Choppy year ahead in M&A

Coming off a “crazy” year of dealmaking in 2021, the first quarter of 2022 was bound to be slower, driven in part by larger world issues like inflation and the war in Ukraine, says Brad Smith, managing director and partner at Vertess. 

But deals are still getting done, as interest remains high in HME from both strategic players and institutional buyers, he said. 

“There are fewer headwinds than previous years,” he said. “There’s more certainty and transparency and some positive things impact the HME market during the past two years.” 

Here’s what else Smith had to say about the M&A outlook for the year on a recent episode of HME News in 10. 

About those equipment shortages 

While the HME market has remained a hot target for buyers, there’s no doubt that ongoing challenges brought by both the CPAP recall and the supply chain breakdown have had an impact, says Smith. 

“You take someone to market, and they say, ‘I would have done this much business, but I couldn’t get my hands on CPAPs,’ and how do you allocate for that?” he said. “We’ve been able to mitigate that to an extent, but it does drag down valuations, particularly for those doing transactions on their own. Buyers are able to take advantage of that.” 

Turning down the heat 

Those issues could right-size the market, which has been at an “overboil,” says Smith. 

“Valuations have been really, really high,” he said. “So, we’re seeing valuations creep down slightly, but they are still robust. It’s not as bad in HME as in other health care verticals simply because HME had been depressed for so long – competitive bidding had cast a really long shadow over the industry and our valuations really haven’t been where they should have been. It’s gotten better, and I expect that trend to continue especially with inflation and as interest rates rise.” 

A big Q4, a choppy year overall 

Already in Q2, deals have picked up, says Smith, and while Q3 will see its traditional slowdown in activity over the summer months, that should turn around by Q4. 

“Looking down the fairway, I think Q4 is going to be big,” he said. “We’re seeing an uptick in clients coming onboard, but overall, the whole year is going to be choppy and I think it will stay that way going into 2023. The volatility – the inflation, the job issues – are not going to go away overnight and it’s going to lead to a volatile market for the next couple of years.”