Health-Care Management Companies Plan Merger : Consolidation: To improve weak profits, Admar Group Inc. and Capp Care Inc. will merge operations, becoming one of the country’s largest preferred provider networks.
In an attempt to boost their growth and improve paper-thin profit margins, two Orange County health-care management companies--Admar Group Inc. and Capp Care Inc.--said Wednesday that they are planning to merge operations.
The proposed marriage of the two companies, now just 15 miles apart, would create one of the largest preferred provider network organizations in the country. The combined company would have revenue of more than $21 million, contracts with more than 700 hospitals and 60,000 physicians in 30 states, and serve 2.5 million people. More than half the business of the merged company would be in Southern California.
Officials of Capp Care Inc., a privately held company based in Fountain Valley, and the Admar Group, a publicly traded firm based in Orange, said the merger would create significant economies of scale and marketing clout.
“I think for both companies, achieving critical mass will afford us to be more attractive to more clients,” said Michael E. Henry, Capp Care’s president and chief operating officer. “We will be able to offer a broader array of services . . . and realize the efficiencies inherent in economies of scale.”
The deal is subject to completion of a definitive sales agreement and the approval of the shareholders and of directors of both firms. Henry said he expects the merger to be final within 100 days.
Both firms contract with health-care providers to treat plan members at discounted rates. Together, they would have a broader national reach, since the Admar Group operates in the West and Southwest, while Capp Care operates in the West, Midwest and Southeast.
Neither Admar nor Capp Care currently are very profitable organizations. The Admar Group had earnings of $141,000 on revenue of $10 million for its fiscal year ended Jan. 31. In the first quarter of its current fiscal year, Admar earned $124,000 on revenue of $2.5 million.
For the nine months ended March 31, Capp Care reported earnings of $380,000 on revenue of about $8.7 million.
Larry Selwitz, a health-care industry analyst with Cruttenden & Co. in Newport Beach, said he was disappointed with Admar’s performance and was hopeful that the merger would help both companies.
“There might be some economies of scale to help their bottom lines,” he said. “They both need it.”
Richard Toral, Admar’s chairman and chief executive, said his firm continues to feel the effects of the loss of a major customer several years ago, Lincoln National, a large Indiana insurance company that developed its own preferred provider health-care organization.
Although Admar has succeeded in attracting other smaller clients to replace the business of Lincoln National, Toral said, the smaller accounts are not as profitable.
In the proposed merger, Admar would issue to Capp Care shareholders stock representing 60% of the combined company on a fully diluted basis. After reducing the total number of shares in the transaction through a 20-for-1 reverse stock split, there will be about 5 million shares outstanding in the merged company.
