Mergers & aquisitions

Monday, February 28, 2005

ANDOVER, Ohio - While Lincare, Apria, Air Products and other big players seem to hog all the news about mergers and acquisitions, they’re not the only ones make deals.
Rick Glass

Plenty of mid-size companies, taking a page out of the big boys’ play book, intend to grow through Medicare reimbursement cuts in part by adding business via acquisitions.

Take Seeley Medical in Andover, Ohio. The $12-million company acquired Affordable Home Medical in Wadsworth, Ohio, five months ago and has a couple of other possible deals in its sites.

“For us to hit the targets we’ve set for the next two years, in taking a look at the reduction in respiratory meds and oxygen, we are going to have to grow organically, but we are going to be stretching to do that,” said Seeley President Mario LaCute.

Seeley targets adjacent companies that generate revenues of $2 million and under. Those companies expand Seeley’s coverage area and are relatively easy to integrate. That deal profile fits the acquisition strategy of other similarly-sized HMEs, say industry M&A experts.

“A fair amount of that goes on,” said Bob Leonard, a broker with the Braff Group in Pittsburgh, Pa. “They are local and know the market and the players. It is an out for a guy who might not have an out, who isn’t big enough for a national or regional guy. So a local guy is a good avenue.”

Given the chance between a $5 million deal and a $1 million deal, Apria and other big providers will take the bigger deal every time. That’s because the same amount to time and effort goes into closing a big deal as a little deal, brokers say.

That’s not to say large providers won’t acquire a small HME.

“They will buy small ones opportunistically,” Leonard said. “Either its something they can fold into an existing branch, or sometimes they’ll buy something smaller because it gives them some coverage that they need.”

Smaller companies sometimes offer more growth potential than a $10 million to $20 million provider and that can spark a national’s interest, too, said broker Rick Glass, president of Steven Richards & Associates in Tarpon Springs, Fla.

Those same companies also appeal to Seeley and other mid-sized local players - and for good reason.

“If there is anyone out there who doesn’t feel they are going to have a difficult time matching the growth they have had during the next two years, then I feel they are kidding themselves,” LaCute said. “I now what kind of an impact it had to us, and it was substantial.”