Home Health & Hospice Week

Consolidation opportunitites "significant" If you're looking for a profitable Medicare market, look no further than the home respiratory biz - and that could be good news for small to mid-size companies. Lincare Holdings Inc., which derives 90 percent of its revenues from respiratory services, is the sector champ with an EBITDA (earnings before interest, taxes, depreciation and amortization) margin hovering around 40 percent over the last six years and net profit figures closing in on 20 percent, notes a recent government report. Runner-up Apria Healthcare Group Inc., with 67 percent of its revenues from respiratory services, has seen EBITDA margins above 20 percent for the last four years, and net income as high as the 20 percent range within the last five years. About 67 percent of Clearwater, FL-based Lincare's revenues come from government sources while only 34 percent of Lake Forest, CA-based Apria's do, notes the Centers for Medicare & Medicaid Services' newly updated analysis of the home respiratory market. Wall Street analysts have "strong earnings expectations" for respiratory companies, CMS gleaned from investment firm information. "Analysts view home respiratory companies more positively than home health agencies given their greater margin potential," the market update notes. Analysts also foresee "significant consolidation opportunities" for the home respiratory market, the update says. That squares with home care mergers and acquisitions experts' view. "This market is extremely vigorous," says Dexter Braff, president of The Braff Group in the Pittsburgh area. The Braff Group tracks both public and private home medical equipment M&A transactions, and so far 2003 is turning out to be a banner year. In the first two quarters of the year, Braff has recorded 38 HME deals. In the same period of 2002, only 20 deals had taken place. "That's a 90 percent increase," Braff tells Eli. And there was no fall-off in the third quarter, Braff maintains. The oxygen market is hot now, with big players such as Lincare, Apria and Orlando, FL-based Rotech Healthcare Inc. making acquisitions, notes Jack Eskenazi, vice president of M&A firm American HealthCare Capital in Los Angeles. Both existing respiratory companies and new players looking to get into the market want to expand their market share quickly and efficiently through acquisitions rather than growth, Braff notes. Home respiratory market dominance is not new - oxygen payments were even higher before the Balanced Budget Act of 1997 cut oxygen payments by 25 percent Jan. 1, 1998 and another 5 percent Jan. 1, 1999. So how do buyers continue to find attractive M&A targets? "There are always new ones coming up," says Eskenazi. The home care industry, which requires a relatively small capital investment, lends itself to small entrepreneurs starting companies. "The most competitive and growth-oriented [...]