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."