Nationals show interest, but new proposals hang heavy

YARMOUTH, Maine - M&A activity picked up a bit in the second quarter as the HME industry reshapes itself into a more and more segmented market, say analysts.

“The respiratory guys want respiratory, but they don't want the low-end DME products,” said Don Davis, president of Duckridge Advisors. “They'll take them, but they aren't paying for them.”

The “hot” segments currently being targeted: oxygen and sleep therapy, and supplies, said Rick Glass, president of Steven Richards & Associates.

“There have always been people looking for pack-and-ship supply opportunities,” he said. “CPAP supplies and catheter supplies are hot.”

Among those looking to buy are the nationals, an encouraging sign, analysts say.

“I don't know how much they are doing, but at least they are looking, which they hadn't been doing before,” said Patrick Clifford, managing director at The Braff Group. “We are a year removed from Round 2 of competitive bidding going live and, (despite having contracts), they didn't get the revenue pop they anticipated.”

Buyers also include private equity investors and other healthcare providers, including hospital systems, said Jonathan Sadock, president/CEO of Paragon Ventures.

“You have hospitals that have said, 'We need to limit the readmission rate and providing good home care is one way to keep people coming back to the hospital,'” he said.

As is always the case with the HME industry, however, there are shadows on the horizon. CMS in July proposed expanding bid prices nationwide in 2016.

“There are still attractive acquisition candidates in rural markets at this point,” said Clifford. “But we don't know the extent that there's going to be a rural add-on or we don't know if the rates will be as low as Rounds 1 and 2. When those rates are announced, all bets are off.”

CMS has also proposed implementing bundled monthly payments in certain areas for certain products.

“I think the bundling could cause some pause on the markets,” said Sadock. “It's another data point to be evaluated, analyzed and decided upon. It's not necessarily going to stop buyers doing acquisitions, but it could impact valuations and the types and sizes of companies.”