Scooter Store’s Harrison: Industry Consolidation Will Be ‘Painful’

NEW BRAUNFELS, Texas — The Scooter Store announced last
week it has received financing from an affiliate of private
investment firm Sun Capital Partners that “sets the stage for
future growth and potential acquisitions.”

The deal will “cover the cash required for us for working
capital to fund the 13-month payment cycle” resulting from
elimination of the first-month purchase option for power
wheelchairs, said founder and CEO Doug Harrison.

Only a month since Medicare ditched the option, Harrison said,
it’s too early to tell how doing without it will play out in the
long run. “In terms of what it will do to our market share and our
unit sales, things look largely unchanged,” he said. “Obviously
it’s had a dramatic impact on our cash flow.”

It’s also hard to predict what long-term effects the
government’s competitive
bidding program will have on “businesses, beneficiaries or
Medicare,” Harrison said. For larger companies that have access to
capital and can handle the changes, there is tremendous growth
potential. But for smaller, less efficient companies without the
buying power and ability to create scale, the picture looks far
uglier.

“With the layers of things that are happening, you have a lot
more people aging into the market,” Harrison said, “which means
more and more of those people are going to be covered.” Baby
boomers entering the system bring with them huge demand. At the
same time, the government is trying to rein in escalating health
care costs.

“You layer in the last thing, which is that … the country
has a health care funding crisis,” Harrison said, “and that means
they will pay less and less for those products over time.”

New policies such as competitive bidding and others are eroding
HME margins and provide a platform for consolidation. The only way
the industry can survive, Harrison said, will be with “companies
that are smart enough and agile enough to create economies of
scale.”

Typically, he said, such a climate favors bigger rather than
smaller companies, which “deliver more random service instead of
scientifically repeatable, standardized service that can create
some leverage …

“That’s a long way around of saying [consolidation] will be
painful,” Harrison said, “but I think it will be painful and I
think it’s unavoidable.”

How much consolidation will there be? As you roll the scenario
forward, said Harrison, “it’s hard to imagine there would be tens
of thousands of companies that the government would be doing
business with. How you pick a number from that I’m not sure, but I
think it will be larger companies and not smaller.”

In 2007, The Scooter Store formed complex rehab division
Alliance Seating & Mobility, which now employs more than 80
ATPs. Last year, the giant provider added 51 locations and
broadened its product offerings, formalizing a home
care equipment division that will eventually expand nationwide.
In addition to complex rehab and standard power, the company won
multiple contracts in hospital beds and oxygen in the Round 1
rebid.

While no specific types of businesses have been targeted for
acquisition, Harrison said the infusion of cash positions The
Scooter Store to take advantage of the market’s new plays. “We’re
always on the lookout for strategic opportunities,” he said.

“We don’t have a business plan that says let’s sell more of
Product X or Product Y. Our plan is to look at customers and say
how can we help that customer live at home longer and stay out of
institutional care.”