Paragon wants you

Saturday, February 28, 2009

WAYNE, Pa.--Paragon Ventures, a mergers-and-acquisition firm that represents homecare businesses, has $50 billion in committed private equity funding burning a hole in its pocket.

Paragon announced Jan. 26 that, through a new division called Highway Capital, it will play matchmaker between private equity firms looking to invest millions and businesses looking to grow.

“As the economy started to falter last year, private equity firms lost their confidence in publicly held businesses, so now they’re looking at privately held businesses, particularly in health care,” said Jonathan Sadock, a managing partner at Paragon. “And get this: They like that the government is behind much of the money in health care, because that means there is a reliability and sustainability to the payment stream.”

Paragon seeks only businesses that generate $10 million in sales per year and earn a minimum 15% net cash flow.

Think that’s too high a bar for homecare businesses? Not necessarily, Sadock said.

“There are numerous businesses in the industry today that are backed or have been backed by private equity,” he said. “Pacific Pulmonary, before Teijin. Landauer Metropolitan. Maverick Healthcare.”

With traditional funding sources paralyzed, homecare businesses would be smart to consider private equity funding, Sadock said.

“It’s an option that they’ve always had, but because of the credit crisis, they’re only realizing it now,” he said.

Even though homecare providers face continued reimbursement cuts, Sadock said, they should be ramping up not down.

“With some of the pressures in the homecare industry, scale is going to matter,” Sadock said. “Private equity provides them with liquidity, and the ability to monetize their equity and propel their businesses forward.”

While private equity firms allow businesses to, in large part, continue operations under their own name and management, there are performance and growth expectations, Sadock said.

“Part of their mission is to invest for superior returns,” he said.