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									                                                                                                             1001 Pennsylvania Avenue, NW
                                                                                                                  Suite 600 South Concourse
                                                                                                                    Washington, D.C. 20004

                                      A Seller’s Market
                                      Home Infusion Therapy Market Update                                                      July, 2007

 T     he home infusion therapy
       merger & acquisition market
 can be described as active and is mov-
                                         With the large number of buyers enter-
                                         ing into the market and relatively few
                                         sellers, valuations will continue to be
                                                                                                      Partner Profile:
                                                                                                       Chip Measells
 ing toward robust. At the beginning     strong for the next 6-8 months. We          Mr. Measells is Managing Partner at Wyatt Matas & As-
 of 2006, the Wyatt Matas & Associ-      expect more sellers to enter the market     sociates. He has been active for the past 14 years in the
 ates economic analysis team predicted   in the first quarter of 2008, thus slow-    areas of mergers and acquisitions and finance. Mr.
 that valuations                                            ing down valuation       Measells has successfully completed dozens of transac-
 would steadily                                             growth toward the        tions involving a verity of industries, including home
 improve through- “ we are currently seeing middle of next year.                     healthcare, hospice, and infusion therapy. Before joining
 out the year until        acquisitions that are Wyatt Matas & Asso-                 Wyatt Matas & Associates, he was the Director of Merg-
 they peaked                                                ciates looks at the
 around a multiple consistently exceeding 7 merger & acquisition
                                                                                     ers & Acquisitions at Fry Consultants, a global merchant
                                                                                     bank in Atlanta, Georgia.
 of 5.5 times                 times EBITDA”                 cycle for the infusion
 EBITDA for mid-                                            industry in 5 stages,    After graduating with a degree in economics from Mis-
 sized transactions.                                        with the peak of the     sissippi State University, he went on to complete his
 However, we are currently seeing        market coming in the 3rd stage. This        Masters of Arts in Economics and a MBA at Wharton
 acquisitions that consistently exceed-  means buyers are paying the highest         School of Business at the University of Pennsylvania. Mr.
 ing 7 times EBITDA (earning, before     possible prices for selling companies.      Measells serves on various committees and boards, in-
 interest, taxes, depreciation and amor- With the announcement of Walgreens’         cluding the Board of Governors for a not-for-profit mi-
 tization) and are speaking with buyers  acquisition of Option Care, (16X earn-      cro-financing institution. He has also received several
 who predict they will have paid in      ings) our current assessment of the         awards in business, including Mississippi Entrepreneur
 excess of 8 times EBITDA in order to    cycle is that we are squarely in stage 3;   of the Year and selected as part of the Mississippi’s Top
 achieve their acquisition goals.        the peak of the valuation cycle.            40 Under 40. Chip can be reached by phone at 202-661-
                                                                                     4691, or by email at chipm@wyattmatas.com

 Causes of Valuation Increases
 Private equity moves in.                                      still active as they look to leverage the infrastruc-
    Several private equity firms, or firms that manage         ture they have already acquired. They will often
    capital and typically acquire companies to add to their    start to buy smaller or distressed companies as
    portfolios, have acquired or are actively looking to       they move forward with their acquisition strate-
    acquire infusion therapy companies as part of their        gies. The result of private equity firms moving
    investment portfolios. Many of these firms have in-        into the market is positive and has increased ac-
    vested in or at least understand                                                 quisition valuations.
    home health care and are beginning Cause of valuation increases: Outlook for HR 2567
    to divert funds from their traditional 1. Private Equity                         On June 5, 2007, the House of
    home health care investments to         2. HR 2567                               Representatives introduced The
    infusion therapy. These firms tend 3. Strategic Buyers’ Cash                     Medicare Home Infusion Ther-
    to pay higher than normal valua-        4. Limited Number of Sellers             apy Coverage Act (H.R. 2567),
    tions for their first industry acquisi-                                          an updated version of last
    tion in order to obtain the strongest                                            year’s H.R. 5791, which sought
    “base” or “platform” company. Wyatt Matas & Asso-          to consolidate home infusion drugs, supplies, and
    ciates expects these private equity firms to invest be-    services under Medicare Part B. Currently in the
    tween $200 and $300 million in the industry in the         scope of infusion therapy, pharmaceuticals are
    next 12 months. After the initial acquisition, private     covered under Part D, however services, supplies,
    equity firms will become more selective, but
1001 Pennsylvania Avenue NW,                                                                                   Phone: (202) 661-4691
Suite 600 South Concourse                                                                                    Facsimile: (202) 661-4611
Washington, D.C. 20004                                                                                        info@wyattmatas.com
   are not covered by Medicare. With this bill, infusion               with significant market share. We are also seeing
   therapy will be split, with pharmaceuticals still cov-              companies in traditional home health care looking to
   ered under Part D, and supplies and services covered                acquire infusion therapy companies that will allow
   under Part B. This would have a significant positive                them to leverage their current service offerings.
   impact on the industry. The bill has received support               They are also looking for strong management teams
   from the National Home Infusion Association                         that will fit into their corporate culture.
   (NHIA), the Infection Disease Society of America,
   and B.I.O, a biopharmaceutical trade association.                Limited number of sellers in the market.
   There are no legislators actively opposing H.R. 2567                As is typical with the beginning of the upswing in a
   at this time. While it is still early, if this bill passes, it      market cycle, there are more buyers than sellers in
   could have a significant positive impact on the indus-              the market. Buyers of home infusion therapy com-
   try. Wyatt Matas & Associates estimates that net                    panies are starting to get the word out about what
   margins could increase as much as 6-8%. Buyers are                  they are willing to pay, and sellers are beginning to
   anticipating the successful passage of the bill and are             take interest. Obviously, the decision for sellers
   attempting to acquire significant market share to take              contemplating a sale is a lengthy process and has
   advantage of the improved margins.                                  lagged behind buyers’ enthusiasm. This, of course,
                                                                       is contributing to valuation increases. Wyatt Matas
Strategic Buyers have Cash and Access to even more                     & Associates is starting to see sellers evaluating
    Most of the larger infusion therapy companies have                 their long-term options and expect the number of
    been accumulating dollars in reserve cash from the                 sellers to increase throughout the end of the year.
    successful operations of their businesses. Some of                 We expect the market to have an excess number of
    those companies are using the still-favorable lending              sellers looking to sell their companies toward the
    environment along with their strong cash position to               middle of 2008. We expect many of these new com-
    acquire smaller companies and expand their geo-                    panies will reach the typical “glass ceiling” of $6-
    graphical coverage. We have indications that acqui-                $10 million and begin to look for a buyer. This will
    sitions by large infusion therapy providers will in-               significantly change the merger and acquisition mar-
    crease over the next 12 months. These companies are                ket dynamics and begin to bring valuations back into
    careful to acquire companies in geographical areas                 the range of 4-5 times EBITDA by the end of 2008.

         The outlook for the home infusion therapy industry is certainly positive. Our data and feedback from contacts
and clients indicates great confidence in the industry for the next 18 months at least. With new agencies entering into
the market on a daily basis, we will start to see a change in market dynamics. Mergers and acquisitions will start to
show up in the press more often and will stimulate current agency owners to evaluate their exit strategies. With access
to capital improving and financing cost still at a significant low, we expect the merger and acquisition cycle to remain
at its peak until the beginning of 2008. The robust activity in mergers and acquisitions could also spur on more com-
panies examining their IPO strategies, and we would not be surprised to start seeing multiple home health care and
infusion therapy IPO’s in 2008 if economic conditions remain steady.

  What should I do with this information?
    !" At the very least, determine what your business is worth under these current market conditions.
    !" Examine your growth potential and determine how far you can take the business.
    !" Consider your ability access to capital for growth and management capabilities.
    !" Determine when you want to exit the business and ask industry experts what they believe your business
       will bring when you are ready to move on to your next venture.

1001 Pennsylvania Avenue, NW                                                                         Phone: (202) 661-4691
Suite 600 South Concourse                                                                         Facsimile: (202) 661-4611
Washington, D.C. 20004                                                                              info@wyattmatas.com

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