COVID-19 and HME M&A

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05/14/2020

I caught up with Brad Smith, managing director and partner at Vertess, recently and he said the mergers and acquisition market for HME has been “a wild rollercoaster ride” amid the coronavirus pandemic.

First, investors and buyers charged ahead, then they paused and then they stopped, he says.

But by the end of April, Smith had a handful of deals scheduled to close in May.

Investors and buyers were charging ahead again, with the pandemic as “the new normal.”

“They like certainty, whether it’s good or bad,” Smith said, “and they navigate from there.”

But they’re not looking at HME companies the same way, he says.

Their main question: Do they offer a workaround to a challenge created by the pandemic? Does an HME company offering sleep therapy, for instance, have relationships with and get referrals from physicians who use home sleep testing vs. in-lab
testing?

This way, they’re still keeping, if not increasing, their market share, even in a pandemic.

“They all want to know what you’re doing to keep people in their homes,” Smith said.

The Braff Group details this same phenomenon in a recent report on “Health Care M&A in the Time of COVID-19.”

“Buyers will once again favor health care investments, but likely in a different manner than we’ve seen in the past,” the report states.
TBG predicts health care dollars will stream toward areas like telemedicine and telepsychology, remote patient monitoring, home diagnostic testing and bio-pharmacology.

So perhaps the bigger issue now is, not a lack of buyers, but a lack of sellers, Smith says.

“I had a big pipeline of people who were looking to sell or recap this year,” he said. “Since the pandemic hit, they’re taking more of a wait-and-see approach.”

Other takeaways from The Braff Group include:

  • Deal flow will contract—immediately, and at least for the next three to six months.
  • Credit necessary to finance deals will tighten.
  • At least some PE dry powder will be used to shore up existing portfolio.
  • Valuations are going to take a hit.
  • As buyers cautiously re-enter the market, they will once again start with comparatively smaller deals.


So what’s the good news? The Braff Group closed its report with this: “Well, it can be (good news) if you’re a well-capitalized provider and use  the disruption in the market to rescue faltering companies. This doesn’t have to be a shark-fest.  Sellers under such circumstances recognize that they aren’t going to get a  premium. But for buyers willing to pay a fair price, and equally important, give the seller’s caregivers and support staff a home, there could be extraordinary opportunity to gain an inside track on such deals, as well as do some good  for your business, the seller, their employees, the community, and you.”