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Market Update Q4 2008

Business As Usual During Alterations

Everybody in the healthcare services industry is asking the same question: How will the crisis on Wall St. affect us? Although turbulence in financial markets certainly warrants concern, we feel rather bullish about the healthcare services mergers and acquisitions marketplace. Healthcare services is a huge industry that is characterized as much by rapid growth as it is by a high level of fragmentation. These are the fundamentals that drive consolidation and these are the fundamentals that attract capital in the form of both equity and debt.

We take nothing for granted. Uncertainty is never good for business, but we feel that healthcare services is an industry that offers shelter from the storm. At American HealthCare Capital, we are helping our clients to analyze current market conditions and offering advice to help them make the most of a potentially challenging situation. We’ve been around long enough to have seen plenty of ups and downs in the market. There will certainly be winners and losers to come out of the latest episode, but to us it’s just “business as usual during alterations.”

If the bad news is that healthcare providers need liquidity in credit markets in order to stay in business, then the good news is that credit markets need qualified borrowers like healthcare providers in order to stay in business. The healthcare services industry has proven to be one of the most reliable segments of the economy. Unlike in the dot-com and subprime mortgage bubbles, the healthcare services industry has experienced sustained and steady growth due to rock-solid market fundamentals: an aging population needs effective care no matter what happens in the economy. As responsible financial institutions look for promising places to invest capital, the healthcare services industry continues to look like a relatively safe bet.

To date, we have not experienced a single buyer terminating a transaction due to an inability to secure financing. To the contrary, buyers have reassured us that their lenders are as eager as ever to consummate good transactions. Also, we continue to get inquiries from growing companies looking for strategic acquisitions and from private equity investors who are looking for a way to enter this thriving market.

One way to keep apprised of all this activity is to join our mailing list. We announce all new listings via email as they become active. We don’t send annoying junk-mail, contrived newsletters or canned statistics- just announcements of new listings to make both buyers and sellers aware of what is available in the marketplace. ...and we would never even consider selling or sharing your contact information with any third party. To get on the list, click here.

Market Update: Q3 2008

Homecare Continues to be Hot, DME is Not

It continues to be a seller’s market for Medicare Certified Home Health Agencies as market fundamentals drive consolidation. The CMS directive to suspend state surveys for new provider numbers is slowing the introduction of new providers into the market, increasing the number of potential buyers– especially for smaller agencies. Of course, all other things being equal, larger agencies will command a greater premium than smaller agencies. But generally speaking, Medicare Certified Home Health Agencies are at the top of the valuation hierarchy in today’s market. For private duty providers, the combination of private pay payers and W-2 employed caregivers yields the highest valuation premiums. Private duty providers that focus on Medicaid payers or those that use 1099 caregivers are still viable acquisition candidates, but they trade at a discount as compared to Medicare or Private Pay agencies. The DME/Respiratory Therapy industry is still in a comparative slump due to uncertainties associated with competitive bidding and the erosion of O2 margins: Most DME buyers are looking for bargains as they hunker down and wait for the market pendulum to swing back in their direction. Overall, the M&A market is robust. Acquisition opportunities exist at all levels of the market from early start-ups to established platforms that are ripe for recapitalization.

As consolidation in the healthcare services industry is one of the brightest spots in an otherwise sluggish economy, we continue to list and close transactions at a record-setting pace. To see executive summaries for over 35 healthcare service companies that are for sale right now, click on the Active Listings tab above for a complete list. When it comes to middle market healthcare service companies, nobody has more deal flow than American HealthCare Capital!