When George V. Hager Jr. joined Genesis Health Ventures in July 1992, the Kennett Square, Pa.-based geriatric healthcare company had just raised $32.5 million in a second public offering and had another $25 million available through a bank credit facility.
With $189 million in total assets, the company comprised 40 nursing homes, a small therapy company and a pharmacy subsidiary.
Today, the 40-year-old senior vice president and chief financial officer manages more than $734 million in assets, including 107 "eldercare centers," 10 primary-care physician clinics, nine institutional pharmacies and five medical supply distribution centers. In four years, Hager has raised more than $500 million in equity capital and expanded the credit facility to $300 million. Soon, the company hopes to further increase the facility to $450 million.
As winner of the 1996 Cain Brothers Award, which honors a top finance executive in healthcare, Hager will attend Harvard Business School's 1997 Focused Financial Management Series, scheduled for January.
Cain Brothers is a New York-based investment banking and capital advisory firm.
The award selection committee was impressed by Hager's creative use of financial mechanisms and tools to build the company, said Stephen M. Shortell, professor of health services management at Northwestern University's J.L. Kellogg Graduate School of Management in Evanston, Ill.
For example, as Genesis Health Ventures' Chief Executive Officer Michael R. Walker noted, Hager used a lease structure to generate off-balance-sheet financing to acquire healthcare operations.
When Hager was hired, one of his primary responsibilities was to expand analyst coverage. Only two "sell-side" analysts, who make buy and sell recommendations on behalf of investment banking firms, were tracking the company, and one had a negative outlook on the industry.
Today, 14 analysts follow Genesis. Colleagues say the CFO has deftly communicated the company's complicated story while keeping a firm hand on internal financial controls and capital planning decisions.
Genesis' "outcomes-oriented" strategy focuses on creating value for customers, Hager said. Instead of building census, the company has tried to empty beds and reduce length of stay. "I think initially it was a strategy that was not very well received," he noted.
In addition, Hager said the company's pioneering efforts to develop vertically integrated networks-each of its five regional networks links beds, physicians, rehabilitation therapists and pharmacy services-fell out of step with Wall Street's craze for "pure-play" subacute-care companies, which focus exclusively on that segment of the post-acute-care market.
Hager's conservative management of the balance sheet has boosted the company's credibility and analysts' comfort level. Not wanting the company to be overly leveraged, he has managed to maintain a 50% ratio of debt to equity. According to an Aug. 20 report by Robert M. Mains, an analyst with Hartford, Conn.-based Advest, Genesis' current debt-to-capital ratio is 54.6%, or 49.7% when outstanding convertible debenture options are excluded. "This is a reasonable figure for a long-term-care company, particularly one with an earnings stream as predictable as that of Genesis," Mains wrote.
Much of the company's growth results from targeted acquisitions. As CFO, Hager puts potential acquisition candidates through his own due diligence.
"We probably reject more opportunities than we pursue," he said, largely because Genesis has decided not to stray outside its five core markets. The company's bailiwick serves more than 3 million elderly in the Connecticut, Massachusetts and New Hampshire area; eastern Pennsylvania and Delaware Valley; southern Delaware and the Eastern Shore of Maryland; the Baltimore-Washington metropolitan area; and central Florida.
"We have pursued acquisitions that we have backed off of because of price, too," he said. Genesis buys companies based on some multiple of cash flow, such as earnings before interest, taxes, depreciation and amortization, commonly known as EBITDA. Generally, it will buy service businesses for three to five times cash flow and will pay six to seven times cash flow for long-term-care businesses.
With each acquisition, Hager must consolidate numerous billing and clinical systems. "It's a difficult job. All the financial systems are different," he said.
The company's strategy seems to be paying off. In the year ended Sept. 30, 1995, net income rose 34% to $23.6 million, or 97 cents per share, from $17.7 million, or 84 cents per share, in the year-earlier period. Net revenues grew 25% to $486.4 million.
For the third quarter ended June 30, net income more than doubled to $10.1 million, or 35 cents per share, from $5 million, or 21 cents per share, in the year-ago quarter. Net revenues rose 37% to $172.8 million.
Hager takes pride in helping to build an organization he considers "outstanding" from both a clinical and operational standpoint, and he hopes to continue down that path.