Dexter Braff on drop-offs, retreats and turnarounds

YARMOUTH, Maine – When it comes to mergers and acquisitions, the HME industry has seen its share of ups and downs, says Dexter Braff, founder and president of The Braff Group, which recently celebrated 25 years. 

These days, the biggest difference he sees is the amount of due diligence required to close a deal. 

“In the past, once you signed a letter of intent, the percentage of deals that would not close would be in the 10% to 20% range,” said Braff. “Today, that’s easily in the 40% range. The standards that buyers have set for themselves are often more stringent than what government payers have established.” 

Braff was recently a guest on the HME News in 10 podcast to offer his take on the state of deal-making today. 

Significant drop-off 

In the five years from 2017 through 2021, the average number of deals was 68 a year; In 2022, it was 43. In 2023, annualizing the first three quarters, it’s 37, says Braff. 

“That’s a significant drop off,” he said. “These are the lowest numbers we’ve seen and that’s not something we would expect to see in a market environment in which we haven’t seen any significant regulatory or other external factors that have suddenly made HME less attractive than it was three years ago.”  

Retreat mode 

There are several key factors driving the slowdown in deal-making, says Braff. Chief among them: rising interest rates, after several years of being in an “almost interest-free environment.” 

“As the Federal Reserve has increased its interest rates, all other interest rates follow,” he said. “Borrowing costs have become more expensive, making it more expensive to do an acquisition. Inflation is really surging, so it’s taken a bite out of earnings, and we’ve got continued staff shortages, which are another contribution to slowing down of businesses. 

And that’s all coming on the heels of a period in which buyers snapped up companies at “excessively high valuations,” say Braff. 

“Buyers are just shellshocked and they are just in a retreat mode looking for a little bit of distance on how much they had spent two years ago to where they are today,” he said. 

The forecast 

Looking ahead to 2024, Braff says he’s willing to bet the industry will see at least a partial turnaround in M&A activity. 

“Hopefully, in the not-too-distant future, we’ll begin to see things pick up again as buyers can’t really stay on the sidelines for long periods because it compromises their growth plans,” he said. 

If there’s one thing HME providers have going for them, it’s their commitment to the work, says Braff. 

“Advocacy is a calling and I’ve been very fortunate to work with amazing business leaders who share that passion and joy to serve,” he said. “The HME community has an incredibly powerful message and valuable role in the health care system today.” 

Hear what else Braff had to say.