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MUTUAL SERIES FUNDS'
MICHAEL PRICE ET AL.
(continued from preceding
page)
Garea: No. Actually, the guy owns a lot of stock. But we just believe the nursing home industry is fragmented and that it's consolidating. The nursing home industry has some larger players. But the market share of the larger players is diminimous. There are just thousands and thousands of mom and pop players. So the business is going to consolidate.
OID: And Horizon will make someone an attractive acquisition.
Garea: All the little guys we've never heard of because they're not public companies are going to get absorbed.
Look at what happened in the hospital business: People saw that 85% of the hospital area was nonprofit and only 15% was for-profit. So they thought that all of the guys who were on the for-profit side were going to go out and grow like crazy. And there were eight or nine major players. So people expected them to go out and grow, take on the nonprofits and consolidate the industry until somewhere down the line maybe only 50% of the industry would be nonprofit and the rest would be split among those eight or nine for-profit players.
OID: Don't leave us in suspense.
Garea: The nonprofit share has declined - from maybe 85% to 80%. However, what people didn't expect was that one or two of the major for-profits consolidated the rest. Now there are only two big for-profit players left.
OID: So?
Garea: So I think you're going to see some of that in the nursing home business.
OID: And the implications for Horizon?
Garea: Well, I don't think Horizon's a consolidator.
OID: Consolidator meaning a buyer.
Garea: Right. The keys to who's going to be a consolidator and who isn't are one part financial valuation - in other words, do you have the currency - and one part management. And the two tend to go hand in hand in industries like this. So the best-managed companies are the ones that the market likes because they're best able to grow and do things. So they get a good financial valuation. Those are the candidates to be leading consolidators.
You saw it in the acute care business where Columbia was the main guy. And now Tenet's come along because they've done a very good job of pulling together things and doing a couple of deals. And I think that the same thing is going to be true in the nursing home area.
OR IT MAY COME THEREAFTER - AS WITH CHASE.
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