M&A: Are supplies a sleeper category?

Tuesday, December 23, 2014

When Liberty Medical drew 33 bidders to a sale of its assets in November, no one was more surprised than industry analysts.

“I didn’t realize there were that many folks capable of coming up with bids for that business,” said Don Davis, president of Duckridge Advisors.

But does the interest in Liberty signal that the mail-order supplies category is going to be the next big thing for buyers in the HME space?

That depends who you ask.

“Absolutely. The urological space is among the most popular,” said Rick Glass, president of Steven Richards & Associates. “I think it’s been one of the more active spaces over the last three years.”

While diabetes supplies used to be the biggest driver of revenues, that is no longer the case, thanks to Medicare’s national mail-order program, which reduced reimbursement rates for the category by an average of 72%. 

These days, diversity is key. Liberty, which sold its fee-for-service diabetes supply business in 2012, also offered ostomy, urological and sleep supplies.

“I think there are comorbidity issues on the diabetes side, so adding some of those products fits well for many companies that were heavy in diabetes and had already started to move into other products,” said Davis. “They’ve got the call centers, they’ve got the employees, they might as well take a look at what else their patients need.”

Case in point: Verus Healthcare, which in January 2014 changed it’s name from Sleep Nation and announced plans to add catheters and nebulizers to its sleep supplies business.