New York City private equity firms Clayton, Dubilier & Rice and Goldman Sachs’ GS Capital Partners agreed to buy the parent of Edgepark Medical Supplies and Independence Medical in Twinsburg, Ohio, for a reported $850 million.
The New York firms are buying HGI Holdings Inc. in Twinsburg from The Jordan Co. and members of the founding Harrington family. In 2007, Jordan Co. bought a reported majority stake in HGI Holdings, then known as Harrington Holdings Inc., for an undisclosed price.
The deal that is reportedly nearly half debt brings the quickening leveraged buyout trend to the Ohio healthcare industr, according to Crain’s Cleveland Business.
HGI is a mail-order, direct-to-home provider of specialty medical products for chronic disease patients. The company offers customers more than 30,000 products in growing chronic disease market segments including ostomy, diabetes, urological, enteral, incontinence and wound care, according to a release.
“Medical distribution companies are characterized by low growth, high return on invested capital and strong cash flows, Steven Halper, an analyst at St. Louis, Missouri-based Stifel, Nicolaus & Co. Inc., told Bloomberg, which broke the story before Clayton, Dubilier made its release. “They are ideal private-equity acquisitions.”
So far, LBOs have typically been the tool of strategic buyers. However, financial buyers like Clayton, Dubilier are beginning to catch up, according to Mergers & Acquisitions.
“You have several dynamics at work,” P.J. Solomon managing director Andy Cowherd told ReportLinker. “Healthcare assets in private equity portfolios have been stuck there for a couple of years. Those investors are under pressure to sell them. The management teams that run them are putting pressure on investors to sell them. And you have strategic [buyers] that are building up cash, as well.”
The purchase price for HGI Holdings is about $850 million, including debt, a person familiar with the deal told the Dow Jones LBO Wire. A spokesman from Clayton, Dubilier declined to confirm that price. Clayton, Dubilier is taking a majority interest in the holding company, the first source told Dow Jones. A second source told the LBO Wire that HGI managers will roll their equity interests into the deal.
CEO Ron Harrington and the rest of HGI’s management team will remain after the deal closes, according to Dow Jones. The company reportedly has more than 900 employees and annual revenues of $562 million.
“The Jordan Company has been a great partner in helping us scale our business,” Harrington said in a Jordan Co. release. “They have been instrumental in providing the resources and strategic and operational guidance we needed to support our growth and investments in customer service. We are in business to provide our customers with the best answer to their medical supply needs, and we will continue to focus on being the highest quality provider of medical supplies and customer care.”
As for HGI’s two private equity buyers, they “have demonstrated that they understand how our business delivers value, from both a financial and operating standpoint, and strongly support our vision to continue to be the highest quality provider of medical supplies and customer care,” Harrington said in the Clayton, Dubilier release.
Since 2007, the intensely private HGI has significantly paid down the debt associated with the Jordan Co. acquisition, Dow Jones reported. The Twinsburg company’s revenue has grown between 15 percent and 20 percent per year, and its operating profit has more than doubled, one person familiar with the company told the news service.
Given Clayton, Dubilier’s experience with running distribution businesses, the firm has identified HGI growth areas including sourcing, and customer and product mix, a source told Dow Jones. The firm also has plans for developing a private-label business, the source said.
Two years ago, Harrington and his family made a $22.6 million gift to University Hospitals in Cleveland, Ohio, for its heart and vascular institute, which has since been renamed the UH Harrington-McLaughlin Heart and Vascular Institute. Harrington of Hudson, Ohio, also leads the Harrington-McLaughlin Family Foundation.