Home medical equipment (HME) mergers and acquisitions (M&A) activity has plummeted over the past couple of years. The dip began in 2022 and continued throughout 2023.
But long-term HME tailwinds, including the general shift of healthcare into the home and America’s rapidly aging population, still mean the market is ripe for dealmaking opportunities. That upside will likely see the M&A pendulum swing toward comparatively higher HME transaction volumes in 2024, according to Patrick Clifford, a managing director with The Braff Group.
The Braff Group is an M&A advisory firm that works with clients across the HME, home health, hospice and behavioral health markets, along with other health care segments.
“There’s no question the aging demographic is very attractive for home medical equipment – the aging demographic and the need for healthcare,” Clifford told HME Business. “And that has attracted outside investment through private equity as well.”
Historically, M&A advisory firms such as The Braff Group typically tracked more than 60 HME-related transactions per year. Both 2020 and 2021, in fact, saw more than 70 HME transactions, according to Braff data.
In 2023 and 2022, those numbers fell to slightly more than 30 and 40 deals, respectively.
“[M&A activity] definitely declined in 2023,” Clifford said. “And while we anticipate a rebound in 2024, you know, it would be a rebound off of much lower numbers.”
Reasons for M&A optimism
Despite the lull in overall transaction activity, there are plenty of reasons for M&A optimism, even when looking at the years following 2020.
Some of the HME industry’s biggest acquisitions in recent memory took place during that stretch, with a prime example being Owens & Minor (NYSE: OMI) buying Apria for $1.6 billion in 2023. Following that deal, Owens & Minor combined Apria with its Byram Healthcare business.
Another blockbuster closed in February 2021, when AdaptHealth Corp. (Nasdaq: AHCO) finalized its $2 billion deal for AeroCare Holdings Inc.
As for macro-level trends, as the average age of the U.S. population rises, that will lead to increased demand for HME supplies and products, Clifford explained. That’s one clear reason to expect continued M&A activity in the HME space.
Additionally, as higher-acuity care shifts into the home, that also creates more demand for HME, the M&A expert said. The U.S. as a nation has lagged behind other countries in the way of hospital-at-home models, but the COVID-19 pandemic accelerated adoption of such programs, leading to new opportunities for HME businesses.
The U.S. Centers for Medicare & Medicaid Services (CMS) even created a special waiver allowing hospitals and health systems to receive reimbursement for hospital-at-home services. As of Nov. 8, 128 health systems and 304 hospitals in 37 states had been approved to deliver care underneath the waiver, according to CMS statistics.
Having a strong supply chain for all the equipment needed in hospital-at-home models is a critical component.
“The tagline of ‘hospital at home,’ it has been around for 20 years, but HME, for the most part, has been kind of outside of that discussion,” Clifford said. “I think [HME companies], they performed very well during the pandemic. I think their halos now shine a little brighter because of what they were able to do, and what they were able to help, in regard to healthcare outcomes and providing services in the home to keep patients out of the hospital.”
Private equity buyers getting off the sidelines and back into the HME M&A game is yet another reason for optimism.
Inflation, rising borrowing rates and general economic uncertainty dampened private equity’s involvement in healthcare dealmaking in 2023. That’s true for the HME market, too.
In 2020 and 2021, there were approximately 35 HME-related transactions each year involving PE players. The majority of PE-driven transactions were of the follow-on variety, though both years saw several platform investments as well.
“Private equity loves, again, the aging demographic,” Clifford said. “And a need for healthcare services in the home.”
Similar to broader HME deal trends, PE numbers fell in 2022 and 2023, with last year seeing about 15 PE-driven deals, according to Braff data.
As the U.S. economic outlook stabilizes in 2024, private equity will likely explore further HME transaction opportunities. In particular, PE investors have been attracted to HME assets with strong recurring revenue streams, Clifford said.
“What private equity does not like is the historical model of trucks leaving the branch every morning at 7 o’clock and returning at 5, after making just a slew of deliveries all day, of beds and chairs, and oxygen concentrators, and setting up the hospital-in-the-home picture, if you will. They much prefer recurring revenue, and shipping and resupply.”