M&A: 'No indication it will slow'

YARMOUTH, Maine -- First quarter mergers and acquisition activity continued the same torrid pace the market experienced last year. "It was a very active quarter, and I see no indication that it will slow down," said Bob Leonard, a broker with the Braff Group in Pittsburgh, Pa. Most brokers called 2004, if not their best, one of their best years ever. Overall, 90 HME companies changed hands last year, compared to 86 in 2003, according to the Braff Group. In the first quarter of this year, Steven Richards & Associates, a Tarpon Springs, Fla., M&A broker, sold seven companies to five different buyers, said President Richard Glass. "We're seeing the breadth of buyers and sellers: big guys and little guys, respiratory businesses and mixed businesses," Glass said. "The strength is across the board." Company valuations have remained at about 2004 levels. Buyers continue to discount respiratory med businesses, which absorbed a big reimbursement cut last year. Despite expected cuts to Medicare's reimbursement for respiratory products and services (cuts that materialized in April), supply and demand has kept these valuations steady, brokers say. Lincare (six acquisitions) and Apria (seven acquisitions) continued their acquisitive ways in the first quarter, but they're not the only ones trying to buy growth. With Rotech back in the game (three first-quarter deals), Walgreens (one first quarter deal), and AeroCare and other growing roll-ups pursuing deals, valuations could increase with demand. At the moment, however, there's no shortage of acquisition targets/supply, said one M&A broker. If there is an odd man out in this market, it could be small providers with revenues of $1.5 million or less, said Regina Bienkowski, vice president of Ultimate Resources in Newtown, Pa. Lincare, Apria and other nationals typically favor larger companies, and smaller regionals, which in the past may have snapped up companies of this size, have responded to the recent reimbursement cuts by slowing their acquisition activity, Bienkowski said. HME