M&A activity 2003: It’s on fire!

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Wednesday, April 30, 2003

YARMOUTH, Maine — One of the country’s largest independent HMEs is reportedly in the final stages of due diligence with Lincare, and if the deal goes through it will cap five months of fast and furious M&A activity.

Lincare signed a letter of intent in March to acquire Healthcare Solutions, an $80-million roll-up based in Ann Arbor, Mi., according to industry sources.

Lincare officials did not return calls, and Healthcare Solutions CEO Tim Patton declined to discuss the situation, but the deal makes sense for both sides. As a national provider eager to meet Wall Streets’ growth expectations, Lincare covets the opportunity to acquire a sizeable chunk of business with one big acquisition versus several little ones. As a roll-up, Healthcare Solutions exit strategy probably calls for selling to a large national like Lincare or, in better economic times. It doesn’t hurt that valuations are relatively high either, sources say.

“I think Healthcare Solutions’ investors are saying, ‘Hey guys, lets not be greedy. Bears get fat. Bulls get fat and pigs get slaughtered,”’ said one M&A broker.

Early last month, a number of brokers were calling M&A activity so far this year better than last year — and last year’s was nothing to sneeze about. (see Braff Q&A...)

“We’re seeing a lot of activity,” said Richard Glass, president of Steven Richard’s & Associates in Tarpon Springs, Fla. “Any time we do four (deals) in the first two-and-a-half months is a good start to the year.”

Bruce Burns, president of Affinity Ventures in Albuquerque, N.M., said he’s expecting his best year ever, and called the first three months of this year his best quarter ever.

When it comes to M&A activity, Apria CEO Lawrence Higby sees plenty of opportunity on the buy side.

“The industry remains more than 50% unconsolidated, so we feel like we’ve got a major opportunity to continue adding good acquisitions,” Higby recently told the Orange County Business Journal.

Burns and others attribute the ramped up activity to a number of things: providers deciding to sell rather than deal with competitive bidding and other potential reimburse cuts; competition among Apria, Lincare and other big companies for market share, especially in the respiratory arena; venture capitalists attracted to the market’s demographics and willing to back new roll-ups.

“I’m getting calls from people I’ve never heard of,” said Mario LaCute, president of Seeley Medical in Andover, Ohio. “Last year, it was maybe one or two calls every couple of months. Now I get solicited five or six times a week. They say, we have a client in the healthcare filed interested in looking at companies. On the other hand, if you are looking to acquire, we always have companies.”

Mark Hanley, president of HME roll-up O2 Science based in Tempe Ariz., agrees that valuations are up for HME companies, but said the M&A market doesn’t seem any hotter that last year. O2 Science, however, added to its stable of companies last month when it acquired Accucare, a respiratory provider in Edmond, Ok. HME

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