Matria Healthcare, Inc.
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Fax: (770) 423-4640
Incorporated: 1995 as Matria Healthcare, Inc.
Sales: $87.5 million (1995)
Stock Exchanges: NASDAQ
SICs: 8082 Home Health Care Services; 3845 Electromedical Equipment
As the leading provider of high-risk, home health care obstetrical services in the United States, Matria Healthcare, Inc. offers services and provides products that assist physicians in the management of high-risk pregnancies, as well as providing home health care services for the management of other obstetrical and gynecological conditions. Matria, which was formed in 1995 through the merger of Healthdyne, Inc. and Tokos Medical Corporation, produced the only home uterine activity monitors approved to be marketed for earlier detection of preterm labor.
Origin of Eldest Predecessor
Although Matria did not officially exist until late 1995, the company’s corporate roots date to 1971, when one of its predecessor organizations first emerged on the business scene. That company, the elder of the two entities that merged to form Matria, was Healthdyne, Inc., a business created out of the deep despair of its founder, Parker (Pete) H. Petit. Petit’s life changed forever in 1970 when his six-month-old son Brett died from sudden infant death syndrome. As would be expected, the loss of his infant son shattered Petit, 30 years old at the time. But the young Georgia Tech-educated aerospace engineer did not sit home lamenting Brett’s arbitrary death. Instead, Petit did what he could to keep other parents from suffering from the same tragedy. As he later explained to a reporter from Forbes magazine, “Everybody deals with grief in different ways.” Petit’s catharsis occurred with the formation of Healthdyne and the development of a device that trimmed the number of deaths resulting from sudden infant death syndrome.
Following his son’s death, Petit worked furiously to develop a monitoring device that would sound an alarm if the heartbeat or breathing of a sleeping child stopped. Within weeks, Petit’s efforts paid off and a marketable monitoring device had been discovered, prompting him to solicit financial help from friends and business acquaintances to bring his creation to market. Toward this goal, Petit once again was successful, obtaining enough money ($60,000) to allow him to quit his job at Lockheed in Atlanta in 1971 and establish Healthdyne, the company that for the ensuing decade would derive its sales from Petit’s invention.
A year after his son’s death, Petit found himself in a new line of work and sitting atop a fledgling enterprise that had a product to market but little else. Initially, the infant monitors were marketed through a network of independent medical products distributors, enabling the company to develop a customer base that soon provided the means for survival. Healthdyne operated as such, marketing its infant monitors1 through distributors, throughout its inaugural decade of business, developing, during that time, into a flourishing concern. By 1981, the company had exceeded Petit’s highest expectations, evolving from the all-consuming need of a father to recover from the loss of his son into a thriving enterprise that had carved a new niche in the medical equipment industry and helped curb the number of deaths resulting from sudden infant death syndrome. Ahead were years of rapid growth and tumultuous change, as the success achieved during the 1970s spawned a decade of diversification that widened Healthdyne’s business scope and then sent the company reeling from the frenetic pace of expansion.
1980s Diversification by Healthdyne
At the time of Healthdyne’s tenth anniversary in 1981, it stood as an unqualified success, with annual sales eclipsing the $10 million mark for the first time and the infant monitor business expanding at a 70 percent annual rate. Despite the vibrancy of Healthdyne’s business and its industry, Petit decided early in the decade that to continue Healthdyne’s steady pace of financial growth he needed to diversify the company’s business interests. To reduce the company’s reliance on infant monitor sales and enter new business lines, Petit first needed the money to fund Healthdyne’s diversification. Accordingly, in late 1981 he sold 26 percent of Healthdyne to the public and raised $11 million to mount an ambitious acquisition program. Additional public offerings of Healthdyne stock in 1982 and 1983 yielded $74 million, bolstering the company’s ability to acquire a collection of companies and immediately diversify its business mix. This the company did in an aggressive fashion, acquiring more than 20 medical-related companies during the early 1980s that transformed Healthdyne in a matter of months into a diversified health care company.
The spate of acquisitions brought Healthdyne into a number of different business fields and expanded its product line dramatically to include medical equipment such as surgical instruments, incubators, and oxygen concentrators, which turned room air into pure oxygen for people suffering from respiratory problems. Along with the acquired businesses came an enormous boost for the company’s revenue volume, with the financial figures recorded during the early 1980s providing tangible evidence that the push was on at Healthdyne headquarters in Marietta, Georgia. Sales, which exceeded $10 million in 1981 after a decade of growth, tripled the following year, and rose even more the next year, soaring to $133 million in 1983. Company executives were exuberant, with Petit leading the way. In two short years, Healthdyne had transformed itself from small player in its industry to a diversified, rising force evidently on its way toward greatness. Petit noted as much in the company’s 1983 annual report containing the financial figures charting Healthdyne’s exponential sales gain from $30 million to $133 million. “It’s always been our goal,” Petit wrote, “to become a major health care company.” Quickly, however, that lofty aspiration would fade from the minds of Petit and other executives. Ahead were the most difficult years in Healthdyne’s history.
Healthdyne’s Mid-1980s Tailspin
In the best of times, the efficient assimilation of more than 20 acquisitions completed during a two-year period would be a difficult task for any company, but Healthdyne quickly found itself in the unfortunate position of having to orchestrate the organization of its new businesses at the worst of times. First, changes in Medicaid’s reimbursement policies significantly weakened the company’s formerly stalwart position. In October 1983, when the state- and federally-funded health care program altered its reimbursement policies, hospitals responded by drastically slashing their medical product budgets, thereby directly affecting companies like Healthdyne that relied on the business derived from health care institutions. To make matters worse, the Health Care Financing Administration made budget cuts of its own, sharply reducing the amount it would reimburse for Healthdyne’s oxygen concentrators. Perhaps the most damaging development, however, was yet to come, and for this the company could not point fingers at federal or state officials. In its attempt to build around its mainstay infant monitor business, the company, as one industry pundit charged, was distracted from the development of its second-generation infant monitor and put the new product on the market with a serious design flaw. Sales of the infant monitor plunged, dropping by 80 percent. The company’s stock responded in kind, dropping in value as investors grew wary of tying their investments to a company suffering from the effects of rapid, ill-timed expansion.
Financial figures again told the tale of Healthdyne’s fortunes, as they had during the company’s rise during the early 1980s. Between 1984 and 1988, Healthdyne recorded $66 million in losses, with each new year adding to the woes of a company whose financial health had taken a turn for the worse. In response to the company’s floundering status, Petit divested all of the hospital supply businesses, shedding most of what had been gained during the early 1980s, and refocused the company’s energies on the fast-growing home health care industry. Further, Petit invested $35 million in a line of fetal monitors and a nationwide service operation for women with high-risk pregnancies. With these moves, the stage was set for the company’s recovery, giving it the product lines that would record the greatest growth during the 1990s. There was, however, still one more hurdle Petit had to clear before Healthdyne could embark on the path toward full recovery.
Although the company was on the mend, the very fact that it had once struggled and then showed signs of recovery made Healthdyne an attractive acquisition for corporate suitors. During the late 1980s, companies were on the lookout for weakened but resurging prey, and Healthdyne fit the description perfectly. In 1988, Englewood, New Jersey-based Continental Health Affiliates aped the prevailing trend of the day and attempted a hostile takeover of Healthdyne. Petit was adamant in his refusal to give up Healthdyne’s independence, and after persuading the company’s board to fight off Continental Affiliates’ unsolicited offer, he succeeded, leaving Healthdyne on its own to pursue its course
We will carry on our tradition of innovation and working relationships in all areas of our business: clinical services, information systems, diagnostic products and managed care programs. All of which can now be provided with greater efficiency as the result of our merger. Many factors will influence our business, most especially, the way our healthcare delivery system is transformed and financed. However, the consequences and costs of poor birth outcomes have become a higher priority on the national agenda. And Matria will be on the forefront with the most experience, capabilities, qualifications and outcome data.
As Healthdyne exited the 1980s, the path ahead looked promising. Considering the sweeping changes the company underwent during the decade, Healthdyne entered the 1990s as a company much different from what it had been as it entered the 1980s. As a result of Medicaid’s change in reimbursement rules for hospitals, Petit had shed a division that sold equipment to hospitals in 1986, one of a series of divestments made during the years of staggering financial losses. Another was made in late 1989 when the company’s health care services group, which was primarily involved in rentals of medical equipment and supplies through a dealer network, was sold. Consequently, after a decade that saw Health-dyne’s operations expand and contract like an accordion, the company was reshaped for the 1990s, its primary focus on certain areas of the rapidly expanding market for home health care products, including infusion services and high-technology home health systems and equipment.
Healthdyne in the Early 1990s
Of the businesses composing Healthdyne as it entered the 1990s, the most instrumental operating company was Home Nutritional Services, one of the vestiges of Petit’s acquisition spree during the early 1980s that survived to see the 1990s. The primary contributor to Healthdyne’s sales and earnings growth, Home Nutritional Services ranked as the third largest provider of home infusion therapies, a business that was experiencing rapid growth as hospital costs soared by offering services such as sterile nutritional solutions, antibiotic therapies, and chemotherapy, along with a range of other infusion programs. Although not as strong a contributor to the company’s financial growth as Home Nutritional Services, Healthdyne’s manufacturing arm, Healthdyne Technologies, was recording a faster rate of earnings growth than was Home Nutritional Services. Healthdyne Technologies produced equipment for monitoring and treating sleep and respiratory disorders and focused its efforts on four segments of the market for home care products: respiratory disorders, sleep disorders, sudden infant death syndrome, and high-risk pregnancies. Aside from the oxygen concentrators and infant monitors Healthdyne Technologies manufactured (which brought in close to $40 million a year), the manufacturing division’s work was also highlighted by the introduction in 1990 of a device that pumped air through face masks for sufferers of sleep apnea, a chronic closing of the throat that afflicted roughly two million generally overweight adult males. Rounding out the company’s operations was perhaps the most promising aspect of its business: Health-dyne’s Perinatal Services division, a business formed in 1987 that provided home monitoring of women with high-risk pregnancies.
Healthdyne’s Perinatal Services division represented the future of the company, and like the company as a whole, was recording encouraging financial growth as the 1990s began. Healthdyne’s financial health was invigorated in December 1989 when the company raised more than $60 million by selling to the public a one-third interest in Home Nutritional Services. Buoyed by the infusion of this cash, which was used to reduce bank debt and strengthen working capital, Healthdyne once again took on the luster lost during the mid-1980s. After recording losses of $21.3 million, $5.5 million, and $5.4 million in 1986, 1987, and 1988, respectively, Healthdyne posted a promising $7.1 million gain in 1989. Revenues, meanwhile, had also surged ahead, increasing from $48.3 million in 1987 to $103.4 million by the end of 1989. Further financial growth was expected in the years ahead, particularly from the company’s Perinatal Services division, which was expected to record a strong sales gain from the introduction of what the company called ’ ’System 37, ’’ a device for home monitoring of uterine activity. The only hitch in the company’s plan to realize what was expected to be an 80 percent increase in Perinatal Services’ sales total was approval by the Food and Drug Administration (FDA) to put System 37 on the market. While awaiting the nod from federal officials, Healthdyne was beaten to the punch by a rival home health care services company that took its name from the Greek word for “childbirth,” Tokos Medical Corporation, Healthdyne’s future partner.
Tokos Medical During the 1990s
The nation’s leading provider of home health care services to women at risk of premature labor, Santa Ana, California-based Tokos Medical Corporation pioneered the market of home obstetrical care in 1983 and, as the 1990s began, stood as the only company in the country to boast a uterine monitor approved for home use by the FDA. Healthdyne failed in January 1991 to get FDA approval for its own uterine monitor version, making Tokos Medical the industry leader and Healthdyne a distant second, with the two companies controlling 60 percent and 30 percent of the perinatal services market in the United States, respectively. Tokos Medical’s uterine monitor, which was worn like a belt, could detect premature labor long before its wearer could and early enough to allow medical intervention to delay delivery, alerting medical personnel through readings transmitted via modem. The device was used on an outpatient basis, thereby eliminating the need for costly hospital observation. The financial merits of the device to health care insurance companies were easily discernible. As one investment analyst noted in Barron ’s magazine, “The company [Tokos Medical] is providing a service at $100 a day to which the alternative, if they don’t provide that service, is $1,000 a day.”
Much the same could be said of the financial benefits realized from using Healthdyne’s services, which held the company in good stead as health care costs soared during the early 1990s and insurance companies increasingly sought cheaper alternatives to lengthy hospital stays. During the years leading up to its merger with Tokos Medical, Healthdyne once again took on the accordion-like behavior that characterized its movements during the 1980s by gradually stripping itself of business interests to leave only its core Perinatal Services holdings. In 1993, Healthdyne sold 19 percent of its Healthdyne Technologies subsidiary in an initial public offering, which produced a pretax gain of $9.5 million. Two years later Healthdyne completely spun off its manufacturing arm. Home Nutritional Services, meanwhile, was sold to W.R. Grace Co., leaving Healthdyne as strictly a services and software company by the mid-1990s. Against the backdrop of Healthdyne’s waning stature, Tokos Medical struggled financially, recording a $5.8 million loss in 1994 on revenues of $100.7 million. “Both companies,” Petit confided as Healthdyne and Tokos Medical were contemplating their union, “have struggled the last three years.”
1995: Matria Is Created
In October 1995, the merger between Healthdyne and Tokos Medical was announced, paving the way for the creation of a $160 million maternity-management company. Expected to create a more efficient company, the merger was applauded by industry pundits who perceived the corporate marriage of the two industry leaders as a prudent strategic move. “These are, by far, the two major players in the field,” one analyst noted, “it’s sort of like Coke and Pepsi merging.”
The merger was completed on March 8, 1996, creating Matria Healthcare, Inc., a leading provider of specialized obstetrical home health care services. Retaining the headquarter offices that were formerly occupied by Healthdyne in Marietta, Georgia, Matria took its two top executive positions from Healthdyne and Tokos Medical, with Petit named as chairman and Robert F. Byrnes, Tokos Medical’s chairman and chief executive officer, selected as Matria’s president and chief executive officer. As the company headed toward the late 1990s, the integration of Tokos Medical and Healthdyne was expected to save Matria roughly $30 million, providing a much-needed lift for a new company charting its plans for the future.
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—, “Emmett’s Guardian Angel,” Forbes, December 23,1991, p. 66.
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—Jeffrey L. Covell