Jonathan Sadock on the appetite for HME

M&A transactions in 2021 ranged from the $2-billion mega merger of AdaptHealth and AeroCare to smaller rollups, says Jonathan Sadock, managing partner of Paragon Ventures. 

Sadock, who was a guest on the HME News in 10 podcast in November, says there are several drivers behind that the activity, including deep pockets and the opportunity for horizontal integration, especially in respiratory. 

“I believe what’s really interesting are the private equity groups investing in HME, respiratory and medical supply,” he said on the podcast. “They have had a very obviously increasing appetite to acquire health care companies. Some like to fly under the radar as owners but promote and support their portfolio companies, many times through add-on acquisitions.” 

Here’s what Sadock had to say about the ongoing appeal of the HME industry as a safe bet for buyers. 

2021 in one word 

In one word, the M&A market for HME in 2021 was “successful,” says Sadock, driven by the amount of available capital in the market, as well as high demand. 

“The pandemic, along with the associated advances in technology, have really put a spotlight on the home and alternative sites of care,” he said. “HME is an essential service and becoming even more so in the eyes of buyers and investors. In such a highly active mergers and acquisitions market, I have to add the word ‘frothy.’ There’s a short supply of well-prepared available companies and, along with supply chain challenges, ventilator demand during the early days of the pandemic and the Philips recall, there’s been a lot of challenges to successfully consummating transactions in 2021. 

Who’s buying? 

The breadth and depth of the buyer pool for HME reflects the industry’s broad appeal, says Sadock. 

“We have seen renewed focus from private equity firms that are investing speculatively in the HME world,” he said. “There is also the horizontal integration that’s coming from other corporate buyers that are bringing synergistic opportunities – whether they come through pharmacy or nursing or medtech – into their business model.” 

Recalling the recall 

The Philips recall has impacted the HME industry far and wide, but, for the most part, it hasn’t turned off potential buyers, says Sadock. 

“The recall will one day be in our past,” he said. “On an M&A front, certainly buyers are aware of the recall. It’s interesting to note that some of them have concerns that have derailed them as buyers entirely, while other buyers have seen that recall as an opportunity to turn adversity into an advantage and it is but another hurdle in the never-ending challenge that health care business owners have to deal with in providing care.”