DME Company Strategies

Why remain content with growing your company organically in this tumultuous market when there are so many other options available?

A substantial increase in mergers and acquisitions in the DME company marketplace lately is a direct result of reimbursement changes. Medicare competitive bidding and the soon-to-come private insurance rate changes are causing many businesses to evaluate their relevance, resulting in consolidation—which is not always a bad thing.

Don’t Sit on the Sidelines

The majority of this activity is in the lower market spectrum of deals—those companies valued at $3 million and less. These deals are typically made between local or regional companies gaining market share and scale by entering new markets with their existing product mix.

Several larger companies are pursuing acquisitions for patient bases (a less expensive alternative to a sales team) and strategic locations (most often for insurance contracts). While many larger DME companies are taking a wait-and-see approach prior to making any major moves, we will likely see some activity from these sizable competitors at the end of the fourth quarter and beginning of 2014.

There are several reasons to get into the game now, but none are better than “buy low, sell high.” DME company valuations are at an all-time low, with standard multiples in a range two to three times earnings before interest, taxes, depreciation and amortization (EBITDA); thus placing the return on investment (ROI) in a time frame of two to three years or less. Though that isn’t great news for sellers, it means now is the cheapest it has ever been to buy a DME company or its assets.

Interest rates are more than reasonable right now, with prime rates consistently hovering at 3.25 percent. If you are not keen on taking out a bank loan and you can play nicely, private equity or a 
strategic/capital partner could be an ideal option. You may give up some ownership with a partner, but in return you get a larger, more stable company, shared infrastructure (lower cost) and synergies (more business).

This DME company market is not an anomaly. Like most markets, it is cyclical, and no one knows when the market will turn. At some point, the value of DME suppliers and the services they provide will increase again, and those DME companies still remaining will be in a prime position.

Large-Scale Opportunities

Many companies are scaling up as fast as they can by taking advantage of the market opportunities. This approach is providing them with stability and profitability. Right now, scale is everything. A company with $1 million in annual revenue has fewer resources to weather an approaching storm. A company that has double the revenue will have more 
resources at its disposal, and their fixed overhead (rent, billing, etc.) will not change much from the $1 million company. Scale will make you profitable.

Leveraging Existing Resources

The savviest DME company executives are getting to know their competition in ways they never did before.

With fewer companies in the market, getting cozy with your competitors is a wise move that leads to more opportunities in the marketplace. Not every opportunity has to come in the form of a major move. They could be as simple as a competitor referring new business to you.

I am frequently contacted by DME company owners inquiring what they can do now to better position themselves for success and liquidity in the future. By 
responding to the market changes instead of just reacting, these individuals are ahead of the game. Make networking with other industry professionals part of your weekly routine, and you might be pleasantly 
surprised by the benefits.

Although every path has its pros and cons, waiting could prove detrimental to the growth of your business. As I mentioned before, scale is everything. Not growing is the equivalent of failure. That does not necessarily mean you have to seize every opportunity, but you do want to analyze every opportunity. If it fits into your wheelhouse and the numbers make sense, trust your instincts and take advantage of the opportunity.

The landscape of our market will continue to change drastically over the next year, and you must play smart.

Companies that are actively pursuing opportunities and making the most of lower values will be the companies that lead us into the future.