Has there been a free fall in M&A activity by the nationals?

 - 
08/13/2014

You bet, says Dexter Braff.

In this latest sneak peek of The Braff Group M&A Insider, which will appear in the September issue of HME News, we take a look at deal trends by the nationals from 2001 to 2013.

Here’s a specific breakdown of the activity of Rotech, Lincare and Apria Healthcare during that 13-year span, based on data collected by The Braff Group:

2001

Rotech: 0

Lincare: 18

Apria: 8

2002

Rotech: 0

Lincare: 26

Apria: 18

2003

Rotech: 1

Lincare: 13

Apria: 27

2004

Rotech: 0

Lincare: 27

Apria: 27

2005

Rotech: 10

Lincare: 15

Apria: 24

2006

Rotech: 1

Lincare: 9

Apria: 3

2007

Rotech: 0

Lincare: 1

Apria: 0

2008

Rotech: 0

Lincare: 2

Apria: 0

2009

Rotech: 3

Lincare: 0

Apria: 0

2010

Rotech: 1

Lincare: 1

Apria: 0

2011

Rotech: 4

Lincare: 4

Apria: 1

2012

Rotech: 4

Lincare: 0

Apria: 0

2013

Rotech: 4

Lincare: 0

Apria: 0

It’s interesting to consider these numbers in the context of a few big milestones in the HME industry. As Braff points out in his commentary below, activity started to skid in 2005-06 with the Deficit Reduction Act, which introduced a 36-month cap on reimbursement for oxygen equipment and services.

There was a little spike in activity in 2011, especially by Rotech and Lincare (4 deals apiece), when competitive bidding went live in nine cities across the country. As you’ll recall, the nationals didn’t pick up as many contracts as they thought they would, leaving them to acquire other companies with contracts in key areas and product categories.

It’s interesting to note that Rotech continued its spike in activity in 2012 and 2013. Actually, Rotech was relatively quiet leading up to 2005-06, when Lincare and Apria were going gangbusters. With the exception of 2005, the bulk of its activity has been in 2009-13.

It’s also interesting to note that Apria has logged only one deal since 2008, when it was bought out by an affiliate of The Blackstone Group. It looks like the same thing has happened to Lincare since 2012, when it was bought out by The Linde Group (Though Managing Editor Theresa Flaherty points out that Lincare made at least one deal during that timeframe: RxStat).

Here’s the commentary from The Braff Group:

This month, we quantify what industry observers have known anecdotally for several years: that is, the marked change in acquisition activity driven by “The Nationals.”  Rarely do we see such a dramatic and immediate free-fall in deal flow. But such was the impact of the Deficit Reduction Act of 2005 (signed in early 2006), which introduced the 36-month cap on oxygen reimbursement and essentially knocked the nationals out of the arms race for more locations. In many areas, this opened the door to regional and local providers to pick up the slack. It also provided the impetus for buyers, including a wave of private equity sponsored investors, to pursue non-oxygen focused consolidation strategies, including rehab, supplies and sleep.  What will the next wave bring? Even Carnac would struggle with this one. But would anyone be surprised that, as margins continue to eat away at the value-added services that once defined the industry, if “Big Box” retailers (or the manufacturers themselves) see an opening to leverage their purchasing power and distribution capabilities to “out-efficient” even the best of the traditional providers?