Is the traditional M&A market for sleep dead?
In short: Probably not, says Dexter Braff.
In this latest sneak peek of The Braff Group M&A Insider, we take a look at sleep provider deal trends.
Here's a specific breakdown of the non-private equity vs. private equity transaction volume:
Commentary from The Braff Group:
This month, we take a deep dive into the sleep sector: labs, diagnostics, CPAP and supplies. Based upon proprietary data collected and analyzed by The Braff Group, deal flow in sleep (driven largely by private equity) clearly peaked in 2012 and subsequently plunged in 2013. More telling, when we looked at individual buyer activity, we saw that though quite a few have been active at one time or another, none have executed a sustained acquisition strategy. Rather, their consolidation efforts have been limited to one or two years, followed by quiet periods. So what do we make of this? Buyers have long targeted niche segments in the HME arena to establish clear differentiation in a crowded market—supplies, complex rehab, mobility and sleep. But in sleep, with greater fixed costs, high clinical intensity and growth constrained by number of beds, the market has been particularly difficult to consolidate and scale. Moreover, to a large extent, lab and diagnostic suppliers have not been able to parlay their clinical excellence to capture a disproportionate share of the profitable supply business. As such, our sense is that the CPAP replenishment business has largely moved from the sleep category to supplies—akin to diabetes—which have a very different warehouse/customer management/delivery business model. So is the traditional M&A market for sleep dead? Probably not. But rather than large-scale roll-ups, we will likely see more local provider and strategy-specific type transactions.