Home respiratory therapy is a $2.5 billion business that has grown steadily over the past few years without the existence of a clear or dominant market leader.
Homedco Group's $1.1 billion merger with Abbey Healthcare Group in March marked the first time two prominent home-care companies joined forces to become the nation's largest home respiratory provider.
But faster than you can say "market leader," Coram Healthcare Corp. threw its hat into the home respiratory market last week after it agreed to merge with Lincare Holdings, a Clearwater, Fla.-based home respiratory company, in a stock deal valued at $1.1 billion.
As a result, Coram-already the nation's largest home infusion provider-now becomes the largest U.S. alternate-site healthcare provider, as well as the nation's second-largest home respiratory company. In March, Coram bought Caremark International's home infusion business for $310 million.
Both mergers represent a clear strategy by home-care companies to parlay existing capital and market presence into other profitable nonhospital markets.
In an interview with MODERN HEALTHCARE last week, Coram Chairman and Chief Executive Officer James Sweeney said the Lincare addition will allow Coram to offer managed-care providers low-cost, bundled respiratory and home infusion services.
Coram has existing branch offices in 96% of the major U.S. metropolitan markets in which home respiratory services are currently offered. Before the merger, Lincare had offices in only 50% of those markets.
Also, Lincare's solid financial earnings will improve Coram's financial position as well as its debt-to-equity ratio, Sweeney said. The company's 1994 net income rose 35% to $38 million, or $1.34 per share, compared with $28 million, or $1.01 per share, in 1993. Revenues increased 30% to $201 million.
But for Sweeney, the deal represents a significant step toward fulfilling his initial prediction that Coram would grow into a $2 billion "Columbia of alternate-site healthcare services" by 1996.
"Last year, I said that we would grow to become a $2 billion company within two years," Sweeney said. "But there's nothing magical about that number. We've already revised it to $4 billion over the next few years."
Coram will continue to expand into other nonhospital services, including dialysis, women's health, hemophilia, medical equipment and nursing ser- vices, he said.
"We also intend to continue to be aggressive in our acquisitions in the home respiratory field," Sweeney added.
Under terms of the merger agreement, Lincare shareholders will receive 1.54 shares of Coram stock for each Lincare share. Lincare now has 27 million shares outstanding.
The deal is expected to be completed in July. The combined company is projected to have a total market value of $1.85 billion.
Sweeney will remain chairman and CEO of Coram. Lincare Chairman and CEO James Kelly will become vice chairman of the merged company.