Mergers and acquisitions for HME: Bigger is better?

Thursday, January 27, 2011

YARMOUTH, Maine - Looking back at 2010 and looking ahead to 2011, there's only one way to sum up the M&A market for HME: "It's pretty much going to be about the big guys," say industry watchers.

2010 was only an OK year, in terms of number of transactions, but those completed involved buyers looking to build scale, said industry M&A experts.

"In all cases, the ability to absolutely expand on infrastructure that has already been established is key to profitability going forward," said Jonathan Sadock, partner and CEO of Paragon Ventures, a Philadelphia-based M&A firm. "2010 was the year of people getting their strategy in line and starting to implement it."

Industry watchers say providers believe that building scale is the best way to dig themselves out of this hole called competitive bidding, which CMS kicked off in nine cities on Jan. 1. One way to build scale: Make acquisitions.

Industry watchers expect this trend to continue, if not intensify, in 2011, after Round 1's up and running for a few months and CMS begins the process for Round 2, which will extend the program to 91 more cities.

"The deeper we get into (competitive bidding), the more advantages go to the big guys," said Rick Glass, president of Steven Richards & Associates, a Tarpon Springs, Fla.-based M&A firm. "They have much better access, geographical reach and staying power."

The trend could also intensify as providers realize that, competitive bidding or not, the show, driven by favorable demographics, must go on in one form or another. That's something the bigger providers know already.

"It's pretty much going to be about the big guys," said Bruce Burns, president of Affinity Ventures, an Albuquerque, N.M.-based M&A firm. "They know how to buy and they have it all down to a system."