The M+A market continued to struggle to rebound this year after a slow 2023, undoubtedly due in part to continuing high interest rates and the pending election. Straightforward deals that, in another year, would have successfully closed did not, while more complex deals were met with various roadblocks. However, with interest rates slowly coming down and the election results in, all signs are pointing to a rosier outlook in 2025 for M+A activity. VERTESS is excited to share its annual year-end review and future outlook for each healthcare vertical in which we operate. We are encouraged going into the new year and are looking forward to what 2025 has to offer!
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
Bradley Smith, Managing Director/Partner
Durable Medical Equipment / Home Health / Medical Device Manufacturing
Durable Medical Equipment (DME)
Valuations in DME this past year have unfortunately continued their downward trend since the highs of 2021 and 2022, albeit at a much slower pace. As a result, there have been fewer transactions than in a normal year. There have been a few exceptions to this, namely very niche and large providers bucking this trend i.e. Nationwide and Rotech. On the positive side, private equity as a whole has shown renewed interest in the DME market with favorable modeling on the industry at large. In 2025 I look to see more PE and PE-backed players to increase acquisition efforts and see a modest increase in valuations as well as the number of transactions. In fact, we were already starting to see this uptick in Q4.
Medical Device
Valuations in the broader Med Device market have remained stable despite a slowing in transaction activity in 2024. Largely, the transactions completed this past year have been strategic, with a continued decrease in private equity platforms. I am looking for this trend to change based on the favorable broader market conditions of lower interest rates and a surplus of dry powder. This will lead to increased competition for assets and a modest increase in valuations.
In 2024, M+A activity in the SUD and mental health sectors grew by 6%, with 80% of deals focused on follow-on acquisitions. This highlights buyers’ preference for scaling existing platforms and lowering their average entry multiples, signaling a cautious yet optimistic market.
In 2025, this trend is expected to continue, bolstered by stabilized interest rates and operational costs. Capital will increasingly target providers offering a continuum of care, aligning with the industry's shift toward value-based models that prioritize breaking down silos and creating seamless, single-point entry systems. New platform acquisitions are likely to drive further follow-on deals, providing early-stage platforms with favorable opportunities for sellers. Providers demonstrating integrated care models, operational efficiency, strong outcomes, and robust telehealth offerings will remain highly attractive, positioning them to secure premium valuations in an active, competitive market.
The pharmacy industry faced a multitude of challenges in 2024. New drug approvals, innovative formulations, and revised pricing regulations reshaped the landscape. Drug affordability took center stage, with initiatives like affordable insulin and biosimilars gaining prominence. Pharmacy Benefit Managers (PBMs) faced increased scrutiny from employers and consumers demanding transparency in their practices. PBM actions inadvertently drove patients away from independent pharmacies.
The retail pharmacy sector experienced significant disruption due to years of mergers and acquisitions, rapid expansion, and the entry of major players like Amazon and GoodRx. The 340B Drug Pricing Program underwent dramatic changes, particularly impacting hospital-based pharmacies. In the specialty pharmacy realm, a shift from brand-name drugs to biosimilars and increased scrutiny of rebate programs aimed to reduce costs. Additionally, hospital-owned specialty pharmacies emerged as a growing trend. Workforce shortages further compounded the industry's challenges, affecting staffing levels and operational efficiency. The cyberattack on Change Healthcare had a significant impact, exacerbating industry-wide issues. Declining customer satisfaction, rising costs, and increased PBM scrutiny added to the complexities. As the industry continues to evolve, digital technologies play a crucial role in consumer interactions with PBMs and pharmacists. In 2025, M+A activity is expected to remain high, especially in the compounding, specialty, home infusion, and nuclear pharmacy sectors. The retail pharmacy sector is likely to face continued challenges in the coming year.
Intellectual/Developmental Disability / Traumatic Brain Injuries / Behavioral Health
Throughout 2024 we continued to see good deal flow and strong valuations in small and mid-sized behavioral health deals. Business owners who chose to sell in 2024 are very pleased with their results and the processes we ran. Our expectations are that the business environment in 2025 will likely continue to remain strong as this space is far more stable and predictable than other lines of business.
The medtech and healthcare IT sectors have seen significant momentum in M+A activity and private equity interest, particularly as innovation continues to reshape the landscape. Medtech has focused on scaling promising technologies, such as surgical robotics and brain-computer interfaces, which are drawing substantial funding and strategic interest. Healthcare IT, on the other hand, remains a resilient and attractive area for PE sponsors, driven by consolidation and demand for solutions like chronic disease management, digital therapeutics, and real-time analytics platforms. Investors are capitalizing on these opportunities, reflecting a strong appetite for scalable, high-growth assets in these markets for 2025.
Private equity activity in healthcare services has been marked by a cautious yet optimistic approach over the past year. Deal flow slowed slightly in 2024, as buyers and sellers navigated market timing challenges and economic uncertainties. However, interest remains high in sectors like infusion services, medspa, and outpatient mental health, although the scarcity of platform-scale assets poses challenges. Specialty physician groups have become a contrarian play amid PPM dislocation, though strategic exits are beginning to thaw the market. Infusion services have stood out as a top-performing category, and with increasing optimism, 2025 is expected to bring a modest recovery in deal activity across healthcare services, underpinned by strategic acquisitions and the gradual stabilization of macroeconomic factors.
As we approach the end of 2024, we’ve observed a slowdown in closed transactions within the healthcare M+A landscape compared to the previous year. This deceleration can be attributed to cautious market conditions and regulatory complexities. However, the outlook for 2025 remains positive, with expectations for a resurgence in deal activity. Companies are increasingly recognizing the importance of strategic acquisitions to enhance service offerings and improve operational efficiencies. With a renewed focus on partnerships that leverage data analytics and innovative technologies, we anticipate a wave of transactions aimed at navigating the evolving healthcare landscape. Investors are poised to capitalize on these opportunities, and as market conditions stabilize, we expect to see more deals successfully closing in the coming year.
Durable Medical Equipment / Home Medical Equipment
Overall, 2024 saw a slowdown in deals for DME; specifically in the areas of Medical Supply and CRT. While the category did slow, some therapies and product-specific areas did experience normal to increased interest and valuations. Clinical therapies such as Wound Care, Urology, and Diabetes CGM saw strong interest and acquisitiveness from both large strategic buyers and financial buyers. Overall however, these categories have seen tremendous consolidation during the past decade, so much of the slowdown comes from low inventory of companies as well as larger buyers settling on the many transactions completed during record times of 2021 and 2022. Other therapies such as Incontinence, Enteral, and Ostomy did not attract the level of interest as in years past. Much of the interest, however, was very targeted toward specific geographies, payers, and companies with value-based programs that brought higher margins to these commodity-type “lower margin” therapies. Similarly in CRT, consolidation over the past decade has hit this category hard and interest from the larger strategics seems to have slowed down.
With the Centers for Medicare & Medicaid Services and private payors increasingly focused on reducing healthcare costs and improving patient outcomes, home health agencies are stepping up to play a bigger role in the overall care landscape. We saw the nationwide rollout of home health value-based purchasing gain further traction in 2024 and build momentum heading into 2025. This model rewards participating home health agencies for delivering high-quality care and enhancing patient outcomes.
Many agencies are maximizing these reimbursement opportunities by leveraging new tools for measuring and improving outcomes. Thanks to advancements in data analytics and digital platforms, home health providers can more easily track patient progress and report essential metrics. These insights allow them to refine their care strategies, increasing their chances of higher reimbursements. As home health agencies become even more integral to value-based care, buyers are eager to get involved early and capitalize on the sector's growth.
Smaller agencies or those with fewer resources have faced challenges with the financial and operational investments required to meet new value-based reporting standards. This is creating an opening for investors and an opportunity for home health agencies. Agencies open to a financial or strategic partnership can gain access to the capital they need to make these investments and remain competitive.
Ambulatory Surgery Centers / Hospitals / Physician Practices
2024 served as a litmus test for healthcare companies as we move to a post-COVID-19 norm. As a result, 2024 defaulted to safe acquisitions to mitigate risk for buyers. This was primarily observed in companies that were affected both positively and negatively by the epidemic. Among these companies, Urgent Care, laboratory companies, revenue cycle management (RCM), and Ambulatory Surgery Centers were most affected. The good news for 2025 is we can now see acquisitions trending through platform consolidation and buyers entering the market more confident and willing to take more risk. The indicator for this change is a heavy interest in strategic buyers looking to add to existing platforms and enhance their portfolio with add-ons, whereas these actions were stagnant in 2024. There is increased interest in RCM companies and Urgent Care centers that were considered a higher risk during COVID due to the risk of future non-reoccurring revenue. Ambulatory Surgery Center management companies are looking to grow exponentially in 2025. This heightened interest can be validated by the increase in their 2024 acquisition budgets. The new target audience for these specific companies will be private equity groups who are still cautious about the risk and acquiring funding while staying competitive with bids. It will be the job of intermediary M+A companies to provide a narrative for sellside opportunities by utilizing 2024 data to justify a meaningful multiple for their client and minimize risk in a now more stable market.
Market valuations for healthcare companies/practices sold in 2024 included many above-average offering prices. We received more outlier offers in 2024 than we’ve seen since pre-COVID. That’s the good news. The not-so-good news was that M+A transactions in 2024 took much longer than usual to complete. This may be the result of a continued flight to quality that we’ve experienced since post-COVID. The good news is that most healthcare companies have long since gotten past the ill effects of COVID-19 in their financial performance.
We expect 2025 to be much more robust than 2024 regarding M+A transactions. We sense a greater level of optimism among market participants. The tailwinds impacting M+A in 2025 are based on improving companies’ financial performance, lower interest rates, aging baby boomers/business owners seeking to retire, increased liquidity of investors/buyers, and lower inflation. We further expect a higher-than-normal amount of outlier offers for healthcare companies in 2025.
FORT WORTH, Texas, Nov. 15, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, is pleased to announce that Momentum (https://momentumme.com/), a Maine behavioral health provider that offers shared living and other services to people with intellectual and developmental disabilities, has joined the Mosaic (http://www.mosaicinfo.org) family. Momentum is now part of Living Innovations (http://livinginnovations.com), a service of Mosaic. Together they have increased their reach to people with diverse needs in Maine, New Hampshire, Rhode Island, and Connecticut. The transaction was facilitated by the VERTESS team and Rachel Boynton.
Living Innovations offers community-based services to 950 people, including more than 500 individuals who participate in shared living. They also provide vocational services to 204 people. Momentum serves approximately 270 people through its shared living and other community-based programs. Living Innovations State Operations Director, Andy Taranko, shares, "Momentum is a trusted organization that has innovative programs like Nature Trek and a strong reputation for quality. It is a natural fit for the high-quality services Living Innovations provides across Maine." These two organizations will serve about 1,500 individuals through shared living, community support, and employment services.
Dennis Strout, founder and Executive Director of Momentum, noted that his decision to become part of Living Innovations was greatly influenced by his desire to ensure the services provided continued long into the future. He shares, "The Momentum workforce has helped people achieve incredible things, and Living Innovations brings new levels of support and resources, a welcome addition to provide long-term stability for the services."
"I enjoyed working with the professional teams at Momentum and Mosaic in support of their goals," stated David Coit, VERTESS Director of Finance and Valuation. "Having worked with Living Innovations previously in their acquisition by Mosaic, I am excited to hear of future successes for the group."
FORT WORTH, Texas, Oct. 2, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, was recently named the #1 lower middle market sell-side M&A advisor on Axial's (http://axial.net) 2024 Healthcare Top 50 list. Axial is a private deal network serving professionals who own, advise, and invest in North American companies. The list features the top 50 most active and sought-after members who worked on transactions across various healthcare sectors over the past 12 months. VERTESS was recognized for the number of deals brought to market and the level of interest those deals received in the network.
VERTESS is also pleased to welcome senior healthcare executive Christine M. Bartel to the team as a Managing Director. Christine has nearly 30 years of healthcare experience and has held impressive administration and executive leadership positions in which she was responsible for clinical compliance, care coordination, and operational efficiencies, including financial integrity and growth strategies.
Previously, Christine started Hope at Home, Inc. and Aspire Home Care, a private duty agency and skilled home care agency, respectively, in Colorado. Serving as the CEO, she supervised a staff of approximately 350 caregivers, established two branch locations in Colorado Springs and Fort Collins, and ultimately sold the companies to a private equity firm in 2008. Post transaction, she launched an independent consulting practice that acquired underperforming health care entities, delivered strategic guidance and an array of management services to diverse healthcare organizations, facilitated with interim/long-term senior leadership operational turnarounds, joint ventures, facility expansion, service line development, and mergers and acquisitions. She has coached health system executives, physician groups, assisted living facilities, skilled nursing facilities, insurance companies, and post-acute organizations. Christine was also the Executive Producer and Host of the popular CBS News (KCNC) program, "Aging Independently with Christine Bartel."
Christine earned a bachelor's degree in economics with a premedical emphasis from the University of Colorado Boulder. She also received an MBA in health care administration from George Washington University in Washington, D.C. In 2012, she received her Certification as a Senior Advisor (CSA). She was the recipient of the women-related Corporate Social Responsibility/Bronze Stevie Award in 2018, was featured on the Inc. 5000 list of the fastest-growing private companies in America (ranking 1908 out of 5000) in 2018, and was honored as the Female Executive of the Year/Gold Stevie Award Winner in 2017.
"After years of directly providing healthcare supports, I believe my skills and experience offer a critical advantage to other healthcare leaders considering their next steps. I am keenly aware of the daily struggles owners have to maintain high-quality care while also managing the daily operational demands," Christine noted. "The opportunity to work with VERTESS was an easy decision. We are aligned in our commitment to helping people achieve success."
Vaughne Glennie, Managing Partner of VERTESS, commented, "Christine's passion for her work is admirable. After building two successful healthcare companies on her own, she never wavered from her commitment to the individual. She believes that with proper knowledge, educational outreach, and resources, anything is possible. Her clients have a formidable ally with her guiding a transaction process."
For more information, please contact Vaughne Glennie at 384185@email4pr.com or +1.520.395.0244.
FORT WORTH, Texas, July 24, 2024 /PRNewswire/ -- As healthcare-specific merger and acquisition (M&A) advisors, VERTESS (https://vertess.com/) has been asked frequently by healthcare business owners "How is the market in 2024?" and "Is now a good time to sell my company?" We understand that most owners believe they must wait until the market tea leaves reveal the optimal time to sell to secure the best price. In response, we can speak to significant macro conditions, such as interest rate activity, inflation shifts, and global events. Those all will generally have an impact on prices of transacted companies. However, the far more critical indicator for when a sale is optimal will always be when the owner is ready to move on to whatever is next in life.
At VERTESS, we recognize that owners are likely the most important person to the business. They are its biggest cheerleader. They have invested more in it than anyone else, so they typically will make the biggest and greatest impact on the business. If owners wait to try to time the market or take advantage of some other perceived opportunity, they run the risk of souring on the business and becoming burned out or disenfranchised. If that happens, the business is going to suffer, and that will likely lead to a decline in sales price.
Of course, interest rates continue to be a substantial issue affecting healthcare businesses. They are high and the Fed isn't likely to start reductions until the end of this year or the beginning of 2025 due to sticky inflation and a strong labor market. If an owner wants to get a bank loan for their business, they're looking at 10-plus percent. How has the market responded to rising interest rates? Bank loan activity has slowed, and people are deploying more equity. Private equity firms are maybe doing one or two turns of debt equity, with the rest of their payment coming out of pocket. Two years ago, when interest rates were about half of what they are now, these firms might do half a deal in debt.
Buyers find a way to evolve to what's happening in the market and buy the businesses they want to acquire. Buyers, especially strategics, bake acquisitions into their growth strategies. It's their "buy-and-build" strategy. Buyers know they're going to grow organically every year at X rate, and then they plan for inorganic growth at a certain rate, which is accomplished through acquisitions. Inorganic growth is typically identical to, if not larger than, organic growth rate.
Regardless of the market today or what's projected over the next 12-plus months, buyers are going to set acquisition mandates and work to achieve them. Buyers need to buy companies to scale their businesses. It's part of part of the fabric of their operations and what they're used to doing — and that's not going to change, regardless of what's happening nationally and internationally.
"Ultimately, owners should know what's happening in the market as this can affect matters like budgeting, staffing, and purchasing. But when it comes to selling your company, don't let what is happening in the market influence your plans. The risks of doing so far outweigh any potential benefits," cautions VERTESS Managing Director/Partner Bradley Smith. "If you own a successful business, you should be able to find a buyer and one that offers you a good, fair price, regardless of what's happening in the market. The key to a successful sale is to run a proper process that results in all interested buyers — and the right buyers — coming together simultaneously and making their best offers. That's how you'll know you're getting the best price for your company."
For more information, please contact Vaughne Glennie at 380788@email4pr.com or +1.520.395.0244.
FORT WORTH, Texas, July 16, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, is pleased to announce the successful completion of a third pharmacy deal this year. This deal closely follows two additional pharmacy transactions completed in Q2.
Keystone Specialty Pharmacy (https://keystone-pharmacy.com/), a customized, specialty pharmacy out of Mississippi, was purchased by Novastone Capital Advisors (NCA) (https://www.novastone-ca.com/index.php), a Switzerland-based private equity firm, as part of their Entrepreneurship through Acquisition (ETA) Program. Keystone prides themselves on offering health care providers new resources to treat serious infections while also being committed to maintaining the highest ethical standards in business. Dr. Lisa Piercey, NCA's Entrepreneur, will lead the pharmacy as it continues its mission of providing critical care.
The transaction was overseen by VERTESS Managing Director, Alan Hymowitz, who previously owned and operated a pharmacy before his tenure at VERTESS. His unique background was invaluable in leading this transaction to a successful conclusion. He noted what a demanding and lengthy process this transaction was, but that he is thrilled for his clients to see this deal across the finish the line.
Keystone owners, Jeffrey and Kim Clark, reflected on the transaction process sharing, "Alan Hymowitz and the team from VERTESS understood the importance of finding a strategic investor who would continue our mission 'Our goal is to heal and not refill.' VERTESS found the ideal fit for our pharmacy, one who we have confidence will take care of our patients with excellence while expanding the business we started. We are extremely grateful to Alan, David Coit, and the rest of the VERTESS team for their diligence and expertise in bringing our deal to close. Their guidance through this process has been a blessing to us both."
For more information, please contact Vaughne Glennie at 380413@email4pr.com or +1.520.395.0244.
FORT WORTH, Texas, June 19, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, is pleased to announce the successful completion of two pharmacy transactions in Q2.
Savage Family Pharmacy (https://www.savagerx.com), a family-owned pharmacy serving the Pennsylvania community since 1922, was acquired by a private buyer in May 2024. Savage was the second part of the transaction overseen by VERTESS Managing Directors, Alan Hymowitz and Anna Elliott. The first part of the transaction closed in Q3 2023. Hymowitz and Elliott are grateful for their client's patience and perseverance through the transaction process. "We couldn't have asked for a more cooperative client. He was responsive and helpful throughout both processes and was, more importantly, focused on realizing the best outcome for his business," stated Elliott.
Apex Infusion Pharmacy (https://apex-iv.com), a fast-growing provider of ambulatory infusion therapy services based in California, was purchased by FFL Capital Partners (https://www.fflpartners.com/), a private equity firm focused on middle-market technology and healthcare services. Founded in 2006 and headquartered in Signal Hill, California, Apex Infusion provides high-quality, reliable care to patients in the comfort of their own homes or in ambulatory settings, with the goal of achieving the best possible outcomes. Apex coordinates professional interaction with our patient's physicians, nurses, and other healthcare providers. They provide intravenous immunoglobulin, specialty infusion, total parental nutrition, and other therapeutic services. Apex currently operates 11 locations in California. Alan Hymowitz was the Managing Director who advised on this transaction, as well. He has several decades of pharmacy experience after owning, operating, and selling his own pharmacy, and now provides consulting and transactional advisory services. "Apex has such a strong track record and leadership team. It was truly a pleasure to find the right buyer who could take the company forward into its next growth phase," commented Hymowitz.
For more information, please contact Vaughne Glennie at 379354@email4pr.com or +1.520.395.0244.
FORT WORTH, Texas, May 9, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, was recently named the #1 lower middle market investment bank for Q1 2024 by Axial (http://axial.net), a private deal network serving professionals who own, advise, and invest in North American companies. The first quarter of 2024 saw 2,534 total sell side deals marketed on the Axial platform, which was an increase from the previous two quarters. In particular, healthcare was the industry with the highest pursuit rate on the platform.
VERTESS also facilitated three transactions in Q1 2024. MyDoc Urgent Care (http://mydocuc.com), a multi-location urgent care center based in Pennsylvania, was acquired by MyTown Health Partners (http://mytownhealthpartners.com), a comprehensive practice management services organization recently formed by Webster Equity Partners. MyDoc Urgent Care provides urgent care, primary care, occupational medicine, workers comp, physicals, wellness and holistic medicine to local communities in Philadelphia. VERTESS Managing Directors Anna Elliott and Blake Peart represented the sellers in the transaction.
"We felt like the owners of myDoc became a part of our family during the process," stated Anna Elliott, who has over 20 years of M&A experience. "Our primary objective is to always meet the client needs for their future goals," added Blake Peart, a former executive with decades of operational experience in hospitals and ambulatory surgery centers (ASCs). "Their satisfaction is the top priority."
VERTESS Managing Director Dave Turgeon and Director Jack Turgeon led efforts on two significant transactions in the intellectual and developmental disability (I/DD) space. Gold Medal Home Health (http://goldmedalhomehealth.com), an I/DD services provider based in New Jersey, was acquired by Abound Health (http://aboundhealth.com), a North Carolina-based leading provider dedicated to supporting individuals with diverse needs. North Valley Developmental Services, Inc., a California I/DD company, was acquired by Merakey (http://merakey.org), a national provider of services for children, adolescents, and their families in areas of mental health and autism based in Pennsylvania.
"Assisting companies who provide these valuable supports is an extremely rewarding process. We know how important it is to establish the right partnership to keep critical services in place," commented Jack Turgeon. "We are extremely pleased to have facilitated these transitions."
VERTESS Managing Director/Partner, Bradley Smith, recently participated in a podcast hosted by MCM Wealth.
In this episode, Brad dives deep into the intriguing world of business sales and acquisitions and covers nuanced strategies that could ensure your business fetches its utmost value when receiving buyout offers. Brad explores how to navigate these offers, the importance of finding the right buyer, and strategies to ensure you get the best value for your business. Whether you’re a family business owner, healthcare professional, or entrepreneur, you’ll gain insights into maximizing the value of your business, amid the complexities of the market.
Brad discusses:
The significance of finding the right buyer over just any buyer for your business
How to identify the right buyer for your business
The impact of private equity in the current market on selling a business
How business owners can maximize valuation and avoid common mistakes
What a typical deal structure looks like
How to mitigate the disadvantages business owners face during the due diligence process.
And more
Volume 9, Issue 1, January 11, 2022
by The VERTESS Team
Every January, as we begin conversations with healthcare business owners who are considering the sale of their companies, we are often asked about the previous year's market and what predictions we can offer for the new year. 2021 offered some continuing challenges due to the ongoing global pandemic, but there was still significant activity in healthcare M&A. While 2022 is still just days old, VERTESS is keenly aware of developing trends that we believe will continue throughout the year. As each VERTESS team member has a long history in specific healthcare sectors, we are reviewing the previous year for each of those sectors as well as some projections for 2022.
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
J. Blake Peart, Managing Director
Ambulatory Surgery Centers / Hospitals / Physician Practices
Prior to joining Vertess in December of 2021, I was an operator in the ASC space with experience in small hospitals and for-profit healthcare education institutions. 2020 and 2021 were volatile years for the healthcare industry primarily due to the inability to project growth and revenue due to lockdowns, limited operating ability, and staff challenges all due to the pandemic and government mandates. My major takeaway from this experience was the adage, “The strong survive.” Meaning, many small healthcare organizations that were not supported by major backers struggled with daily operations, meeting financial demands, supply chain challenges, and maintaining staff.
One of the biggest surprises in 2021 for me was seeing the ASC market come to a halt, limiting/canceling surgical cases due to the restrictions on elective procedures caused by lack of PPE’s. These restrictions were extremely inconsistent and based not on the availability of PPE’s and/or hospital admissions, but on geographic decisions made by local politicians. This made it extremely hard for businesses to strategically plan and operate during the COVID storm surrounding them.
As we enter 2022, the pandemic is falling into our rear-view mirror. Small business owners in healthcare do not want to relive this experience. As a result, owners are looking for strategic partners who will help them mitigate any risk moving forward. All supporting experts have predicted 2022 a huge M&A transaction year. A challenge for owners is the hit in revenue due to the pandemic over the last few years. Many have not only lost revenue but taken on more debt as a result. Staffing these facilities has also become a challenge affecting recovery. The good news is the “COVID Effect” is being forgiven if a strong recovery is demonstrated. Some companies will be less affected by 2020 revenue losses if 2021 demonstrated a strong recovery. Others, however, may need advice on how to maximize revenue in 2022 and revisit the selling option in 2023.
Did you sell your SUD treatment or mental health company in 2021? If so, you probably timed the market about as well as the Reddit users who sold their AMC shares last summer. Not only were buyers attempting to catch up on missed acquisition metrics from 2020, but investors contemplating the space before the pandemic were persuaded that: 1) the continued de-stigmatization of mental health and SUD treatment will result in a long-term increased utilization of benefits; 2) Federal and State policies will continue to promote parity for mental health and SUD; and 3) insurance products will be increasingly friendly for these services.
Despite a great M&A environment, 2021 was no joyride for most operators in this space. Many of our colleagues reported closures – and sometimes refunds – from COVID outbreaks, PPE costs that were not reimbursed adequately by their respective States, staffing shortages, sunk costs into new technologies, and more. This all occurred while racial and economic parity initiatives took center stage at the White House, which was great for the industry’s trajectory but difficult under the other pressures felt from the pandemic. The net effect was that, although valuation multiples and deal terms were record-breaking for sellers, lower EBITDAs resulted in only marginally higher net proceeds to sellers compared to 2019.
Moving into 2022, we expect a strong market in these segments of Behavioral Health. With high demand and static supply, we expect above-average pricing and multiple offers for healthy providers running a coordinated M&A process. Net proceeds to sellers should be similar to 2021 if Covid-related revenue losses and expenses subside.
What are buyers looking for this year? Client-centered, locally branded, tech-forward, lean providers that are in-network in saturated geographies. Out-of-network providers in unsaturated geographies should still carefully choose which carriers with whom to pursue an in-network contract, even though it makes them less attractive to buyers at first glance. Think about the movement to value-based reimbursements and population health management: what can you do in 2022 to demonstrate readiness for the change? Lastly, as always, unsolicited offers mean your business is attractive, but be wary of accepting an offer before finding out what the market would perceive as value, which requires a coordinated M&A process.
During the last year, we certainly saw some major changes, particularly in the retail pharmacy market. We saw a big shift from standard retail to mail order. This was due to patients not wanting to walk into a retail location, as well as due to a big shift in the role of the pharmacist during the pandemic. The local pharmacy became more of a trusted ally in patients' healthcare. Their role transitioned to the first line in patients' healthcare ahead of their primary care physician in addition to their ability to now give vaccines and take on a more clinical role. We also saw a shortage of pharmacists and more workforce demands. We saw more supply chain issues and drug shortages than ever before. It certainly put a demand on independent pharmacies to rely more on technology and telehealth than in any previous year. It provided an opportunity as well as practice for healthcare companies to respond to future pandemics and disasters.
Home Infusion continues to be one of the most sought-after acquisitions and will continue to be so in 2022. With all the previous large acquisitions by Amazon/PillPak, PantherRx, Avita, and Diplomat for online M&A activity as well as brick and mortar acquisitions, the market will remain strong.
In home healthcare and hospice, we saw an upswing in strategic partnerships especially from PE-backed platform companies due to the political uncertainty and demands for cost-cutting. There was a shift from fee-for-service business models to value-based care. As smaller operators became more comfortable with the new reimbursement model and received COVID relief funds, they looked to sell due to poor cash flow.
The likelihood that the effects of the pandemic are here to stay will continue to put pressure on healthcare companies to rely more on technology and digital health. It will also continue to shift where and how health care is delivered.
One of the biggest COVID effects that I have witnessed in the human services/home health space is how tired many owners are. We are seeing many middle-aged entrepreneurs (those people we don’t often see exiting) choosing to exit the space because of the continued challenge to recruit, hire, and retain quality staff to carry out their vision. Many owners have ridden out the difficult COVID months by paying staff to stay on, beyond the “shut-downs.” This has caused some financial difficulties for many but these same owners, who are staying engaged, see a light at the end of the tunnel. I think many people understand that COVID is probably not going to just disappear, so they are adjusting their models, embracing technology, and enabling staff to provide safe support services. States are collectively re-evaluating reimbursement rates, with the understanding of the stresses that organizations are experiencing, and MCO’s are turning towards more community-based supports and services – specifically in the skilled home health areas.
In the M&A world, we are seeing a subtle shift from the prior years' excitement for ASD services into the more broad category of behavioral health and even SUD treatment. This is likely because of the national attention BH is getting with an increase in insurance reimbursements as well as the increase in demand. We are seeing growth in SNF (Skilled Nursing Facilities) that provide inpatient BH services with specialties like SUD or co-occurring diagnosis. Like many other human services industries, we are seeing a move towards consolidation and growth to provide economies of scale and negotiation power. This move towards consolidation has also been seen as BH/IDD and hospital/MCO platform organizations are diversifying their service options by acquiring bolt-ons that differ from their original service options, like adding a pharmacy, DME, or technology platform to provide a value-add to their consumers while diversifying their funding and cutting certain outsourced costs.
Durable Medical Equipment / Home Health / Medical Device Manufacturing
The continuing pandemic keeps creating new and unexpected obstacles to overcome. I never expected the supply chain issue to affect the DME/HME market in the way it did and, when Respironics’s recall occurred, it compounded the issue and sent it to a whole different level. The supply chain issue really challenged providers this past year and will be an issue through most of 2022. Unfortunately, it is clear that COVID is in control of this economy/market and, until we control the virus, it will dictate our business.
The biggest surprise I saw over the last year was a large number of baby boomers finally ready to sell. The pandemic seems to have finally pushed them over the edge, and they are now opting to exit. Surprisingly, I’m seeing a lot of them rollover equity and continue to have a minor role in the business.
The DME/HME market will have further consolidation in 2022, however, more new providers are opening up for the first time than in decades. These new providers are leaner and more nimble than the legacy providers and will force the legacy provider to keep innovating new technology.
For business owners looking to transact, it remains a seller’s market. The balance of supply and demand remains off with much more demand than supply. My advice for owners who are considering selling is to "Know Thy Self." Know the type of outcome you seeking and go after that. Don’t waste your time entertaining the one-off unsolicited offers, they are more of a distraction that will not yield a great result. If/when you are ready to sell or recapitalize, go all in and run a full process with all the buyers - this will guarantee the best outcome that can be achieved.
I/DD / Traumatic Brain Injuries / Behavioral Health
In 2021, I was surprised by the volume of deals and the continued strength in pricing for those deals. I was also surprised by the run-up in all asset prices (stocks, real estate, and privately-owned businesses). Transactions became a little more complicated due to COVID adjustments and their impact on operations. We've seen far more earnouts than prior to the pandemic. In fact, some deals have been completely stalled due to labor concerns.
In the I/DD and TBI markets, I had two very interesting developments in the past year. First, it has been amazing how robust the appetite is for buyers and sellers to transact. On the buy side, there’s a record amount of capital and number of buyers chasing deals (this was addressed in my previous Salient Value article). The second surprise is the state of labor in our country. We saw record amounts of turnover, vacancies, and overtime.
In the I/DD, TBI, and Behavioral Healthcare sectors, the market will become even busier as more deals will get done than in 2022 than any prior year. The amount of “dry powder” or capital seeking investment is at a record number. There is also a record number of buyers that are seeking deals. More NDA’s are being executed and more buyers are looking at each deal.
In the I/DD space, the factor driving owners to consider selling is the move toward retirement by baby boomers that have been doing this for decades. In other spaces where the owners are more entrepreneurial, the motivation to sell is the high exit multiples and desire to go off and start something else. My advice to owners to owners considering a transaction is twofold. First, you need an advisor to help you with the sale of your business. Second, avoid “brokers” that make promises they just can’t keep. Look into the track records of those you consider using to manage your process.
The overall market for healthcare M&A in 2021 was very active with both strategic and financial buyers. While we have noticed an impact from COVID on specific verticals, much of the industry saw an uptick in deal flow as well as valuation trends. DME, home care, and hospice acquisitions stayed very strong and this trend is expected to continue for 2022. We are seeing an aggressive acquisition mode for the larger regional and national strategic buyers in these markets. Hospice and home care multiples are at a premium thus driving smaller tuck-in deals for lower-middle market companies. If you're a healthcare business owner looking to exit in 2022 or 2023, the market should yield you a solid transaction. However, it's important to not focus solely on timing the market, make sure you have your "ducks in a row" prior to selling to ensure you can capture the most value for your business.
FORT WORTH, Texas, Nov. 3, 2023 /PRNewswire/ -- Apple Homecare Medical Supply, Inc. (https://www.applehms.com/), one of Texas' largest pediatric respiratory and enteral supply providers, was recently acquired by Minnesota-based Pediatric Home Respiratory Services, LLC (PHS) (https://www.pediatrichomeservice.com/), a multi-state provider of pediatric respiratory equipment, enteral nutrition, infusion nursing & pharmacy, home care/private duty nursing, and more. The transaction was facilitated by VERTESS (https://vertess.com), a leading healthcare Mergers + Acquisitions (M+A) advisory firm. The acquisition provides PHS further reach into the Texas pediatric home medical equipment market.
Apple HMS, headquartered in Richardson, TX, has been a full-service Home Medical Equipment/Durable Medical Equipment (HME/DME) supplier specializing in pediatric acute care HME equipment and supplies since 1999. Their multiple established service locations across the state of Texas enable them to provide services to any locale. Their outstanding reputation and service track record make them consistently one of the top suppliers in the state.
PHS, headquartered in Roseville, MN, currently operates in Minnesota, Wisconsin, Iowa, Kentucky, Ohio, Indiana, Missouri, Nebraska, Kansas, and Texas. PHS is independent children's home health care agency dedicated to helping children with medical complexities achieve their best lives at home and in their communities. Founded over 30 years ago, they have established themselves as a Pediatric Center of Excellence (PCoE) to improve the quality of life for children and access to care in a manner that is family and patient-centered, customer service driven, clinically excellent, innovative, technologically advanced, ethically sound, sustainable, and community-responsive.
VERTESS Managing Director / Partner Brad Smith stated, "The synergy between Apple and PHS was clear from the beginning of discussions. Both organizations recognized and appreciated the other's dedication to improving the lives of a vulnerable population. Texas is greatly benefitting from the combined strengths of PHS and Apple."
FORT WORTH, Texas, Oct. 25, 2023 /PRNewswire/ -- VERTESS (www.vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, today announced the closing of five major healthcare transactions in Q3 2023 with a combined total transaction value of $75,000,000. The five transactions were in various healthcare verticals. The headwinds faced earlier in the year due to global and domestic economic pressures are clearing and signs for a profitable Q4 and 2024 are strong.
Bradley Smith, the Managing Director for one of the sellers stated, "At the end of 2022 and early 2023, we saw a sharp decline in the pace of M&A activity. We continued to push forward and remain patient. We are pleased for our clients that our perseverance with buyers resulted in several successes."
The healthcare verticals for the five closed transactions included Pediatric-focused Home Medical Equipment and Service Providers, Home Health Care Services, Custom Rehab and Durable Medical Equipment, as well as Retail Pharmacy. Over half of the VERTESS Managing Directors successfully closed deals in Q3.
"We are encouraged by the uptick in deal activity at the end of 2023," commented VERTESS Managing Partner Vaughne Glennie. "Although the dry powder remained available for many buyers, there was clearly some risk avoidance starting in mid-2022. As we continue to launch new deals this fall, the heightened response we've received from buyers clearly shows a trend toward a very active 2024 in healthcare M&A." She added, "Our Managing Directors are always available to talk to healthcare business owners about their future goals and to be a resource for any exit planning."
For more information, please contact Vaughne Glennie at 367547@email4pr.com or +1.202.302.1621.
About VERTESS
VERTESS is an international healthcare-focused Mergers & Acquisitions (M&A) advisory firm with expertise spanning diverse healthcare and human service verticals, ranging from behavioral health and intellectual/developmental disabilities to DME, pharmacies, home care/hospice, urgent care, life sciences, and other specialized services and products. Each VERTESS Managing Director has had executive experience in either launching or managing and ultimately successfully exiting a healthcare company.
VERTESS is headquartered in Dallas/Fort Worth, Texas, with additional offices in Arizona, California, Colorado, Florida, Massachusetts, Pennsylvania, New Jersey, and Texas. For more information, visit www.vertess.com.
For further information about VERTESS please contact Vaughne Glennie at 367547@email4pr.com.
Volume 11, Issue 1, January 4, 2024
by The VERTESS Team
As VERTESS celebrates its 10th Anniversary - 2014 seems like only yesterday to most of us! - we are reflecting on the journey that has brought us to 2024. All businesses experience the highs and lows brought on by external and internal events, and we have had our share of both. We have grown substantially from our original team of three and are continuing to add new colleagues that expand our experience base and bring fresh perspectives. For many reasons, 2024 seems like the start of an exciting new chapter, particularly as we recall the hard work that has brought us to this point.
The VERTESS team is pleased to offer its annual year-end review and future outlook for healthcare M+A activity in each healthcare vertical our Managing Directors support. 2023 was a challenging year as interest rates and other economic pressures lowered valuations and slowed the transaction process. In the last two quarters, we experienced a shift in activity and closed several transactions. We are anticipating that to increase as we move into 2024. Sellers who were waiting for the recession that never came are reaching out to discuss the future of their businesses. Our current conversations with healthcare executives lead us to believe that 2024 will be a year of high deal volume. We appreciate the opportunity to support all of the amazing healthcare providers both past and present. VERTESS is excited to see what the next 10 years bring!
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
David Broussard, RN, CM&AA, Managing Director
Home Care / Home Health / Staffing / Hospice / Medical Transport / Medical Diagnostics
In 2023, the healthcare mergers and acquisitions (M+A) landscape witnessed a dynamic and transformative shift, reflecting the industry's ongoing response to various challenges and opportunities. The convergence of technology, regulatory changes, and the need for enhanced operational efficiency has spurred a wave of strategic consolidations, partnerships, and acquisitions within the healthcare sector. Traditional boundaries between pharmaceutical companies, healthcare providers, and technology firms continue to blur as organizations seek to create more integrated and patient-centric solutions. The M+A activity is not only driven by a desire for increased scale and market share but also by a strategic focus on innovation, digitalization, and the development of novel therapies.
Moreover, the global pandemic has accelerated certain trends in healthcare M+A, such as the emphasis on telemedicine, digital health platforms, and biotechnology advancements. Companies are increasingly recognizing the importance of a resilient and adaptable healthcare ecosystem, leading to collaborations that leverage expertise from various sectors. Governments and regulatory bodies are closely monitoring these developments to ensure that M+A activities contribute to improved healthcare access, affordability, and quality. As stakeholders navigate this evolving landscape, strategic partnerships are essential for addressing the complex challenges facing the healthcare industry and driving sustainable innovations for the benefit of patients worldwide.
During the last year, we saw a lot of headwinds and tailwinds within the pharmacy industry. This includes all verticals such as Retail, Home Infusion, Specialty, Behavioral Health, LTC, and Mail Order. Some of the factors that affected M+A in all sections included competition, regulatory issues, drug shortages, and reimbursement rates (PBM), just to name a few. Retail multiples are the lowest of all the pharmacy sectors. They will continue to remain low due to a lack of interest from buyers, reimbursement challenges, and low margins. Home Infusion has been the most stable, maintaining a 7-9 multiple, especially those with a good payor and therapy mix located in attractive regions of the country. Specialty pharmacy has seen a reduction in multiples as margins continued to slide. Behavioral Health and Compounding are seeing a resurgence and good growth. We should see increased activity in this market during 2024. New drugs in the pipeline, as well as the popularity of LAI’s and weight loss drugs, will spark renewed interest in these markets.
During the next year, we will continue to see consolidation among the larger providers such as Walgreens Boots Alliance, Kroger, Walmart, Amazon, and CVS. All are now shifting into the primary care market as well as home health. Examples are the recent acquisition of VillageMD by Walgreens. Kroger is now opening primary care clinics within their stores. We should see fewer acquisitions by Private Equity Groups and increased interest from strategic healthcare providers.
Behavioral Health / Intellectual and Development Disabilities / Physician Practices / Traumatic Brain Injury
Before turning our attention to 2024, let’s first understand where we are now. The lowering of interest rates to all-time levels helped fuel the buying spree we’ve witnessed over the past 5+ years. Deal volume in terms of both numbers and dollars transacted broke every record. Our Federal Reserve increased interest rates to fight inflation. When interest rates go up, asset prices come down. In this case, the assets are privately owned businesses.
Many buyers acquire a lot of similar businesses to gain scale. They add a management team, make operating improvements, and look to sell those businesses in less than five years. The problem of late is that while they acquired businesses, interest rates rose. They had expected a certain profit from the sale of those businesses. Market dynamics, however (including interest rates) turned against them. The buyers for their businesses were not willing to meet their price. They’ve paused to let the market come to them.
This “pause” will not continue. We’ll see an increase in deals in ’24 and ’25 as the longer-term forces that have driven deal volume will bring buyers and sellers together. At VERTESS, we have Managing Directors who specialize in industry verticals so that we’re experts in tracking deal activity, pricing, buyer and seller needs, etc. We’ll continue to help our clients navigate today’s market pause to their best outcome.
Close-up on discussion. Close-up of people communicating while sitting in circle and gesturing
David Purinton, MBA, CM&AA, Managing Director
Substance Use Disorder / Behavioral Health
Distinct and divergent factors affecting investment decisions in mental health and its segments (Substance Use Disorder, eating disorders, etc.) should keep valuation multiples relatively similar in 2024 compared to 2023, with the potential to be slightly higher.
Factors signaling lower valuations: the cost of capital is high; staffing challenges are persistent; and payroll costs are eroding margin without sufficient increases in reimbursements. Medicaid programs - which are the most needed of all - are in desperate need for their respective States to make substantive increases in reimbursements.
Factors signaling higher valuations: mental health is not only destigmatized, but it’s also en-vouge; despite billions of dollars deployed to consolidate market share, new entrants are estimated to be 56% higher in 2023 than in 2022 (source: Behavioral Health Business); and new technologies are (slightly) offsetting payroll increases. Americans are taking their mental health seriously, and employers and educators are encouraging it.
Sellers have no shortage of potential buyers for their mental health (and mental health segments like SUD) businesses. However, buyers are less willing to value these companies as high as sellers expect. The factors listed above net to a “buy” signal, and the dry powder buildup from 2023 should promote more aggressive dealmaking. Still, sellers will need to run a professional, coordinated M+A process to find the most appropriate buyer amongst a crowd of high-quality prospects. Buyers may be more likely to drop out of "auction" rounds, hence the need to cast a wide enough net to find out which buyer sees the most value in your business.
Man looking at wheelchair in medical supplies shop
Gene Quigley, Managing Director
Home Medical Equipment / Staffing
Moving into 2024, the M+A outlook shows the potential for a dynamic shift, reflective of the evolving global economic trends driving a resurgence in M+A activity spurred on by several factors. Improvement in economic conditions and a return of investor confidence could create a more conducive environment for M+A. Companies should continue to pursue acquisitions more aggressively to enhance their market reach and achieve strategic objectives as we started to see in Q4 of 2023. Within DME/HME, a lot of this will be driven by the ongoing need for businesses to adapt and grow in the face of changing market conditions, and technological advancements could drive a wave of strategic consolidations. This trend should be more pronounced within healthcare segments where scale and efficiency are key competitive advantages.
With the financial market rebounding, healthcare will continue to surge given the aging population, rising prevalence of chronic diseases, and the continued transition to value-based care. Additionally, a growing focus on consumer-centric healthcare solutions and the complex regulatory environment are generating a demand for specialized expertise and innovative healthcare solutions. These dynamics are expected to encourage healthcare companies to pursue acquisitions actively.
In 2023, the Medical Device industry experienced a notable surge in M+A activity, characterized by strategic acquisitions, partnerships, and consolidation. Several key players engaged in transactions to enhance their product portfolios, expand market reach, and capitalize on emerging technologies. The pursuit of innovation and a focus on addressing evolving healthcare needs were driving forces behind these mergers. Companies sought synergies to bolster research and development capabilities, improve operational efficiency, and navigate the complex regulatory landscape. The integration of complementary technologies and expertise aimed to position organizations competitively in an ever-evolving healthcare landscape, fostering a dynamic and collaborative environment within the Medical Device sector.
A significant aspect of this M+A surge was the heightened focus on contract manufacturing. Companies strategically sought partnerships and acquisitions to enhance their production capabilities and streamline supply chains. This trend aimed to address the growing demand for efficient manufacturing processes, cost-effectiveness, and flexibility in adapting to market dynamics. The consolidation in contract manufacturing within the Medical Device sector allowed companies to leverage specialized expertise, access cutting-edge technologies, and optimize production efficiency, ultimately fostering innovation and responsiveness to market needs.
As we look ahead to 2024, the outlook for M+A activity in the Medical Device space remains optimistic. The industry is expected to witness continued consolidation as companies strive to stay ahead of technological advancements, regulatory changes, and global healthcare trends. Emerging technologies such as artificial intelligence, robotics, and digital health are likely to be key drivers of M+A transactions as companies seek to strengthen their positions in these transformative areas. Additionally, the ongoing emphasis on personalized medicine, patient-centric tech, and in-the-home healthcare will likely shape strategic decisions in mergers and acquisitions.
Furthermore, an emerging trend in the landscape for 2024 is the noteworthy emergence of medical equipment leasing providers aimed at lowering capital expenditures (capex). This shift reflects a strategic response to the industry's need for access to advanced equipment without the burden of substantial upfront investments. By leveraging equipment leasing options, companies can stay at the forefront of technological advancements, enhance operational efficiency, and manage costs effectively. This trend signifies a dynamic approach to addressing capital constraints while fostering a collaborative environment where cutting-edge technology becomes more accessible to a broader range of industry players. The synergy between contract manufacturing and innovative equipment leasing is poised to play a pivotal role in shaping the competitive landscape of the Medical Device sector in the upcoming year.
In 2024, the home health industry is predicted to undergo a significant surge in mergers and acquisitions. This growth will be driven by the increasing elderly population and the rising demand for high-quality home health services and value-based care models. This trend is expected to continue as the demand for affordable and accessible healthcare services continues to rise.
The aging population and the demand for home healthcare services have created a lucrative market, attracting new investors and driving consolidation efforts. Advancements in technology and a shift towards value-based care models are also contributing to the M+A frenzy. Companies are looking to leverage innovative solutions and economies of scale to deliver outcomes. The quest for scale is a major driving force behind the surge in the homecare, hospice, and home healthcare sectors. By merging with or acquiring other companies, providers can achieve economies of scale and effectively manage costs. This allows them to invest in cutting-edge technology and infrastructure, ultimately improving service delivery and ensuring superior care for their clients. As the demand for home care services continues to rise, it is expected that more companies will embrace the idea of selling their business or acquiring others as a means of expansion. Exciting times lie ahead for the home health industry as M+A becomes the catalyst for growth and innovation in 2024!
Robert Villalobos, CM&AA, Managing Director/ Partner
Durable Medical Equipment / Staffing / Home Health
I expect we will continue to see an uptick in M+A transactions within the DME/Medical Supply industry as well as Home Health and Home Care for 2024. Buyers, both strategic and financial, have a strong appetite for tuck-in and platform acquisitions and are eager to continue this trend going into the new year. Healthcare staffing is another industry we may see strong activity in as we are past the post-COVID 'cool down' of buyer caution.
While we typically see a slight decrease in transaction volume during an election year, the new year is looking favorable for healthcare M+A transactions. If we do, in fact, see interest rates come down, you can bet buyers will be aggressive in their acquisition buys, and likely help drive valuations for potential sellers.
Bradley Smith, ATP, CM&AA, Managing Director / Partner
Durable Medical Equipment / Home Health / Medical Device
In 2023, the DME/HME market closed the chapter on several long-term issues, such as the Respironics CPAP recall and the supply chain inventory issues. 2024 will bring on new, more familiar challenges such as the expiration of the 75/25 blended rate currently in effect in rural/non-CBA, as well as additional reimbursement challenges to various Medicaid programs. However, reimbursement challenges are just part of being a DME/HME provider and should not surprise anyone.
I expect due diligence in all transactions (not just DME), or rather the time it takes to complete DD, will contract, as we receive some welcome news about lowering interest rates. Additionally, investors are getting more comfortable with a modest level (historically speaking) of interest charged on borrowed monies and are determined to avoid losing deals due to a prolonged DD timeframe.
Medical Device transactions will continue to heat up as the European Union's Medical Device Regulation (EU MDR) continues to disrupt. Since becoming fully applicable in May 2021, the EU MDR has caused a significant burden on manufacturers who are attempting to place products within the European Union from the initial design to reaching the market and beyond, including many bottlenecks in procedure that are costing manufacturers significant time and money. 2024 will continue to culminate in more consolidations in the EU as well as in the US, with many smaller manufacturers outright exiting the market.
2024 is setting up to be a year of tremendous opportunity for mergers and acquisitions in the healthcare environment. Now two years post-COVID, companies who have recovered or stabilized can now have their future revenue better determined from a potential buyer or strategic partner. This is especially true regarding Ambulatory Surgery Centers, Urgent Care Centers, and the Revenue Cycle Management space. Investors are better able to mitigate risk and more securely invest in these types of companies where future revenue can now be confidently determined due to stabilized growth with a consistent patient population. We saw a lackluster level of mergers and acquisitions in 2023 due to domestic and global uncertainty due to increased interest rates, inflation, and overseas conflicts, which could affect supply chains. All major predictors like J. P. Morgan and Goldman and Sachs are voicing fiscal recovery this year with a soft landing bringing confidence to investors. This makes 2024 the perfect opportunity for business owners to consider the right strategic partner and take full advantage of a pro-seller market.
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