Investors hold their breath, too

YARMOUTH, Maine -Deep-pocketed private equity groups have dived into home health agencies recently, but they're only dipping their toes into the home medical equipment industry. The reason: uncertainty surrounding HME due to national competitive bidding. That private equity groups are showing any interest at all in HME is an improvement, say industry watchers. "For the first time in the 12 years I've been in the business, I'm seeing a little activity," said Rick Glass, president of Steven Richards & Associates in Tarpon Springs, Fla. Favorable demographics have lured private equity firms to home health care. One in five people will be elderly in 2030 vs. one in eight in 1997, according to estimates. Depending on what competitive bidding does to HME, private equity interest could explode, say industry watchers. "They're waiting on the first round of competitive bidding to get clarity on reimbursement," said Bob Leonard, an associate with The Braff Group in Pittsburgh. "Then they might look at it more." In addition to demographics, the slowdown in the mergers and acquisition market has lured private equity firms to HME, say industry watchers. With nationals like Lincare and Apria no longer buying, there's more room for outside players. "They have an opportunity to come in and buy at a price that makes sense, and they don't have to bid against the nationals," Glass said. "They don't like to get into bidding wars." Additionally, private equity firms no longer limit themselves to larger companies, said industry watchers. "They've raised so much money that they're looking for new companies to put it to use," said Tyson Graygor, an analyst with Provident Healthcare Partners in Boston. "They're giving the lower- to middle-market companies a good look."