M&A: End of year uptick could signal busy spring

Friday, November 30, 2012

YARMOUTH, Maine – With Round 2 imminent, buyers and sellers alike are getting off the fence, say M&A analysts.

"I think it's sinking in that Round 2 is going to happen," said Rick Glass, president of Steven Richards & Associates in Tarpon Springs, Fla. "Providers are splitting into groups: those that think they know how to make it work at the new rates, and those that are looking for an exit strategy."

The fourth-quarter has seen a flurry of deals, mostly strong regional players acquiring smaller companies in their geographic market.

That trend is likely to continue once Round 2 contract winners are announced this spring, say analysts.

"I think most of the activity will come from those in the market who need to get the contracts," said Don Davis, a financial consultant with Duckridge Advisors.

Analysts also expect to see private equity firms, which have been dipping their toes into the HME market, wade in.

"Private equity has been watching this for years," said Glass. "They are going to start looking for platforms they can scale up."

Whether it's private equity firms looking to scale or regional players looking to grow, analysts expect all buyers to be more aggressive—a boon to those looking to exit the market.

"What's been holding people back from exiting the market is certainly the valuations, but just as much, the lack of capital to approach the sellers," said Davis.

As to what buyers like, respiratory remains king; however, some analysts report seeing an interest in solid, retail-oriented businesses.

"In the past, retail has been somewhat undervalued and underappreciated," said Jonathan Sadock, partner and CEO of Paragon Ventures."But there's been an amazing transformation of stores—they are much more interactive and shopper-friendly. Retail has become much more of a power option for growth."