A Wheeler Dealer Lifts Abbey Out Of Its Wheelchair

Timothy Maxwell Aitken has never been modest about his pedigree. The first entry on his resum reads: "Raised by his Grandfather--the first Lord Beaverbrook...a close friend and associate of Prime Minister Winston Churchill and a member of the British Cabinet." With connections like that, it may seem odd that the 49-year-old British investment banker left home to run a nearly bankrupt Southern California medical-equipment company that sold wheelchairs and walkers.

But there's more to Aitken than social snobbery: He is one heck of an '80s-style wheeler-dealer. In the two years he has headed Abbey Healthcare Group Inc., based in Costa Mesa, Calif., he has spent more than $240 million to snap up 23 small health-care companies. He closed his latest deal on Nov. 10, with the $194 million acquisition of Total Pharmaceutical Care Inc., a home-infusion company based in Torrance, Calif.

His buying binge has transformed the once moribund company into quite a contender in the fast-growing home-health-care market. It now offers services ranging from home respirators to electronic monitoring for sleep disorders. "We're watching [Abbey] with interest and growing respect," says Jeremy M. Jones, CEO of Homedco Group Inc., an industry leader. Small wonder. Analyst Joseph D. France of Merrill Lynch & Co. figures that Abbey's profits could rise by 35% this year, to $14 million, as its revenues climb 31%, to $325 million. And Abbey's stock has climbed 38% since May, to 231/2, roughly where it was in January.

Aitken first heard of Abbey in 1990, when he got a call from a Beaverbrook cousin whose company held a 57% stake in Abbey. Aitken had spent the 1980s in Britain fixing up diverse businesses, including a burglar-alarm company. So his cousin asked him to take a look at Abbey. What Aitken found was a company saddled with heavy debt and losses because of previous ill-timed expansion.

Still, with insurers battling to keep expensive hospital stays to a minimum, Aitken figured the home-health-care field held promise, and he agreed to become Abbey's CEO in 1991. At first, he trimmed Abbey's costs, closing down two dozen branches and cutting the work force in half, to 1,200. Aitken also got a break from Abbey's creditors, who feared that they would lose their investment if the company collapsed. GE Capital Corp. gave back some equity and restructured $15 million in late loan payments. Avon Products Inc., meanwhile, agreed to exchange $110 million of debt and equity, which it had received for one of Abbey's old acquisitions, for $2 million in cash and $5 million of Abbey stock.

Next, Aitken embarked on his own acquisition strategy to build a network of home services that would appeal to insurers looking for volume discounts and the ease of dealing with a national chain. So far, Abbey has snared contracts with big HMOs, such as Kaiser Permanente and United HealthCare Corp. Edward J. Novinski, who buys services for United, says his recent deal with Abbey locks in "heavily discounted" rates for a two-year period.

HMO HUNTING. Not all has gone smoothly for Aitken, though. In April, he lost a $220 million hostile-takeover bid for Boston-based Lifetime Corp., a home-nursing company that ultimately was acquired by Olsten Corp., another nursing outfit. Also, some institutional investors worry that Aitken may be sacrificing financial stability in his rush to expand. Aitken issued $200 million in debt to finance the purchase of Total Pharmaceutical. That pushed Abbey's ratio of debt to total capitalization to a hefty 74%, vs. an industry average of 35%. And critics question whether the deal was worth it. Price wars and competition to get HMO business are cutting margins in the home-infusion market. "We didn't like the acquisition," says one money manager who recently unloaded a large Abbey position. "I think it will come back to hurt them."

Aitken defends the Total Pharmaceutical purchase, insisting that Abbey must grow to compete. He says that health-insurance reforms mean the $7.5 billion home-health-care market could grow at a 20% annual clip. The challenge for Aitken, however, is to make sure that profits keep growing as fast as Abbey Healthcare.

      The company has spent more than $240 million to acquire 23 health-care outfits 
      since 1992, with total estimated 1993 revenues of $136 million. Recent 
      purchases include:
      Company                  Date Acquired
      CARE                    Nov. 10, 1993
      HOME OXYGEN & 
      MEDICAL EQUIPMENT        May 14, 1993
      WEST MEDICAL           March 12, 1993 
      HVI HOMECARE            Feb. 12, 1993
      PHARMACY                Oct. 23, 1992
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