Not everyone’s crazy about M&A craze

Saturday, May 31, 2003

YARMOUTH, Maine — Les DeFelice isn’t interested in selling his company. Neither is Jill Spellman, Mark Sheehan nor Vince DeStigter.

“For the healthcare industry, you look at the demographics as a historic event over the next 25 years, or whatever period of time it will play,” said DeFelice, president of DeFeliceCare in Wheeling, W.V. “Who would want to miss that? Who would want to miss the opportunities that are before us.”

If you follow the rapid fire acquisitions of Lincare, Apria, Air Products and other companies with deep pockets, it’s obvious plenty of independent providers can live without that opportunity. In 2001, 44 HMEs sold out and moved on. Sixty-three did so in 2002, and 2003 looks like another banner year for the M&A industry (see HME News May 2003).

M&A experts tell you everyone has a different reason for selling. But for those who decide not to, the reasons appear fairly simple: they enjoy what they are doing; can’t imagine doing anything else; or, like DeFelice, like the market’s potential.

“I have three kids and one of them works here now,” said Mark Sheehan, owner of Cape Medical Supply in Sandwich, Mass. “We could be a mom-and-pop business forever.”

For him to sell, Sheehan said, the offer would have to be big — bigger, he suspects, than anyone would be willing to pay. That’s because the 26-year-old business means more to him and his family, in terms of being able to live a certain lifestyle, than it does to potential buyers.

It baffles him that some owners sell only to start up a new HME once their non-compete expires.

“They didn’t get enough money,” Sheehan said. “They got enough to get out and be happy for a year, and then thought, ‘I’ve got to go back to work.’ If I go, I’m never coming back.”

Vince DeStigter, CEO of Western Healthcare in Jackson, Calif., also has no desire to quit. Like Sheehan, it’s partly a lifestyle issue for DeStigter, 61, who started his business 25 years ago. Besides, he adds: “I’m enjoying every minute of it. I love going to Medtrade and visiting with the guys.”

In fact, DeStigter’s building a new 22,000-square-foot location, and expects his daughter to take over the business when he retires.

“Most of the time the offer is one-tenth of what I want,” he said of companies interested in acquiring Western Healthcare. “If someone gave me the right price, I could talk my daughter into staying just in the health-and-body business. I’m not sure that is going to happen. If it did, what would I do?”

Competitive bidding, inherent reasonableness and other potential reimbursement cuts may concern providers who don’t want to sell, but don’t have them running scared.

“They have come and gone, all these crazy things they come up with to cut pricing, cut pricing cut pricing,” Sheehan said. “You pay attention to it, but I’m not going to change any of my strategy.”

Besides, all this M&A activity can actually benefit the independent provider who decides to stay independent, said Jill Spellman, president of Oxygen One in Waukesha, Wisc.

Within six months of opening in Oct. 1999, a competitor of Oxygen One sold out to a national. That helped Spellman attract new referrals.

“The referral sources were more open,” Spellman said. “They said, ‘We were using that company but they sold and we don’t know who is working there anymore.’ They were more open because there was change anyway.” HME