Audit uncertainty drags on deals

YARMOUTH, Maine - It was a slow first quarter for mergers and acquisitions, say industry analysts.

“It's been disappointing so far,” said Rick Glass, president of Steven Richards & Associates. “I had anticipated a pickup in acquisitions with most of the uncertainty around Round 2 bid pricing going away.”

But it appears competitive bidding has been replaced by another concern: audits.

“Audits are a drag on the whole system,” said Glass. “It's hard to get buyers excited when they don't feel comfortable with the level of audits and scrutiny that they are getting.”

The deals that are getting done are similar to those in the past few quarters. Buyers are looking for competitive bidding contracts or the opportunity to expand their footprint, say analysts.

“Consolidation is afoot,” said Jonathan Sadock, president/CEO of Paragon Ventures. “Now that the bidding world is more defined, business owners realize that their opportunity is really to consolidate and scale their business. They are willing to do that to take advantage of synergies by bolting these companies together.”

One thing buyers—at least investors—aren't necessarily looking for is a provider to have a retail presence, say analysts.

“Investors are focused on building a business on a particular market or product line,” said Don Davis, president of Duckridge Advisors. “They are looking to build an HME that services referral sources and hospitals.”

That doesn't mean providers should forgo retail, however, said Davis.

“Retail is a great thing for companies to generate cash flow for their own pockets, but it doesn't necessarily translate well into valuations,” he said.

Providers looking to sell need to be patient and make sure everything is in top order for the due diligence process, say analysts.

“Where once a buyer did a sampling of patient chart reviews, it seems like they do 100% now,” said Patrick Clifford, managing director at The Braff Group. “Deals are getting done, but it's taking a lot longer.”