M&A watch: Deals slow, but interest remains

YARMOUTH, Maine – With a certain amount of unpredictability settling over the HME industry, buyers are becoming more conservative, say M&A analysts. 

Case in point: the CPAP market. While providers say they may be seeing a light at the end of the tunnel as equipment becomes available and lead times shorten, it remains difficult to forecast, say analysts. 

“It’s hard (for sellers) to predict with great certainty what the future is going to look like,” said Pat Clifford, managing director, home medical equipment, for The Braff Group.  “(They used to be able to say), ‘We can set up X number of patients,’ but that’s much more difficult to do in the current environment. That plays into the M&A equation and buyers get more conservative in the purchase price.” 

Also affecting the equation: Core inflation and gas prices are up, lowering net income and putting a crimp in free cash flow, while interest rates are rising, say analysts. 

“This year, the cycle is running longer, due diligence is lasting longer and it’s doing that because of everything going on in the market right now,” said Brad Smith, managing director and partner at Vertess. “Interest rates are increasing, and cost of labor factors are weighing on the credit market, tightening it up.” 

Despite several headwinds, there is still significant interest in the market, say analysts. While smaller, less-established companies may not command high valuations, buyers are still eyeing larger companies, as well as those that are strategically positioned. 

“Whether it be with the contracts they hold, geography or specific product lines, we are still seeing a lot of activity and I think that is evidenced by the closings that occur over the next few months as everybody rushes for the year-end closings,” said Jonathan Sadock, managing partner with Paragon Ventures. 

Diabetes supply is still a very strong sector, as is the infusion sector, both home and alternate site, says Sadock.  

“The alternate site infusion sector is just really blooming,” he said. “It continues to have strong valuations and incredible growth. That’s an interesting dynamic right now in the market.”