Mergers and acquisitions: Will Round 2 make the big guys buy?

From: HME News 

By Theresa Flaherty, Managing Editor 

YARMOUTH, Maine – Competitive bidding expands to an additional 91 competitive bidding areas in Round 2, but it’s too early to tell whether national providers have their eye on acquisitions in those markets, say analysts.   

“We see them putting their feet in the water a little bit, but they’re not aggressively chasing opportunities,” said Rick Glass, president of Tarpon Springs, Fla.-based Steven Richards & Associates. “And it’s not necessarily in Round 2 areas vs. not in Round 2 areas. I think to a large extent, a lot of them view it as they’ll wind up getting the business anyway.”   

None of the nationals won many contracts in Round 1 of competitive bidding: Lincare got 12; Apria accepted 14. The financially troubled Rotech won 17 contracts.   

With their geographic reach–websites say Lincare has 1,108 “centers,” Apria has about 550, and Rotech has 453–the nationals likely already have a strong presence in Round 2 bid areas, say analysts.”I am sure that everyone’s got a couple of spots on the map where they’re not covered in Round 2, but if they’re not there already, they probably don’t want to be there,” said Dexter Braff, president of Pittsburgh-based The Braff Group.More than likely, national providers will wait to see if they win contracts, or whether they have to acquire companies that have won contracts, say analysts. 

“They (could also be) waiting to see if bid prices are even reasonable enough for them to pursue the market,” said Braff. “The margins are so tight.”For companies–national or regional–that are looking to buy, the key word is “scale,” say analysts.”They are taking into consideration the synergies that they will get from scaling,” said Jonathan Sadock, partner and CEO of Philadelphia-based Paragon Ventures. “The key word for everybody right now is to scale operation, using existing infrastructure and expanding.”