Bloomington company plays critical role in nation's medical device stockpile

Tom Leonard, chief executive of Agiliti Inc. in Bloomington, long ago had a mentor who told him to work only with people who amaze you.

"It's a great standard," Leonard said. "I don't know if we could have done what we did last year without trying to live up to that standard."

A provider of technology management tools in health care, Agiliti served a critical role as the U.S. stockpiled medical equipment when the pandemic hit last year.

More recently, it completed a successful public offering and even managed an acquisition during its registration process.

Agiliti is the third Minnesota company to complete an IPO in 2021, and shares in all three have grown more than 50% since they started trading. Agiliti completed its IPO on April 23, just days after chipmaker SkyWater Technology, also of Bloomington, and a few weeks after Sun Country Airlines, based at Minneapolis-St. Paul International Airport.

Three more Minnesota companies have filed for IPOs in recent weeks: Brooklyn Park-based CVRx Inc.; Bloomington-based Bright Health; and Eden Prairie-based Miromatrix Medical.

Agiliti was founded in 1939 as the ABC Oxygen Tent Rental Service Co. by Ed Fish in his mother's Minneapolis garage. In 1969, it changed to Universal Hospital Services Inc., then to Agiliti in 2018. From 1992 until 1998, Universal Hospital Services traded on Nasdaq.

Hospitals can't afford to purchase and own all the medical equipment that they might need for every situation. Agiliti coordinates the maintenance and repair of devices to deliver them bedside and patient-ready.

"We like to say we are positioned on the right side of health care, in that we help make care safer, and we help hospitals be more efficient," Leonard said.

When the government began purchasing respirators last year for COVID-19 treatments, the U.S. Department of Health and Human Services gave Agiliti a one-year contract to manage the new stockpile.

On a recent visit to one of Agiliti's dedicated facilities for the stockpile, Leonard said he saw rows of flight cargo containers filled with ventilators and other specialized devices that had been returned to be processed, tested and repackaged to be deployed once again. "I was briefly overwhelmed by the magnitude of what I was seeing," Leonard said.

Agiliti operates under a nondisclosure agreement with the government to manage the emergency stockpile so there are limits on what executives can disclose. But what is public is that the government bought more than 200,000 ventilators, effectively doubling the number of respirators that U.S. hospitals had before the coronavirus outbreak.

That contract expires in July and reopens for bidding. Leonard feels confident they will win the contract.

"While we could not have known that was going to happen, it was not a surprise that it came to us given the history we already had in managing the pre-existing stockpile," Leonard said. "As the one-year comes to full-term we fully expect that this will be a competitive bid process and that it will be our obligation to go out and earn the right to continue to support it."

Leonard said the process for the IPO started more than 18 months ago by selecting underwriters for the offering. The process had to reflect COVID restrictions and factor in regulatory approvals for its latest deal, the March acquisition of Novi, Mich.,-based Northfield Medical. The deal expanded capabilities in surgical instrument repair such as endoscopes, power equipment and other surgical goods and more geographic coverage.

Agiliti is still a controlled company, with Thomas H. Lee Partners in Boston owning more than 75% of its shares. The proceeds were used to retire debt and bring down the company's leverage ratio. "We've already spent the $390 million; we've put it to good use and now have the dry powder we need now to drive new growth," Leonard said.

Leonard joined the company in 2015, when it was known as Universal Hospital Services Inc. and had annual revenue of approximately $400 million. The company finished 2020 with annual revenue just under $800 million.

Agiliti has strong organic growth opportunities and the increased use of more complicated health care services means the overall market is growing. Matt Borsch, an analyst with BMO Capital Markets, initiated coverage of Agiliti with an outperform/buy rating, expecting growth prospects to remain strong. "Innovation within medical technology and patient procedures drives increasing numbers of devices and added complexity, which is a natural growth driver for Agiliti's business, as is the increasing imperative for cost efficiency," Borsch wrote in his initial research note.

Agiliti will also use M&A activity to augment its growth. With much of its debt retired it can attract lower interest rates on new debt for acquisitions or use the newly public shares as a chip in negotiations.

Working with amazing people

Before most knew what COVID was, Agiliti was sending people into areas hardest bit by the pandemic — places other people were fleeing. Leonard credits Agiliti employees for their dedication, none of whom he said abandoned their jobs.

"What we've been doing, and what we are continuing to do is focus on taking really good care of those teammates who did everything that we asked of them," he said.