Monday, February 22, 1999

Helix converts hearing losses into stock gains

Acquisition strategy fuels rapid growth


Known to his friends as Ludwig, he was one of the world's great composers and social democrats. By the age of 28, Ludwig Van Beethoven also suffered from a ringing in his ears known as tinnitus — a sure sign of the impending deafness which would eventually isolate him from the sound of his beloved musical notes.

Two hundred years later, hearing loss continues to afflict millions around the world. In North America, more than 25 million people suffer from a significant hearing loss. Approximately 40 percent of those hearing impaired are under age 65.

Amid the sound of silence, Steve Forget can detect the ring of a cash register. At age 35, Forget is CEO of Helix Hearing Care of America Corp., the fastest growing hearing aid chain in North America. Before he became CEO of the Montreal-based multinational, Forget worked as an audioprosthetist at his Fleury Street clinic fitting patients with hearing aids.

For growth potential, the treatment of hearing loss is bigger business than the provision of funeral services. You die only once, but you can continually upgrade your hearing aid.

There are more people losing their hearing at a younger age due to the decibel devastation wrought by rock music, discotheques and Walkmans during the last three decades. Some 15 percent of university graduates have hearing loss equal to, or greater than, their parents. About 2 million of the 25 million who suffer hearing loss in North America are under the age of 18.

Hearing loss is the third leading chronic disability after arthritis and hypertension. Baby boomers nudging either side of the half century mark are treading in the demographic dead zone of auditory function. Unlike their Star Trek hero, Mr. Spock, their ears are nothing to write home to mother about.

Forget, who was a baby when the original Star Trek series played in its mid-60s heyday, is moving at warp speed in a business with unlimited potential. Of the 25 million North Americans who suffer hearing loss, about half — 12.5 million — have hearing aids, but only 6 million of them wear their hearing aids eight hours a day, seven days a week.

That means there are a lot of folks who are not comfortable with conventional hearing aids and who could perhaps be candidates for the newest digitized models with computer software which can differentiate between voices and background noise.

In a bid to grab market share, Helix is adding two clinics per month, mostly in Ontario and the U.S. Of the 88 clinics operating under the Helix banner, 45 are incorporated in Quebec and control nearly 30 percent of the market under the name Le Groupe Forget Parent — a name which came about after Forget merged his clinics with those of his future partner Luc Parent. Nine of the Helix clinics operate in Ontario and the balance are in the U.S., mostly in the midwest.

François Parenteau, an independent stock analyst in Montreal, says Helix is the only chain of hearing aid clinics in North America which consistently posts profits. "So far, we're very impressed with Helix," Parenteau said in a recent interview. "They're delivering on 95 percent of what they said they would. They're buying aggressively and selectively in the U.S."

The formula is always the same. Find established, reputable "mom-and-pop" hearing aid clinics in good locations and buy them out for one-third cash, one-third stock in Helix and one-third debt. From the point of view of the independent clinics, they're joining the Big Leagues when Helix comes calling — no more worries about administration, accounting, receivables, payables and marketing. Helix takes care of all that, leaving the original owners to take care of their clients who need hearing aids.

Revenues increase after the takeovers — sometimes by as much as 18 percent — because of the administrative efficiency of a centralized computer system and sharing of staff between various Helix-owned clinics. Margins also rise because of Helix's purchasing power with suppliers.

There is still a lot of room for consolidation in the highly fragmented market of hearing aid clinics. Of the 11,000 hearing aid clinics in North America, 70 percent of the owners have one or two clinics, while 30 percent own three to six clinics. Only five groups — Helix among them — own more than 50 clinics.

Of the five chains, Helix — with 180 employess in Canada and the U.S. — is the third largest in terms of revenue, but No. 1 in profitability. Parenteau attributes the results to good management and Forget's "tremendous" ability to pick out the winners among his takeover targets.

SCC Canada Inc., 60 percent owned by the TD Bank and 40 percent by Sirrom Capital Corp. of Nashville, Tenn., invested $5 million U.S. in the company last year in the form of a convertible debenture bearing a 13 percent coupon. The infusion of funds has allowed Helix to continue its aggressive buying spree in the U.S.

For the fiscal year ended Nov. 30, 1997 — its first year as a publicly traded company — Helix posted earnings of $453,123 or 3 cents a share on revenue of $8.1 million. For the fiscal year ending Nov. 30, 1998, Parenteau expects Helix to show a net profit of $760,000 or 4 cents a share on revenue of $14 million. For fiscal 1999, Parenteau is projecting revenues of $30 million and earnings of $4 million or 16 cents a share.

The stock, which is trading at about $1.65 under the symbol HCA on the Montreal Exchange, is undervalued based on its projected revenues, Parenteau said.

Among those who will be making money is Forget and his three partners — Luc Parent, Richard Doucet and Martin Cousineau — all graduates of the audioprosthetist program which started at CEGEP Rosemont in 1981.About 60 percent of the outstanding 5 million company shares are held by Forget and senior officers.

When it comes to ears, Forget is a keen student...and a charmer. He knows everything that can go wrong with ears, and he knows the right words to whisper in them to get his way. While studying at Rosemont, he spent one summer at Odense University Hospital in Denmark learning how to make ear molds out of silicone, acrylic and jelly.

He was so enthused with his chosen field of study that he convinced his girlfriend, Majella, to quit her biology studies at the University of Ottawa and to transfer to the audioprosthetist program at Rosemont. It must have been true love — he even shared his recipe for ear molds with her. They married and she now works at Le Groupe Forget Parent.

His dad, himself an entrepreneur in the real estate industry and in the import/export business, was not immune to his son's enthusiasm. He agreed to lend him $10,000 and signed at the bank for a credit line to open the first clinic on Fleury street after his son graduated in 1985.

Next, Forget whispered in the ear of his mother, an accountant. As a result, she agreed to help him with the books on a temporary basis in 1985. She stayed 14 years. Three weeks ago, she retired.

The staff is equally enthused with what Forget calls his "flat" management style — no pyramids, no bureacracy; just teamwork. As part of their profit-sharing bonus last year, every employee in the company chose stock over cash.

Warren Perley is a former Gazette journalist who is president of Ponctuation Grafix, a graphic design and marketing company.