M&A: Fence-sitters begin to jump

 - 
Saturday, July 31, 2004

YARMOUTH, Maine - Trepidation over upcoming cuts to Medicare reimbursement fanned the DME industry’s mergers and acquisition activity into a red hot flame through the first six months of 2004, at least in some quarters.

“The first six months have probably been the most active six months we’ve ever had in both size and number of deals,” said Bruce Burns, president of Affinity Ventures in Albuquerque, N.M.

On the East Coast, M&A expert Rick Glass, said he brokered more deals through the year’s first six months than he did all of last year.

“Some of the sellers were fence sitters that I’ve been working with for six or seven years,” said Glass, president of Steven Richards Associates in Tarpon Springs, Fla.

Both Glass and Burns attributed the current M&A boom to sellers who want out before Medicare reimbursement cuts go into effect next year and to buyers who intend to negotiate the cuts by acquiring marketshare. Thus far, because demand remains strong, valuations have changed little from 2003, brokers report.

For respiratory med companies, however, buyers typically offer only what a company will earn through the rest of the year. That’s because Medicare legislation passed in December could potentially reduce reimbursement to the point that providing respiratory meds ends up a losing proposition, brokers say.

Through the first three months of 2004, the DME industry recorded 18 deals, compared to 24 last year. A preliminary count of the total DME acquisitions through the first six months of 2004, however, shows 42 deals compared to 41 last year. That number will stay the same or go up, according to The Braff Group in Pittsburgh, Pa., which performed analysis.

While upcoming Medicare cuts have helped fuel the M&A market, they’ve also prompted managers to think seriously about how they run their companies more efficiently.

In talking to executives, said Dexter Braff, president of the Braff Group, he’s seeing more commitment to technology as a way to cut costs and maintain profits when the cuts come. It’s not a “groundswell,” but it’s becoming more common to hear management talk about document imaging, eCMNs and using transfilling concentrators to cut costs.

“That is smart management,” Braff said. “This is a hardy bunch of people who have gone through a lot of changes. It takes a confident, managerially creative and entrepreneurial spirit to find ways to successfully maneuver through this maze of legislation, and these people are good at it.”

Links: