Homedco Says It Will Buy Georgia Firm : Health care: The $72-million cash deal would nearly double the Fountain Valley company’s size and make it the nation’s second-largest such firm.
Serving notice that it intends to be a major force in the booming home health care business, Homedco Group Inc. said Monday that it has agreed to buy a Georgia company for $72 million cash.
The acquisition of Glasrock Home Health Care Inc. of Smyrna, Ga., would nearly double Homedco’s size and position it as the nation’s second-largest home health care company in an industry that has been growing annually by up to 30%, analysts said.
The definitive agreement, which would require government antitrust clearance, ends a month of speculation that briefly pushed Homedco’s stock up 14% in heavy trading.
Jeremy M. Jones, Homedco’s chief executive, was low key, calling the deal a “nice acquisition” and a “real positive move for the company.”
Analysts were more effusive.
“This makes them a very, very strong participant” in the home health care industry, said Vivian Wohl at Robertson Stephens & Co., a San Francisco investment banker.
Homedco’s acquisition, expected to be final within 60 days, comes as an increasing number of medical experts see home health care as the fastest-growing segment of the medical industry.
In the next few decades, the young, $15-billion-a-year home health care industry could surpass the mammoth hospital industry in size and revenue, said Neal C. Bradsher, an analyst at Alex. Brown & Sons in New York.
As the home health care business grows and matures, the multitude of companies will continue to consolidate, making the survivors stronger, he said.
“We believe you will see the alternative site system displace the hospital site system in the country,” Bradsher said.
Home health care is considered to be a cheaper, more humane alternative to hospitalization for terminally ill and chronically ill patients, as well as for recovering patients.
The Homedco acquisition “makes good sense,” Bradsher said, but it is still a risk. He speculated that some physicians who refer patients to Glasrock may have to be convinced that their patients are going to receive the same treatment under Homedco’s management.
“Those are people risks,” he said. “You have to worry about the relationships.”
But Jones is not worried.
The Homedco-Glasrock deal will provide patients with expanded services. Homedco patients would have additional respiratory services and sleep disorder therapies available, while Glasrock customers would gain access to home intravenous therapy, a specialty service of Homedco, which also offers respiratory services. Glasrock also provides medical equipment.
To pay for Glasrock, Homedco is taking out a $133-million line of credit through Banque Paribas in France, Jones said. The leveraged buyout will increase the company’s debt load, to 57% from 34%, Wohl said, but he added: “This is a business where you can operate with that kind of leverage.”
The Homedco deal would create a company that would have revenue of $429 million, based on Glasrock’s 1991 revenue of $200 million and Homedco’s anticipated fiscal 1992 revenue. The only bigger competitor is Illinois-based Caremark Inc., a Baxter International subsidiary that had 1991 revenue of $700 million.
In addition, the combined company could save up to $5 million annually in billing and administrative costs, once Homedco absorbs the costs associated with the purchase, Wohl said.
The savings will come mainly by eliminating 52 offices in areas where offices of the two companies overlap and can consolidate, mainly in the Midwest. Homedco has 120 offices in the West and the Midwest. Glasrock, a subsidiary of BOC Health Care in Britain, has 132 offices in the East and Midwest.
The acquisition would give Homedco offices in 42 states, including new locations in North Carolina, South Carolina, Georgia, Alabama, Florida and Louisiana, Jones said.
Jones said he had mulled a public offering to pay for the buyout when Homedco first approached Glasrock in January. But he later changed his mind, saying that acquiring short-term debt would be “simpler and easier to orchestrate.”
Besides, he said, health stocks in general did not perform well in the first two quarters of this year. “With the market down,” he said, “it’s more timely to do it with debt.”
For instance, Homedco stock was up to $29.50 a share in early January but fell to a low of $20.50 in May.
The price quickly rose 14% to $23.50 a share in early June, when rumors began circulating that Homedco was considering an acquisition. But the stock settled back after a Homedco statement acknowledging that a buyout was indeed in the offing.
Homedco stock closed at $19.75 Monday on the NASDAQ market, up 75 cents from Friday.
Analyst Bradsher said home health care stocks are, in general, “very depressed,” though they are beginning to improve. By the end of the year, many of the home health care stocks will “do quite well,” he said.
