Big investment boosts morale at O2 Science

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Sunday, October 31, 2004

TEMPE, Ariz. - A year after its major investor filed for Chapter 11 bankruptcy, O2 Science regained its footing by securing $10.2 million in financing. The cash infusion allowed the company to eliminate $250,000 a month in interest payments and resume its acquisition activity, said O2 Science CEO Mark Hanley.

“I don’t know if anyone thought we were down and out, but they might have thought we were in trouble,” Hanley said recently. “We are now in much stronger financial shape, and morale has never been better.”

O2 Science formed in 1999 as an HME roll-up focusing on home respiratory services. The company currently operates 16 locations and has an ultimate goal of increasing that to 25.

DVI, a medical finance company and at the time O2 Science’s major lender, filed for Chapter 11 bankruptcy in September 2003. In August 2004, Kline Hawkes & Co., a Los Angeles private equity firm, invested $10.2 million in O2 Science. O2 Science used that money to buy out DVI’s equity and pay off 80% of its debt.

As part of the Kline Hawke’s investment, 15 to 20 key managers became part owners in the company. As a way to build loyalty and keep everyone focused on the company’s goals, O2 Science intends at some point to give all employees options in the company, Hanley said.

Despite worries and uncertainty about Medicare reimbursement cuts, Hanley said, he had little trouble locating an investor to replace DVI. He spoke to about 25 venture capitalists and private equity groups and ended up with “three nice offers to chose from.”

“They didn’t go into this blindly,” he said. “We took the assumed cuts into considerations, and it is still attractive. I don’t want to give Medicare the impression that it is not a hit, but we are an extremely well run company. If it were not for that you could have a lot of problems. We have a low DSO and do well on our collections. That made us more attractive.”

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