Interest rates are down to 4.9% after a recent Federal Reserve cut, and there may be more changes to come as the office tries to improve the nation’s overall economic outlook.
That could be good news for health care’s strategic buyers, investors and other M&A players, with a more favorable dealmaking environment potentially accelerating transaction volume in the home medical equipment (HME) space moving forward.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Federal Reserve said.
The cuts, coupled with cooling inflation rates, could open up new opportunities for growth and investment in the HME market.
HME M&A has been slower over the past few years, in tune with M&A trends across industries, globally. Contextually, when interest rates are high, access to capital becomes more challenging, and buyers have a more difficult time financing deals, especially larger ones.
But even before the recent rate cut, HME M&A activity showed signs that it was already beginning to pick back up after a pandemic-related slump, according to Chaz Bauer, director of health care investment Banking at Fifth Third Securities.
Bauer and other M&A experts discussed the topic during the HME Business FUTURE conference in August.
From 2017 to 2021, the HME sector saw a wave of consolidation, driven by a few large consolidations, such as AdaptHealth’s $2 billion acquisition of AeroCare in 2021, which expanded the company’s reach in respiratory care.
Since then, there has been a noticeable slowdown in activity, Bauer said. In fact, the year 2023 was particularly slow for HME deals.
“The first half of 2024 has been what many feel is kind of the trough or the bottom of that activity, with some green shoots [now], as activity is starting to pick up,” Bauer said. “So, as you start to look at where we’re at today and where activity will probably be over the next 12 months – it’s starting to pick up.”
There are some prime examples of that.
Most recently, Owens & Minor (NYSE: OMI) acquired Rotech Healthcare Holdings for $1.36 billion, one of the larger health care buys of 2024 and a positive sign for the HME industry.
And the rate cut could contribute to more deals in the pipeline.
“The [0.5 percentage point] rate cut is more aggressive than the .25 cut many observers anticipated, which will stimulate even more enthusiasm for buyers to get back into the game,” Dexter Braff, founder and president of the M&A firm The Braff Group, told HME Business sister publication Behavioral Health Business.
The global HME market is expected to experience significant growth, reaching approximately $62.1 billion by 2030, according to statistics from Precedence Research.
“For those of us close to it, we’re starting to hear and see assets coming to market or getting ready to come to market in the near future,” Bauer said. “I think that gives us some encouragement that activity is going to pick up.”
