Buyer: Great Elm
Seller: Valley Healthcare Group & Northwest Medical
Sector: HME, Medical Supply
Keywords: HME, DME, Home Health, Medical Supply
Combined companies generated revenue of $47.1 million, net income of $3.4 million and Pro Forma Adjusted EBITDA of $12.9 million for the trailing 12 months ended June 30, 2018
Purchase Price corresponds to 4.9x June 30, 2018 TTM Pro Forma Adjusted EBITDA
Opportunity to realize significant operational synergies for the combined companies
Represents Great Elm’s first operating company acquisition
Great Elm Capital Group, Inc. (NASDAQ: GEC, “Great Elm”) announced it has partnered with the management team of Valley Healthcare Group (“VHG”) to acquire and combine VHG and Northwest Medical (“NWM”) to create a leading regional provider of sleep and respiratory-focused durable medical equipment and services across five states in the United States, serving approximately 70,000 patients annually. The acquisition of NWM represents VHG management’s eighth acquisition since Ron and Pam Evans co-founded VHG in 2006.
The combined company will be a leader in the distribution of positive air pressure (CPAP / BiPAP) machines and supplies, sleep studies, ventilators and oxygen equipment for patients with sleep and respiratory conditions, such as obstructive sleep apnea, in Arizona, Nebraska, Washington, Oregon and Alaska. The combined company, which will continue to operate under local brand names, is well positioned to grow organically and to consolidate the fragmented durable medical equipment industry. The acquired businesses have reputations for providing the highest quality patient care, education and customer service, internally observing patient compliance rates well in excess of national averages.
“Our acquisition of VHG and NWM aligns well with GEC’s broader value creation strategy and represents Great Elm’s first operating company acquisition,” remarked Peter A. Reed, Chief Executive Officer of Great Elm. “Both companies are led by experienced and talented management teams with demonstrated track records of growth. VHG’s historic investments in its people, processes and technology position it to drive growth and enhance the operating efficiencies of other sleep and respiratory-focused providers who, like NWM, already have outstanding reputations for patient care, education and service. These combined companies should benefit from Great Elm’s platform and tax assets, which are expected to enhance free cash flow, support further business growth and pave the way for follow-on acquisition opportunities.”
“This transaction is a testament to the entire team at VHG, where our patient-focused culture has driven significant growth and profitability. We have long admired Northwest Medical’s dedication to patient care, education and customer service. With Great Elm’s support, we believe that we will continue to grow organically as well as be an acquirer of choice for other sleep and respiratory-focused businesses who share our commitment to high-quality patient care,” said Ron Evans, Co-Founder and CEO of Valley Healthcare Group.
“We have been very pleased with our investment in Northwest Medical and its exceptional management team. We are now excited to be both a lender to and minority shareholder of the combined company. We look forward to partnering with Great Elm to support the future growth of this outstanding business and to continue to provide best-in-class service and customer care,” said Jeffrey Schwartz, Managing Partner of Corbel Capital Partners.
Details of the Transaction
Great Elm has purchased an 80.1% equity interest in an entity formed to acquire and combine VHG and NWM. The transaction purchase price of $63.6 million, excluding financing, closing professional fees and expenses, as well as the contingent consideration described below, was funded using $19.7 million of cash from GEC’s balance sheet. The remainder was funded using $31.3 million of secured debt, $5.3 million of qualified preferred stock and $7.3 million of equity rollover from Ron and Pam Evans and Corbel Capital Partners. All debt incurred to fund the transaction is non-recourse to Great Elm.
In addition, up to $2.4 million of deferred purchase price consideration may be paid to the sellers upon achieving increased financial targets in 2018 and 2019.
The combined companies generated $43.6 million in revenue, net income of $2.5 million and $11.1 million of Pro Forma Adjusted EBITDA in the calendar year ended 2017, including estimated cost synergies. For the trailing twelve months ended June 30, 2018, the combined companies generated $47.1 million of revenue, net income of $3.4 million and $12.9 million of Pro Forma Adjusted EBITDA, including estimated cost synergies. See “Non-GAAP Financial Measures.”