M&A analysts remain bullish

Sunday, November 30, 2008

YARMOUTH, Maine - The end of 2008 has been a rollercoaster ride, with the HME industry preparing to absorb not one but two reimbursement cuts in January. Still, analysts expect a strong showing by the mergers-and-acquisitions market for HME in 2009.

"People are cautiously optimistic," said Bob Leonard, an analyst with The Braff Group, an M&A firm in Pittsburgh.

On Jan. 1, providers will absorb a 9.5% nationwide reimbursement cut for all product categories included in the first round of national competitive bidding. Additionally, they must stop billing Medicare for patients who have been on oxygen for 36 months.

Although reimbursement cuts have affected valuations for HME companies, they haven't affected the appetite of buyers looking to capitalize on the growing healthcare industry, analysts say.

"I think things are going to improve, especially for larger companies," said Jonathan Sadock, a managing partner with Paragon Ventures, a Philadelphia-based M&A firm.

Prices may not be what they were two years ago, but there haven't been any fire sales, a sign that providers, knowing the HME industry has long-term value, are willing to weather the storm, analysts say.

"I can't see prices going lower, because there's a point where buyers don't have to sell," said Gina Bienkowski, vice president of Ultimate Resource, an M&A firm in Newtown, Pa. "They can just ride it out."

Thankfully, the slumping economy and the credit crisis hasn't really had a trickle-down effect on M&A for HME, analysts say.

"I don't know of anyone having a problem (getting credit)," said Rick Glass, president of Steven Richards & Associates, an M&A firm in Tarpon Springs, Fla. "After the holidays, I think we'll see more people come back into the market."