ACG Responds to the Call of Housecall

When Allied Capital Corp. acquired Housecall Medical Resources Inc. in November 2002 the deal presented both opportunities and challenges. Housecall was a division of Adventist Health Systems, a large not-for-profit provider of health care services. Housecall was one of the largest providers of home health care and hospice services in the U.S. with a strong presence in the Southeast. It also had ancillary businesses in infusion/respiratory therapy and home medical equipment. And while it enjoyed strong branch and divisional managers, the company had no independent senior management team to lead the business post-closing. “The company’s status as an orphaned division of a larger not-for-profit created a leadership vacuum that was felt throughout the organization,” said Frank Izzo, Principal of Allied Capital. “However, the company generated substantial free cash flow and had the potential to drive significant growth with the right team in place.” Recognizing the strength of Housecall’s business, with its dense network of branch locations, strong brand name, and reputation for clinical excellence, Allied Capital led the acquisition of the company with investment partners EDG Partners and MTS Health Partners. Allied Capital and EDG Partners temporarily placed their own executives in interim management positions and commenced a search for a permanent CEO. Within six months they recruited an entirely new executive management team, led by CEO John Heller, COO John Morris, and CFO Wayne Judy. This new team, supported by Allied Capital’s in-house deal and operations team, went to work quickly to implement new operational and financial systems, to recruit and train new personnel, and to reinvigorate a growth strategy of opening new home care and hospice branches in its core markets. By early 2004 Housecall had successfully made the transition to a stand-alone company and was benefiting from continuing growth in its home health markets. When Allied Capital and the other shareholders of the company recognized the significant value that had been created, as well as the favorable market conditions for home health assets, the idea of a full or partial sale of the business surfaced. This is when the ACG network came into play. In an attempt to identify a group of investment bankers focused on the health care sector, Allied Capital turned to its market contacts, many of who are active ACG members. “The ACG network gave us great visibility into the market and helped us identify those players best suited to advise the company on a potential sale,” said George Ferris, Principal of Allied Capital. Allied Capital initially sold Housecall’s respiratory therapy and home medical equipment division, which was non-core to Housecall’s larger home health care business and a distraction to the execution of the growth strategy. This division was successfully sold to Apria Healthcare Inc. in March 2004. In mid-2004 Harris Williams & Co. was selected to sell the core Housecall home health and hospice businesses. Allied Capital and Harris Williams had successfully worked together on numerous buy- and sell-side deals for more than 10 years, and they benefited from a common philosophy and culture. “Our respect for Harris Williams as a leading sell-side investment bank as well its health care team’s impressive track record and industry connections made Harris Williams the strong choice to lead the sale process for Housecall,” said Ferris. “But we still went through a rigorous selection process, interviewing several bulge-bracket and boutique firms before awarding the mandate to Harris Williams.” “In the highly fragmented home health business, Housecall is a large company and we were confident that it would be well received by the market due to the company’s scale, profitability, and strong market position in both Tennessee and Florida,” said Turner Bredrup, head of Harris Williams’ Healthcare & Life Sciences group. “The unique position that Housecall holds in the industry made Housecall attractive to both financial buyers looking for platform investments and strategic buyers interested in market expansion.” The auction process began with the company being marketed to both financial sponsors, with either a presence in or deep understanding of the home health care industry, and selected strategic buyers, many of whom were active consolidators. A leading bidder was selected to perform detailed due diligence. However, after a period of protracted negotiations, the board of directors concluded that there was limited probability of closing a deal with this buyer, and the difficult decision was made to start the sale process again. Despite the setback, the management team at Housecall and the Harris Williams’ bankers demonstrated patience and perseverance, keeping their teams focused on the business and executing the plan. In order to maximize the likelihood of closing the deal, Harris Williams’ approached a limited number of bidders that had shown interest in the company during the first stage of the process. The second time around all went smoothly. In July 2005 Allied Capital and management closed on the $106.4 million sale of Housecall Medical to Amedysis Inc., capping off an extremely successful deal for all parties involved. Gay S. Truscott Principal, Allied Capital Corporation ACG Boston [email protected] Turner A. M. Bredrup Managing Director, Harris Williams & Co. [email protected] (c) 2005 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com