ERIE, PA – From Phoenix to Cheboygan, reports of mergers and acquisitions (M&A) are coming at a fast pace (read about two recent transactions here and here). Just how hot is M&A? “I’ve been doing M&A since 1995 and healthcare specifically since 2005,” says Samantha Lincoln, managing director, Paragon Ventures, Erie, Pa., “and M&A is as active as I’ve ever seen it.” Medtrade Monday sat down with Lincoln to get an idea of the why, how, and when of successful M&A.

Medtrade Monday: Why is HME-focused M&A so hot right now?
Lincoln: Healthcare never slows down—even during the pandemic. In fact, certain sectors of DME we needed even more of—such as respiratory for example. And there’s still some shortages in pockets of the country. There is renewed interest from all types of buyers for all areas of healthcare. There’s so much diversification that it creates a consolidation opportunity. The stock market is healthy and there’s a lot of money being printed into the economy, which is keeping the stock market propped up and creating strong buyers in public companies. Private equity has put some money on the sidelines and is eager to get to work. That’s all driving valuations, and valuations drive interest from sellers.

Medtrade Monday: Who are the buyers these days?
Lincoln: It’s a little bit of everything. Buyers these days are multi-billion dollar public companies and/or public and private national companies that may or may not be backed by private equity firms. They could be large and growing regionals backed by private equity firms. They could be regionals that have been home grown and acquiring other businesses over the years that are looking to add on smaller local businesses, taking advantage of the valuations and buying smaller businesses and then perhaps selling at a higher multiple. We’re seeing companies that are frankly both buyers and sellers potentially.

Medtrade Monday: What is the role of timing and/or patience in the selling process?
Lincoln: Timing and patience are critical. Every company is different, and it depends on where they are and their specific industry niche or company life cycle. It depends on their size, quality of earnings, quality of management, objective of the seller to stay on—or completely retire; all of it impacts potential attractiveness to buyers. The buyer’s objectives play into this as well.

Medtrade Monday: How long does the process take?
Lincoln: Some transactions can take two years or longer. On the other hand, I just finished one that was on an outrageously short time frame to take advantage of existing 2020 long-term capital gains rates. It was a heavy lift for all parties and we got it done in three and a half months. A more normal timeframe is really between six to eight months.

Medtrade Monday: AAHomecare estimated that more than a third of HME providers went out of business in the last decade. How scared are prospective buyers of further government action?
Lincoln: Providers who are participating in competitive bidding, and have been for many years now—they understand it. They’ve revised their operations to weather that storm and normalize their operations for that new reimbursement reality. For a company that has not been a participant, and now may newly be participating, it’s a more challenging time to sell because financials that we can see historically would not reflect competitive bidding. A buyer wouldn’t know how that company could survive the reimbursement change, unless they just assume they will absorb it as a buyer. I don’t think strategic or sophisticated buyers are scared of competitive bidding. They may have strategic criteria that dictates they will take it on, or they simply don’t want it.

Medtrade Monday: How many years of growth does a buyer like to see?
Lincoln: Stability and growth are important—at least stability if not growth over a period of two to three years. One year is really too short. Two to three really gives a very good picture, even if the initial presentation for a buyer might only be a year to two years. They’ll generally look back three to even five years as part of their validation and due diligence process. That process of due diligence and validation is something that most small companies, private companies, are not terribly prepared for. They may not really understand the depth to which a public company or private equity buyer will really dig in to validate the quality of those earnings. Be prepared for it. Get your ducks in a row.

Medtrade Monday: What sectors are the hottest these days for HME M&A activity?
Lincoln: We’re seeing a lot of interest in respiratory and home infusion. Home-based, long-term services, specialty pharmacy, infusion pharmacy, behavioral and mental health. I include CPAP therapy in the respiratory category. There’s also a lot of M&A activity in specialty physician practices such as dermatology, ENT—even ophthalmology and dentistry. .

Medtrade Monday: What would you say to readers who are thinking; This is my year. I’m going to sell my business and make a lot of money.
Lincoln: I think the stars really are aligned to maximize valuation in most healthcare businesses this year. If you have a strong and solid business, it’s a really great time to explore a sale. Hire an advisor because they will add so much value to the process. They can foster a competitive process that guarantees you the best valuation and really holds your hand throughout in preparing what’s necessary for a buyer. Be patient. It’s an exciting but stressful time. You’re selling your baby, and you want to make sure it goes to a good home—whether you plan to still babysit or not. It’s really important to vet the buyer to see what their plans are for your business in the future, and determine whether they align with your own goals and objectives.

IN BRIEF
Hart Medical Equipment Acquires McLaren Home Medical Equipment  

CHEBOYGAN, MI – Hart Medical Equipment has acquired McLaren Home Medical Equipment (MHM), formerly known as VitalCare in Cheboygan, Gaylord, and Petoskey in northern Michigan. The official acquisition date was January 1, 2021. “Hart concentrates on patient outcomes, integrative technologies, timely delivery, and customer satisfaction, which has helped build trust within our communities,” said Allen Hunt, Hart’s president. “We look forward to bringing Hart’s focus on continuity of care, reduced readmissions, and long-term patient outcomes to the northern Michigan community.”