M&A sizzles: a record number of deals

Thursday, September 30, 2004

YARMOUTH, MAINE - When Apria called its own acquisition activity in the second quarter of 2004 “unprecedented,” it could have been speaking for the entire HME industry.

The HME sector either announced or completed 31 transactions during the second quarter (Apria accounted for 14 of those, Lincare for 10). This amounts to an 82% increase in transaction volume over the same quarter last year and a 63% increase over the previous quarter, according to The Braff Group’s quarterly M&A update.

With 50 transactions year to date, the sector is running 22% ahead of the 41 deals completed over the same period last year, The Braff Group reported.

“It is the largest number of deals ever in the sector,” said President Dexter Braff.

In addition to companies deciding to sell rather than brave pending Medicare reimbursement cuts (see HME News 9/2004), Apria, Lincare and big regional companies like Praxair Healthcare are buying more. To maintain their normal year-to-year growth, these HME giants need a steady flow of acquisitions. To maintain that same growth rate and absorb Medicare reimbursement cuts scheduled for 2005, they must increase their acquisitions, Braff said.

Because Medicare reimbursement cuts could destroy the financial viability of nebulizer medications next year, HME acquirers are showing more interest in infusion therapy to sustain growth and diversify away from Medicare. Additionally, The Braff Group expects to see some of these firms consider acquisitions of specialty pharmacy providers to leverage the operational and distribution infrastructure they have created to provider nebulizer medications, which they may be forced to idle in 2005.