Mergers & Acquisitions

A. You can boil down the reasons that buyers remain interested in acquiring HME providers to three basic concepts.

First, as it pertains to risk, it's important to understand that from a buyer's perspective, they are far more concerned with “go-forward” risk, than with the litany of challenges the industry has gone through over the past 30 years. And from a go-forward standpoint, the thinking is that in the aftermath of competitive bidding and the rollout of national pricing in 2016, there won't be much room for further cuts, nor will there be much of an appetite to do so. So in a somewhat perverse way, the go-forward risk-profile of the industry is arguably at its most “favorable” (i.e. least risky) level since the 1980s. Challenging as the sector is, it's likely to be pretty stable over a typical three-to-seven year investment horizon, and that kind of predictability is very attractive to buyers.

Second, buyers are counting on the extraordinary market upheaval that national competitive bid-like pricing will bring, and with it, the opportunities to grab substantial market share as less efficient, less well-capitalized competitors stumble—the basic “last man standing” stratagem. The combination of razor-thin margins and aging ownership will likely spur an acceleration of exits, making the last man standing approach more viable than ever before.

Finally, the demographics. A lot of people are going to need beds, wheelchairs and oxygen over the next 20 years, and someone has to provide it. From a buyer's standpoint, the answer is a resounding “Why not us?”

Pat Clifford is managing director, home medical equipment, for The Braff Group. Email him at pclifford@thebraffgroup.com.