M&A predictions: Active start, followed by uncertainty

YARMOUTH, Maine - Building on a handful of notable deals in late 2019, M&A analysts say they expect a strong 2020—at least to start.

Among the most active in 2019 was AdaptHealth, which in the fourth quarter bought several sizable companies, including McKesson's Patient Care Solutions business, and became a public company.

“There is money flowing and deals—good deals—are getting done,” said Don Davis, president of Duckridge Advisors. “I think the buyers are going to be more aggressive, chasing deals and getting people motivated to sell in the first half of the year.”

AdaptHealth also bought the HME business of Advanced Home Care in December.

AdaptHealth's activity underscores a trend of continued consolidation in the HME industry, despite an already thinned out crowd, analysts say.

“This industry has been consolidating for 20 years and I think you'll see more,” says Pat Clifford, managing director with the Braff Group. “I think you need to be a big player to play any more, because they've skinnied the margins so much.”

But after a busy start to 2020, analysts predict a slowdown in deal making, as the industry waits to learn the single payment amounts for Round 2021 of the competitive bidding program, expected to be announced late summer or early fall.

“There's mixed emotions on how the pricing will go,” said Davis. “Some say up; some say down. There's a median that says they won't move much. Right now, it's to the seller's advantage.”

Also in the mix: the presidential election, which is still very much an unknown, and a possible looming recession. There are simply a lot of question marks, analysts say.

“Health care is not going anywhere, but what is bad for business, overall, is uncertainty,” said Brad Smith, managing director/partner at Vertess.