Blog: Are we headed for another 2012?

“We believe we're on the cusp of another 2012,” said Dexter Braff, president of The Braff Group, during a webcast last week on the M&A outlook for HME.

What happened in 2012?

According to The Braff Group: The number of HME deals jumped to 107, up from 71 in 2011 and 59 in 2010; and the number of private equity deals also jumped to 10, up from four in 2011 and 2010.

2012 was also the year after CMS kicked off its competitive bidding program in the country's largest cities on Jan. 1, 2011.

Putting two and two together: Investors thought, after the first round of bidding, that reimbursement wouldn't go any lower, so they pressed on the gas on deals.

“They thought they knew where the space was headed and that reimbursement wouldn't go down from where the first round settled,” Braff said.

Investors, as we know, were wrong. Subsequent rounds of bidding resulted in lower and lower reimbursement, and deal activity suffered. According to The Braff Group: There were 68 deals in 2013, 61 deals in 2014, 47 deals in 2015 and 40 deals in 2016. There were four private equity deals in 2013, five in 2014 and 2015, and three in 2016.

“There was a significant retreat,” Braff said. “They saw that in subsequent rounds there were new bottoms to be found.”

So why are we on the cusp of another 2012, when deal activity was at a 10-year high?

With CMS's plans to pause the bid program for two years, in 2019-2020, and to implement significant changes in 2021 that could actually increase reimbursement, investors are talking about HME again.

“There's been a lot of chatter,” Braff said.

There was also an article “out of the blue” in a private equity publication in October titled: “Durable medical equipment: once shunned, now new opportunity for PE.”

“We don't know if there'll be (a surge in deal activity), but if you made a bet that there would be, it wouldn't be a stupid bet,” Braff said.