What's not to like? Equity investors snap up HME manufacturers

YARMOUTH, Maine - Several private equity groups have recently acquired HME manufacturers and distributors, and don't be surprised if more buy their way into this market, say industry watchers.

"To me this shows two things," said Don Davis, a financial consultant with Duckridge Advisors. "The valuations are cheap, and people are buying into the demographics--that there is a growing need for these products."

The recent flurry of M&A activity includes the following:

-    On Nov. 2, RoundTable Healthcare Partners acquired a majority interest in Salter Labs, a manufacturer of respiratory products.

-    On Oct. 1, Clayton, Dubilier & Rice (CD&R) and GS Capital Partners acquired medical supplies distributor HGI Holding.

-    On Sept. 27, Ancor Capital Partners acquired Carex Health Brands, which supplies private label home medical equipment to drug stores, HMEs, grocery stories and mass outlets.

Officials at the different equity groups did not return phone calls from HME News. However, in press releases announcing the deals, they talked up the industry's favorable "demographic trends" and the competitive advantages of the companies they acquired.

That makes sense to Bob Leonard, an M&A broker for The Braff Group. Private equity groups like to buy good companies, help them grow and then sell in five years or so for a tidy profit. It also doesn't surprise him that while the M&A market for providers is depressed (largely due to uncertainty surrounding competitive bidding), investors now like what they see in manufacturers and distributors.

"We talk to private equity all the time," he said. "Many prefer products and devices to (providers). They see it as less frightening from a reimbursement standpoint."

During the recent economic crisis, many private equity investors held onto their money for dear life. With the economy improving, there's now a ton of money that needs to be invested.

"Some equity groups are becoming more healthcare focused," said another industry watcher. "I'm not sure how much is in the HME market, but I think more will go there. You can cut reimbursement, but people will still need these products."