M&A and HME: Down but not out 

YARMOUTH, Maine – It’s been a challenging year for M&A in the home medical equipment sector, as broader economic conditions have put many buyers on standby, say analysts.  

For buyers – both strategic and investors – higher employee wages and increased delivery costs have made them take a closer look at bottom lines and have decreased their appetite for acquisitions, says Pat Clifford. 

“After years of acquisitions, the buyers are kind of taking a little opportunity to control expenses,” said Clifford, managing director, home medical equipment, for The Braff Group. “For the private equity groups, they still love HME, but they tell us they are tending to their portfolio companies right now.” 

Overall, health care deal flow is down about 30% through the second quarter this year vs. last year, according to The Braff Group. If the current pace holds, the firm says, deal flow will be the lowest since 2013.  

Higher interest rates have also had an impact, says Brad Smith. 

“It’s significantly more expensive than what it was to finance a deal,” said Smith, managing director and partner at Vertess. “It’s causing a lot of financial buyers, like private equity groups, to really take a pause.” 

One buyer that has been quiet of late is AdaptHealth, which has seen some turmoil at its helm, with newly hired CEO Crispin Teufel agreeing to terminate his contract after his former employer sued him. 

“They are a big (driver) of a lot of acquisitions and they really haven’t been doing anything,” says Smith. 

But with large consolidators like Adapt stepping back, smaller strategic players have found opportunities, say analysts. Quipt Home Medical in September acquired a multi-state business; Henry Schein in August signed an agreement to acquire a majority ownership position in Shield Healthcare. 

“Overall, HME providers are a resilient bunch, as are the M&A markets,” said Jonathan Sadock, managing partner with Paragon Ventures.  “There is broad consensus that demand across sub-acute and home care will continue at unprecedented levels and that translates well for strategic growth and M&A opportunities.”