Bulls and bears eye HME market

Friday, April 30, 2004

YARMOUTH, Maine - A year and a half ago, the Clairvest Group invested $7.63 million in Landauer Metropolitan, the largest independent HME in the New York City area.

Despite the slew of reimbursement cuts mandated for HME by the Medicare Modernization Act, the equity investor is “still bullish” on the industry, said Vice President David Sturdee.

“It is an industry that has to exist,” Sturdee said. “Nevertheless, I would not be surprised if in the next six to 12 months investors sat on the sideline because the legislation is so powerful and open to interpretation.”

By investors, Sturdee means venture capitalists and other private equity groups, companies that detest uncertainty. Besides clouding the market’s future, uncertainty makes discerning a company’s true value difficult, said M&A expert Dexter Braff.

“If I we were looking at the industry right now, it might change my expectation of what I would have to pay for a company,” Sturdee said. “It doesn’t mean I would be less enthusiastic. It just means that I would pay less.”

Other than respiratory pharmacies, which the MMA hits particularly hard, industry watchers don’t expect HME valuations to drop off much, if at all, from last year (HME News 2/2004). That’s because Apria, Lincare, Air Products and other larger providers still have healthy appetites for acquisitions.

However, as with any industry embroiled in turmoil, the sharks have begun to circle, say industry watchers.

“Troubled waters are places where money can be made,” said HME consultant Wallace Weeks of The Weeks Group. “Just like when you can sell short and make money in a bear market.”

Added Sturdee: “There will be people who consider this an opportunity to buy at the low end of the range. They just need to find the players who are spooked by what’s happening and who want to exit at whatever cost, as long as they can realize some reasonable return on their investment or lifestyle.”