Is it possible for the owner of a durable medical equipment (DME) company to time the market to maximize an exit? That depends. Successful transactions come together when the following three conditions are in sync:
1. The business is ready for external scrutiny.
2. The owner is personally ready for a transition.
3. The timing of the capital market (macro) and the DME market (micro) are favorable.

The seller and a merger and acquisition (M&A) intermediary can influence control over the first two of these conditions. The third condition, on the other hand, requires a bit of luck. Let's take a closer look at these conditions and their importance in a successful transaction.

Does this sound familiar: The phone rings. You answer, and on the other end is someone who tells you that they represent a company eager to purchase your healthcare business.
These kinds of calls are happening every day, with some businesses receiving multiple calls a week. On the surface, these might seem like good calls to receive. After all, if someone is interested in buying your business, you must be running a good operation. And if you've been considering whether it's the right time to sell your business, such a call might be an avenue forward for you.
But seller beware: While it's good to answer the phone and hear what's presented to you, moving ahead on a transaction with a cold caller could be fraught with risk. Let me explain why.

The VERTESS team of mergers and acquisitions advisors have seen many successes in their careers. We've also witnessed some failures when representing healthcare owners who could not sell their businesses. For some of these owners, their window of opportunity was lost for good. Fortunately, for others, they were able to eventually complete a transaction, but often learned some difficult lessons in the process.

Financial buyers, particularly private equity groups (PEGs), are currently in heated battles with strategic buyers for quality durable medical equipment (DME) deals. Well-run, well-managed DME companies are at the forefront of such intense competitions as they seek all-time-high valuations from financial and strategic pursuers alike.

There's some good news for owners of durable medical equipment (DME) and home medical equipment (HME) businesses: The transactions market (i.e., mergers and acquisitions) is not too hot and not too cold, but just right at the moment.

With over 60 combined years’ experience in the healthcare marketplace, we have seen many successes and some failures when representing healthcare owners who could not initially sell their businesses. In these latter examples they learned a hard lesson and, fortunately in some cases, were able to eventually transact.

Here are seven reasons why they encountered failure the first time around.

Today, families provide nearly $40 billion of uncompensated pediatric home health care (parents are believed to lose about $3,200/year in income when caring for a sick child), though this picture is rapidly shifting with the expansion of Medicaid, the increasing influence of managed care organizations (MCOs), and the Centers for Medicare & Medicaid (CMS) emphasis on providing pediatric care in client homes. This accelerating change offers an opportunity for home health care providers to enter and/or increase market share in an area of demonstrated need.

Several years ago, DME competitive bidding was instituted by Medicare and the impact has been dramatic. Many smaller DMEs that could not successfully compete sold their assets, restructured their business, or simply closed their doors.

Other DME companies, however, saw an opportunity to be exploited. In our national DME merger and acquisition practice, we've seen a number of success stories of companies that have both survived and thrived in this increasingly competitive environment. Here's what they did.

Today, financial buyers, especially private equity groups (PEGs), are competing pedal-to-the-metal with strategic buyers for quality healthcare IT deals. Healthcare IT companies are at the forefront of these heated competitions, as they seek all-time-high valuations from financial and strategic pursuers alike. While strategic buyers look to capture immediate synergies with acquisition targets, PEGs often do not have that luxury for their platform investments. This disparity can leave a gap in valuations between the two types of buyers.

We have entered an era of unprecedented consolidation of healthcare organizations. Whether nonprofit or for profit, large of small, DME or I/DD, consolidation is inescapable and on the mind of every healthcare business owner or executive in America. The continuing unknowns of Trumpcare, the unraveling of Obamacare and many other factors are obvious contributors. But the following reasons for the acceleration of consolidation are remarkable in the view of our team.

The rapidly evolving DME/HME market continues to grow in volume despite significant downward pressure from insurers. This market has experienced significant consolidation in recent years, in part as a result of fee schedule changes introduced by the Centers for Medicare & Medicaid Services (CMS). Further cuts in Medicaid and private insurance reimbursements are expected in 2018 as the DMEPOS Competitive Bidding Program continues to play a significant role nationwide. This has led to continued market uncertainty. It has also meant that many so-called “Mom and Pop” companies have been squeezed out as greater economies of scale are increasingly needed for DME/HME providers to be profitable.

Some of the most significant trends include...

Money is money, right? While that's undoubtedly true, investment money always comes with strings attached. Private equity groups, venture capital, and personal investors are all looking to achieve certain growth and revenue targets. For example, venture capital notoriously likes the capability to replace a company’s founder if revenue targets are not achieved. Founders looking for investment capital need to be aware of these kinds of stipulations inherent in each investment partner. If you are not careful, those unforeseen nuances can lead to long-term problems.