M&A market for HME lukewarm, with few exceptions

Sunday, December 30, 2007

YARMOUTH, Maine – The year in mergers and acquisitions closed with a whimper for an HME industry still in the "doldrums," say analysts.

"It was definitely a down year for HME transactions," said Bruce Burns, president of Albuquerque, N.M.-based Affinity Ventures. "For the conventional HMEs, there really weren't any buyers."

Deals were down 28% through the third quarter of 2007, with 33 transactions compared to 46 in 2006, according to Pittsburgh, Pa.-based The Braff Group. The exception was the home infusion market, which was up nearly 20% over the previous year; it saw two big deals in 2007. In June, Walgreens acquired Option Care, and in October, Apria picked up Coram, becoming the first national to become a major player in the home infusion market.

For HMEs, buyers looked for companies that filled a specific need, said Gina Bienkowski, vice president of Newtown, Pa.-based Ultimate Resource.

"We are seeing very strategic acquisitions," she said. "Whether it's a specific buyer buying a company that fills in their geography or that creates synergies between the two. We don't have anybody who is buying to just build revenue base."

Buyers are also looking for deals, said Bob Leonard, a broker with Braff.

"Buyers are unwilling to pay big because of all the reimbursement uncertainty," he said. "They are looking to get it cheap enough to get a very short payback period."

But sellers aren't desperate. They’re willing to "ride it out" for a good offer, Bienkowski said.

"They are not just going to let a buyer come in and put in a little bid," she said.

With the arrival of national competitive bidding this year and continued attempts by Congress to cut reimbursement, market uncertainty does not appear to be going away anytime soon. But when it does, look for the M&A market to pick up, say industry watchers.

"When the playing field is leveled out, we expect more buyers to come back," said Burns.