Mergers and acquisitions

Apria Healthcare isn't the only company that has put the HME industry back on the ergers-and-acquisitions map. In late May, Teijin Limited, a pharmaceutical and home healthcare company in Tokyo, bought Bakersfield, Calif.-based Braden Partners, which does business as Pacific Pulmonary Services. In January, Teijin also bought Amherst, N.Y.-based Associated Healthcare Systems. “I'm not sure it's a sea change,” said Bob Leonard, an analyst with The Braff Group, an M&A firm in Pittsburgh. “But it's certainly the most favorable M&A news about the HME industry in a long time.” Both Pacific Pulmonary and Associated Healthcare have a strong presence in the oxygen market. Pacific Pulmonary has 100 locations, mostly in the West, and employs 1,000. In 2007, it had revenues of $133 million. Associated Healthcare has 11 locations in New York. The M&A market for HME first showed signs of heating up late last year when Netherlands-based Philips Electronics bought Respironics for $5.1 billion. Before that, the market was lukewarm at best, thanks to uncertainty surrounding national competitive bidding. So why the shift? 2008 marks the first year that baby boomers are eligible to collect Social Security retirement benefits. The race is on, industry sources say, to tap into that demographic. “They're looking at the industry and saying, ‘I don't care how bad Medicare is right now, the baby boomers are here and they have money,'” said one industry source. The weak U.S. dollar has also helped make HME more attractive to foreign-based companies. Industry sources believe the M&A market for HME will continue to heat up this year. Rumors are flying that Air Products is shopping around its healthcare division. In its earnings report for the second quarter of 2008, Air Products stated it is “evaluating strategic alternatives” for its healthcare business. Don't be surprised if the interest in HME comes from outside the industry, said one source. “There's a herd mentality on Wall Street,” he said. “I think this is just the start of it.”