Apria CEO Higby: Coram is Worth $350 Million

Orange County Business Journal, Oct 22-Oct 28, 2007 by Reed, Vita

Apria Healthcare Group Inc.'s chief executive doesn't think he's paying too much for rival Coram Inc., even if Wall Street does.

Lake Forest-based Apria, the nation's largest home health provider, is spending $350 million for Coram, a privately held provider of drug and feeding treatments to patients in their homes.

The deal is considered the biggest in home healthcare since the $1.2 billion combination of Orange County's Abbey Healthcare Group Inc. and Homedco Group Inc., which created Apria in 1995.

The size of the Coram deal took some investors aback.

Apria shares fell 6% on Oct. 16, a day after the deal was announced. The company counted a market value of $1 billion at recent check.

Apria Chief Executive Lany Higby defends the price.

"If you look at what infusion companies have been selling for over the last couple of years, this is right in line with what other people are doing," he said.

Higby cited Walgreen Co.'s buy of Option Care Inc. of Buffalo Grove, DL, in September "basically for the same multiples."

Walgreen paid $850 million for Option, another infusion company.

Apria is paying roughly 16 times what privately held Coram's earnings are before interest, taxes and other items-the same multiple Walgreen paid for Option.

"I think you're going to have to look at (Coram) a year from now when we complete! all the synergies that are available, and I thinkl you'll find that it's a very favorable transaction," Higby said.

Analysts like how the deal will broaden Apria, which gets about two-thirds of its $1.5 billion in yearly revenue from providing breathing treatments to patients in their homes.

But some balked at the price.

Arthur Henderson, who follows Apria for Jefferies & Co., wondered "why Apria would pay such a high multiple for Coram."

Citi Investment Research analyst Matthew Ripperger also was lukewarm.

"Though we view this announced $350 million acquisition as a first step by Apria to better differentiate its role in the home medical equipment industry, the price paid for a slow growth, low margin infusion/specialty drug distributor seems too deep," Ripperger wrote in a note to clients.

An upside, according to Henderson: Apria could cut its exposure to pending Medicare reimbursement cuts next year and in 2009 with Coram in the fold.

Medicare accounts for about 30% of Apria's revenue with insurers making most of the rest.

Cutting Medicare exposure isn't enough for Ripperger: "Though infusion and specialty drug distribution does potentially provide a new, less regulated growth opportunity for (Apria) as the largest player, the price paid for this asset appears too rich, and in our opinion, further corroborates our near-term concern over the Medicare oxygen reimbursement environment."

Buying Denver-based Coram fills in Apria's infusion network and makes it a nationwide provider, according to Higby.

The Coram deal does represent a departure from Apria's historic pattern of buying smaller regional home health players and integrating them into its network, a process Higby's called "Apriatization."

The company itself moved away from that strategy after acquiring what it felt was enough companies, Higby said.

"We'd really filled in our network," he said. "We had the ability to serve anybody, any patient, anywhere in the U.S. There wasn't a need to buy any more companies from a strategic perspective."

Coram was different, according to Higby.

"We have competed against Coram for a number of years and always found it a topflight organization," Higby said.

Apria had been watching Coram, which has yearly revenue of $500 million, for the past year and a half, he said.

Home infusion is set to see "absolutely explosive growth," Higby said.

"Some people are estimating 100% (growth) over the next five, seven years," he said.

And the similar businesses of both companies should end up saving Apria money when the integration is complete.

The deal could close in early November.

Coram has 2,100 workers nationwide, 70 home infusion branches and 50 companyowned ambulatory infusion suites.

John Arlotta, Coram's chief executive, and his management team are slated to continue leading Coram's operations after the deal.