Moving the HME Industry Forward

General Healthcare

Audits Affecting Pace of Mergers in 2014

April 28, 2014

TARPON SPRINGS, FL – Mergers and acquisition (M&A) veteran Rick Glass (pictured), president of Steven Richards & Associates, agrees that single-location bid winners have been acquiring companies in 2014, but “significant” mergers are down. “Some companies are trying to get value out of the fact that CMS issued them hundreds of competitive bidding contracts that they can’t fulfill,” muses Glass.

Glass characterizes 2014 M&A activity as “slow,” and he admits that has been a bit of a surprise. “To the extent that deals have happened, it’s been regional players buying small companies,” he says. “I really thought we’d start to see some pickup out of the nationals and larger regionals, but it hasn’t happened yet.”

Why the slowdown on bigger deals? Glass blames the level and scope of audits. “It’s hard to get excited about buying a business in which 30% of all your transactions are going to be held up for an indefinite period of time, whether you’re right or wrong,” says Glass from his Tarpon Springs, Fla-based office. “I talk to companies that have acquisitions in their future plans, but nobody is pulling the trigger.”
In contrast, Dynamic Healthcare Services (DHS), a regional DME based in Pennsylvania, has completed four acquisitions since January of this year. One was in North Western Pennsylvania, and three were in the New Jersey area.

“We believe the need for HME will continue, and we have the patience to wait until the pendulum swings back,” says Terry Luft, founder of DHS. “We feel it has to come back, and we are willing to grow while we are waiting. As for the slower M&A activity for this year, what I do see with some smaller companies is that they still have that wait-and-see approach.

“I believe CMS may alter some of the ways that they have operated competitive bidding,” continues Luft, “but for the most part, it is here to stay. Waiting for a change back to the ‘good old days’ is a dangerous approach. If you have not changed your business model to succeed in the competitive bid environment, then you are losing value every day.”