceBergen (ABC), and smaller rivals, but the market is growing fast. The Chinese dental-supplies market is $600 million, 15% of the world market. Schein has several partnerships in China and wants to be the country’s first national distributor of dental supplies. Acquisitions have been crucial to Schein’s expansion. It has bought 200 companies since 1989, adding markets and new products to sell. The purchase of Dentrix Dental Systems in 1997 got Schein into software for dentists’ offices; a deal for Butler Animal Health in 2010 made the company the largest distributor of supplies for companion animals. This year, Schein acquired Vetstreet, which sends appointment and prescription-renewal reminders to pet owners. Schein usually knows the company it acquires, often for years, as a competitor or through trade associations. In many cases, it buys a majority stake of 50.1% to 80%, and leaves current management in place. Nearly 20 years after Schein bought Sullivan Dental, Tim Sullivan, son of the firm’s founder, remains. He is now president of Schein’s North American dental group. Once Schein makes an overture to a target company, the two companies’ leaders meet to ensure the right fit. Says Bergman: “Before we let a person on our team, we have to be sure they can be a DNA carrier or an ambassador of our culture.” BERGMAN’S SUCCESS at Schein owes in part to his unusual upbringing. His parents fled Germany in 1936 and spoke no English when they arrived in Port Elizabeth, on the southeastern tip of South Africa. Nevertheless, they were warmly welcomed. Apartheid wouldn’t start for another 12 years, and their new neighborhood, South End, was integrated and multiethnic, with emigres from India, Pakistan, and Malaysia. Many families had lived in South End for centuries. Bergman’s father, Arnold, had been a window dresser; his mother, Ruth, a chiropodist. Within a few years, they founded a small department store called Eric’s Store, named after their business partner. Arnold and Ruth were grateful for their welcome and anxious to give back. Eric’s soon became a center for the community. When a customer’s family lost its breadwinner, for example, Eric’s would ensure that the family had food and clothing. Ruth was gregarious—she knew the 30 employees and the customers, and their families’ business. A photo of Eric’s hangs in Bergman’s son’s restaurant, E&E Grill House, in New York’s Times Square. Bergman was born in 1950, a few years after apartheid began. South End remained mostly integrated in those early years. As a youth, Bergman hung out at Eric’s and worked at a summer camp. At Eric’s, he recalls, he learned the value of getting on with people of different backgrounds. At summer camp, he saw that the best leaders were those who got people to play together. Then, in 1968, the South African government forcibly relocated the nonwhite population. After that, says Bergman, the vibrant community of his youth “disintegrated.” Bergman graduated from the University of the Witwatersrand with a degree in accounting, and emigrated to the U.S. with his wife, Marion. He got a job as an accountant at a consulting firm, and Marion completed her medical residency. When he met the Scheins, they reminded him of his mother, as they knew everyone at their company. Each month, the Scheins gave employees a gift—Smucker’s jelly, kosher hot dogs, a Thanksgiving turkey, a case of wine. Once, they gave people coats. This resonated with Bergman. “I saw the parallel [with Eric’s],” he says. An inclusive culture and leadership remain important to Schein. Several of Bergman’s top lieutenants sit on Schein’s board. “If you have a CEO who allows executives to speak, it is obviously very helpful,” says Phil Laskawy, the retired CEO of Ernst & Young and Schein’s lead director. Executives are encouraged to copy one another on e-mails. The firm’s culture is closer to that of a law firm or accountancy. Today, team-building, employee stock ownership, and other incentives have replaced gift-giving. Employees and managers are urged to identify coaches and mentors. Intensive training to upgrade skills is common. Bergman says he wants people to feel like entrepreneurs even if they work for a big company. TO ENSURE that the DNA stays intact, potential hires interview with many Schein employees. When Bergman travels to a Schein site, he holds a roundtable discussion for employees. If they have questions he can’t answer, he circles back. Team-building also happens through employee-volunteering projects overseen by the Henry Schein Cares Foundation. Every year for the past five years, Schein has been named one of the world’s most ethical companies by the Ethisphere Institute. Like any successful CEO, Bergman is a hard worker who checks e-mail until well into the night. Like his mother, he combines an excellent memory with good people skills. He tries to meet two or three people every week who have nothing to do with his business. Recently, he met Congresswoman Grace Meng, representing Queens, and Klaus Schwab, founder of the World Economic Forum. To be sure, Schein has challenges. It recently settled federal charges that it had falsely advertised the level of encryption in dental software; it is also defending itself in actions against a group of dentists who claim that it fixed prices. Still, the future looks bright. Schein’s businesses are heavily regulated, and recalls can be difficult to execute, which might be why dentists rely on Schein so heavily. The year before Jay Schein died, a new computer system was installed. It promptly went bust, and it was too late to restore the old software. For 90 days, Schein couldn’t receive or ship goods. It nearly went out of business. Bergman and the senior managers pitched in at the warehouse to fill orders. Eventually, the new system worked properly, and the company survived. “That brought our team together,” says Bergman. It stuck together even when, a year later, Jay Schein died. “The biggest challenge we have is to make sure our culture adapts,” says Bergman. “I’m very optimistic about the company.”