Company seeks to offer 'exit strategy'

SHELBYVILLE, Ala. - There's a new buyer on the horizon with ambitious plans to roll up DME companies, but it has a very tight focus.

“It's strictly an exit plan for small, rural businesses in the medical supply business,” said Norm Frohreich, CEO of FullCircle Registry. “It's as simple as that.”

FullCircle Registry, which had its start as an electronic medical records company, has launched FullCircle Medical Louisiana Inc to acquire several DME providers in that state—and eventually others—for an equal combination of stock, notes and cash.

FullCircle has named an acquisition manager in Louisiana and has been in talks with several HME providers in the state. Once it secures financing it plans to move ahead with acquisitions—likely later this year, said Frohreich.

“We're trying to put together a plan where everybody has skin in the game,” said Frohreich. “We are a profit-sharing company, which provides a great deal of motivation and productivity.”

Still, a glance at the company's most recent 10-K filing (April 2014) raises a concern. FullCircle Registry listed revenues of nearly $1.9 million for the year ended Dec. 31, 2013, and liabilities of nearly $6 million.

“They are undercapitalized for what they are trying to accomplish,” said Pat Clifford, managing director, home medical equipment, for The Braff Group.

Frohreich acknowledges the heavy burdens on the company's balance sheet, but he describes most of it as “insider” debt held by stockholders.

“Forty-eight percent of the company is held by five people,” he said. “We don't have to service that debt, and we don't.”

It's not unusual in a distressed industry like HME, which has suffered numerous reimbursement cuts combined with an onslaught of audits, for outside buyers to see an opportunity for a bargain.

“I've seen it several times in the last three or four years,” said Rick Glass, president of Steven Richards & Associates. “They somehow come out of the woodwork.”

For his part, Frohreich says he sees this an opportunity to extend a lifesaving branch.

“It pains me to see so many of these people just closing up shop,” he said. “How did they get where they are, and how can we preserve that?”

Providers looking to make an exit should always proceed with caution, say analysts.

“My feeling is that, if you really like the company, sell them your company for cash, take the cash and go buy their stock,” said Jonathan Sadock, managing partner/CEO of Paragon Ventures. “Don't take it as part of the consideration for the sale of your business—it's such a risk.”