Acquisition

KNOXVILLE, Tenn. - Allied Capital Corp launched its second foray into the HME market last month, and if this deal turns out as well as the company's first HME venture, stockholders in the $2.3 billion investment company will be jumping for joy. Allied first entered the HME market about two years ago, when it invested $7.5 million in American Homecare Supply, which industrial gas giant Air Products acquired in October for a whopping $165 million. Last month, Allied and four other investors acquired Housecall Medical Resources from Adventist Health System. Housecall generates $100 million in revenue and operates 16 HME/RT locations, 100 home health agencies, six infusion locations and eight hospices throughout the Southwest United States. “We see big things in the future for Housecall,” said Mike Gaffney, who was part of Allied's acquisition team. “Our near term focus is all about ensuring the stability, the excitement and the delivery of quality patient care. And if over time there are opportunities to grow through acquisition or organically, we will pursue those.” Adventist Health System acquired Housecall in 1998 for a reported $52 million. At that time, it looked like managed care would be a major market driver and require providers to cover broad geographic areas. Not only has managed care lost some of its steam, but Adventist has since decided to focus on its core acute care competency. Housecall's community based approach and lack of a hospital affiliation didn't fit that model, said Adventist VP LaDonna Blom-Antonio. Terms of the deal were not disclosed, but Blom-Antonio called it a “handsome purchase price.” Since acquiring Housecall, Adventist has streamline operations and turned the company into a profitable business. The new owners will most likely have to upgrade Housecall's information systems, but the company is poised for growth, Blom-Antonio said. The other investors in the Housecall deal include Healthcare Business Credit Corp, an asset-based lender that has been in Healthcare financing since 1993, and three individual investors. Allied likes the “homecare space” for the usual reasons: it has good demographics, is preferred by patients to institutional care and is cost effective, Gaffney said. Given Allied's success investing in American Homecare Supply, it's easy to see its interest in homecare and the HME. And don't be surprised if other investment companies and venture capitalists follow suite, say industry watchers. “There are a lot of venture capital companies that used to be in the technology industry and are looking for a place to put their money,” said Mark Hanley, president of O2 Science, an HME roll-up based in Tempe, Ariz. “One of the most secure and booming places to put it is healthcare. I get called quite frequently.” HME