By Jon Kamp Of DOW JONES NEWSWIRES Privately held Liberty Dialysis LLC is merging with another private operator of dialysis clinics, Renal Advantage, to create the third-largest player by sales in the U.S. market. Liberty chief executive and co-founder Mark Caputo declined to disclose terms of the deal, but said private investment firms Bain Capital and KRG Capital Partners--already equity investors in Liberty--are making a "substantial investment" to help accomplish the deal. It's expected to close by the end of this year, yielding a combined company with nearly $1 billion in sales next year, Caputo said in an interview Thursday. He'll remain CEO after the deal closes, and the new company will use the name Liberty Dialysis Holdings Inc. and will be based in Mercer Island, Wash., where Liberty is currently headquartered. The companies see big advantages in combining their purchasing power for dialysis-related drugs and equipment. "We think that will yield significant cost-savings throughout the organization," Caputo said. He doesn't expect to cut staff. Liberty will rank distantly behind the dialysis market's two publicly traded heavyweights, Fresenius Medical Care AG (FMS) and DaVita Inc. (DVA). Fresenius, based in Germany, has projected sales above $12 billion this year, while analysts anticipate DaVita will post sales of $6.4 billion on the year. But Liberty will also gain heft in the still-fragmented market, which faces the start of a new Medicare bundled payment method in January that will make scale more important, Caputo said. Rather than paying more specifically for the precise treatment each dialysis patient requires, the payments for each patient will become similar, he said. Combined, the company will have 260 dialysis centers in 32 states serving 19,000 patients, which is the third-largest patient population in the world after Fresenius and DaVita, Caputo said. He also said the company will rank third in the U.S. by sales. The Liberty and Renal Advantage centers will operate independently and under their own names. Patients attend dialysis centers to be hooked up to machines that filter toxins from their blood because their kidneys can't do the job. It can be an arduous process, requiring three weekly visits of four hours each. Liberty has grown sales quickly since its 2002 founding, by an average 20% to 25% a year, far outpacing the market's 4% to 5% average, Caputo said. The company's strategy has included building clinics in underserved areas, so that dialysis patients don't have to move or travel far for regular treatment, and building facilities that aim for a comfortable, hotel-like feel. Also, Liberty partners with local doctors and hospitals that partially own the Liberty clinics. Renal Advantage has been moving to this model as well, Caputo said. Caputo added that it's too early to tell whether the company would be interested in further consolidation, and there are no current plans to go public. -By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
