Equipment Finance Advisor recently spent time with Larry Stevens, President and CEO and Brent Allen, EVP of Sales at Utah-based Med One Capital. In the following interview, the two discuss Med One Capital’s simple and straight forward prescription for success: offering a suite of comprehensive medical equipment related products tailored to the specific needs of hospital borrowers.
In April of this year, Equipment Finance Advisor spoke with four leaders at bank affiliated leasing companies to get a sense of how of the industry was progressing in 2014. The general consensus was that the equipment leasing and finance business is headed in a positive direction in nearly every sector. One notable exception was in healthcare equipment, which one executive characterized new business volume as being on the lighter side. With their observations in mind, Equipment Finance Advisor decided to take the pulse of healthcare equipment finance from the perspective of an independent. We therefore took the opportunity to speak with Larry Stevens, President and CEO of Utah-based Med One Capital and his long-time colleague Brent Allen, Med One’s EVP of Sales.
While Med One Capital was launched in 1991, Stevens and Allen are seasoned equipment leasing executives. Stevens, who landed his first job in the industry in 1967 at IDS Leasing notes, “Brent and I have witnessed a lot of changes and turmoil though the years. Be it the very first introduction of FASB 13 and the end of the Investment Tax Credit to the accounting boards trying to change the accounting rules, there has been a good deal of upheaval in our industry.”
In spite of the industry upheaval, the two persevered and worked with one another first at FMA Financial, a small-ticket vendor leasing company based out of Salt Lake City and then again for a medical equipment rental company called Medirec. Stevens recalls, “Medirec was a peak need provider of critical care equipment to hospitals. They had a great business that covered a good share of the U.S. but they were strictly a medical equipment rental company. When Brent and I joined, they had wanted us to round out their offering by starting a leasing company, which we did very successfully until 1990.”
Allen continues, “That company we started for Medirec was called Cura Financial and when Medirec was sold, Larry and I both saw the handwriting on the wall … the new owner didn’t bring much to the party. It was at that point that we launched Med One Capital.”
A Straightforward Approach Pays Off
Today, Med One has more than 3,000 leasing customers of which 95% is comprised of acute care hospitals. Its footprint is nationwide and extends northward into Canada with most of its leasing operation located in Utah. While Med One Capital’s staff exceeds 100 employees, the executives note that 40 associates are dedicated to the company’s equipment leasing business. Through its numerous vendor finance programs, the company casts a much wider net. Stevens explains, “While we have a relatively small footprint directly in the hospital world, we have somewhere between 2,000 to 3,000 vendor sales reps who introduce our financing programs when they are out selling their products to hospitals.”
“Because we serve only hospitals, our underwriting approach and equipment acquisition models are specialized for that market. Rather than taking a blanket approach, we try to tailor every situation to meet the needs of our customers.”
As such, Med One Capital’s mission statement is a simple one: We make medical equipment available. With that in mind, Stevens notes that transaction sizes range from $10,000 upward to several million. “We do the gamut of transaction sizes and we aren’t locked into any particular ticket size. For example we booked a $13 million lease at the beginning of this year, but our average ticket size is probably around $250,000.”
In terms of Med One’s mission, Allen adds, “When we started Med One, we realized that we needed to be different than everybody else. We adopted an innovative approach in which we are extremely responsive to our customers and do whatever it takes to get a deal done … that has been our goal and our philosophy. For example, our documentation has gotten simpler and simpler over the years.”
Med One’s approach in this regard hasn’t gone unnoticed. In a recent article discussing the ways in which specialty leasing companies had changed the landscape of vendor finance, Med One was mentioned for its “audacious approval rates and seemingly unsophisticated documentation requirements.” Steven says, “I had to chuckle … we do have a high approval rate, and that’s because we specialize in one kind of customer. Because of that specialization, we can generally find a way to get a deal done.
“To add on to what Brent mentioned earlier, in our first few years of being in business, we used to propose deals with some standard, heavy duty lease documentation. We had a return ratio of 10% or less. We didn’t understand why and when we followed up as to why deals weren’t closing, in almost every case, we found out the documents were sitting on top of the hospital CFO’s or attorney’s desk. So we started to simplify our documentation and once we did, we saw that things began to turn.”
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Stevens explains that this move toward simplification, while embraced by Med One’s clients, raised concerns with the firm’s lawyers. “Everything that we eliminated from our documentation was the cause of a bloody war with our attorneys. But you can imagine that one of our biggest sales jobs was convincing our capital partners that this was a smart approach to doing business. We’ve gained a great deal of credibility over the years and none of our capital providers has ever suffered a loss because of this approach.”
Allen notes there have even been occasions in which no documentation whatsoever has been executed. He says, “In a few cases, the hospitals have told us that they can’t sign any form of documentation. In those cases, they have issued a purchase order and we have done the deal on the basis of the PO. That’s an example of where we have been willing to do what it takes to close a deal for our customers … and we’ve not gotten stung yet.”
Allen adds, “Another reason our capital providers are comfortable with us is because we focus on equipment that is critical to the operation of the hospital. In other words, we don’t lease furniture and telephone systems. We lease infusion equipment, respiratory equipment and the like. I can tell you that if things get tight, that’s the equipment the hospital pays for because this type of equipment is crucial in keeping patients alive.”
In addition to the critical equipment mentioned, Med One will finance electronic medical records software if the situation calls for it. Stevens says, “It’s not a big segment for us, although it’s growing because of the government mandates. At the same time, that segment is dominated by only a few major players … but there are a few outliers.”
Allen notes, “As Larry says, we don’t have a big portfolio there. The place where we shine is when we have an asset because we can get very creative in the way we finance it. If we get the asset back, we have effective ways of dealing with it.”
Stevens admits that over the years, Med One has gotten equipment back at the end of leases due to technical upgrades. “But again, that’s the thing that sets us apart. We have developed capabilities that no other leasing company has. We have a complete bio-med division which services and refurbishes equipment. We also have a sales division that resells and repositions our off-lease equipment. We also maintain a total sales force generating equipment rentals directly with hospitals. Leasing is only a part of what we do today. If someone were looking to replicate what we do, they would need to have a lot of capital and a lot of nerve.”
Unique Marketplace Dynamics Play a Key Role
Stevens is not surprised that some of the larger banks may have experienced less growth in the healthcare equipment sectors as compare to other equipment sectors. Part of this, he explains, is attributable to the existence of a unique dynamic in the marketplace. “There are those large industrial companies that manufacture healthcare equipment, so they are heavily involved in the financing of that equipment. It’s a perfect channel for them.”
Stevens continues, “Other than those major manufacturers, we see the preponderance of financings being done by regional banks that have a few hospital customers who come to them. We haven’t seen the regional banks going beyond their regions to seek other hospital customers. And then you have only a few companies that take a national approach with varying degrees of success.”
Yet both executives agree that in addition to the dynamics of the marketplace, the Affordable Healthcare Act has had a dampening effect on new business. But for Allen, there is no cause for alarm. He says, “We’ve experienced a little bit of backing off on the leasing end and at the same time, we’ve seen our rental business increase. Overall, the ACA has put people on hold. As the number of insured Americans increases, we’re pretty confident that the hospitals will need capital equipment.The big question then becomes where will they get the capital to finance this new equipment?”
Allen, who uses Med One’s leasing business as the barometer, explains that he’s noting that the sector is already beginning to pick up some steam. “Our leasing business is picking up and I think 2015 will be even stronger than 2014.”
Stevens adds that healthcare equipment manufacturers have fueled their own revenue streams in recent times by introducing new releases of technology. He notes, “We’re seeing more and more software changes to existing equipment. That’s another trend we are seeing and I expect we will be called upon more and more to assist clients with those types of transactions.
“But in general, I agree with Brent. We’re seeing our own business come back and we are continuing to expand our business horizontally. But as a company, we aren’t only relying on our finance segment because we don’t want to be tied to its cycles. We’ll always be a major player in healthcare equipment finance, but we are also providing other things to our clients like rentals and hospital equipment asset management. Our people are actually embedded in hospitals where they manage the assets on site. By offering these other services, we spread our own risk and bring a comprehensive offering to our customers.”