‘The market is going to be choosy in 2024,’ analyst says

PROVIDENCE, R.l. – A recent investment in ACU-Serve is indicative of just how important cash flow is to an HME provider’s appeal to investors and buyers, says Andrew Male of Citizens M&A Advisory, ACU-Serve's exclusive financial advisor on the deal. 

“There’s a need for efficiency driven through technology,” he said. “Throughout the space, we know how important cash flow is for HME providers, especially for those with models that are more capital intensive. Driving efficiencies through revenue cycle management is critical.” 

Here’s what Male, managing director, had to say about why, despite the increased costs of capital, there is still a strong case for investment in HME, especially for “next generation” providers. 

HME News: It’s no secret: Deals were down in 2023. 

Andy Male: They were down, largely attributable to the increasing costs of capital. But from a macro perspective, the demographic trends are very positive. You have an aging population, you have an increasing number of chronic conditions and, most importantly, you have a shift in care to the home, and HMEs are the key relationship managers in the home. That’s why we’ve seen strong private equity interest and strong strategic interest in HME over the last five to seven years – and those macroeconomic drivers remain. 

HME: But those increasing costs of capital. 

Male: That’s the offset. When you have interest rates nearly doubling over a couple-year period, that puts forth a more disciplined approach when it comes to evaluating opportunities and cash flow. 

HME: What does a more disciplined approach look like? 

Male: Let’s bifurcate it. If you’re an “A” asset, there’s still strong demand for a transaction. That means you’re a scaled platform, you have a sophisticated revenue model, and you are lean – that's going to promote strong cash flow margins and that's what’s needed with increasing costs of capital to get top-of-the-market valuation. 

HME: And if you’re not an “A” asset? 

Male: If you’re a “B,” you need to look internally and spend time streamlining your operations, be it through collections and RCM, a scaled operating model or regulatory and compliance. Those are the things that matter in this environment. 

HME: What else makes an HME provider appealing right now? 

Male: When we think about that next generation, there’s a strong case for HMEs also using technology for connectivity and improved care, which allows the health system to show improved outcomes. If you’re an HME that can be tech-enabled and can facilitate those types of improved outcomes, that’s what separates you. 

HME: Outlook for 2024? 

Male: The market is going to be choosy. If an HME is in a position where they need to do a deal, I would look to the super regionals that have been active. They have scale and sophistication, and they’re a great landing spot for some of the smaller companies.