Buyers slowly roll up sleep labs

Thursday, January 31, 2008

It's too soon to say whether CMS's decision to recommend at-home sleep testing will dampen buyers' enthusiasm for sleep labs, say analysts.
"You don't want to invest heavily in technology and then have the technology go home," said Bob Leonard, a broker with Pittsburgh-based The Braff Group. "That adds a little uncertainty to the people doing roll ups of sleep labs."
Still, interest in sleep is warming up, and at-home sleep testing could benefit CPAP providers, said Bruce Burns, president of Affinity Ventures in Albuquerque, N.M.
"It should push up the number of studies taking place," he said. "(That will result) in more CPAPs recommended. That whole sector is bullish and continues to grow."
Burns said he has seen some transactions involving CPAP-only companies, but most activity is in the sleep labs, with those having four or more beds attracting more buyers.
Most buyers are shopping strategically, snapping up regional companies to expand their footprint, said Rick Glass, president of Steven Richards & Associates in Tarpon Springs, Fla.
"We've got a number of people looking to consolidate and grow," he said.
Interest in the sector also varies by geography, said Glass.
"There's diversity in reimbursements in different regions of the country so places that have better reimbursement levels tend to be more desired," he said. "And, with so much of the business (reimbursed by private payers), there is a pretty dramatic swing in rates."
The $5.1 billion acquisition in December of Respironics by Phillips (See story, page 1) indicates that investors are paying more attention to the HME industry, said Leonard.
"It adds credence to the fact that sleep is a (big) market, and sleep is a big element of what HMEs do," he said.