FOR RELEASE: January 12, 2005
Overland Park, KS-January 12, 2005. Jerry Baker & Associates, Inc., mergers and acquisitions consultant located in Overland Park, Kansas announces that it was involved in concluding transactions between Lincare Holdings, Inc. and two local respiratory providers. Lincare acquired Medical Resources of Kansas City, Inc. and Plaza Respiratory & Oxygen Services, Inc. both located in the metropolitan Kansas City area, the week of December 27th.
JB&A, which is a privately held company, is pleased to add these two transactions to its long list of successful HME deals put together by the firm since 1994. Jerry Baker, president and founder, believes that 2005 will be an excellent market for HME acquisitions. However, Baker does not anticipate the type of activity the company had during a three-year period from 1996-1998 when Bakerís companies represented clients in 131 successful closings. Today, most acquirers are more selective than in the past, Baker said. However, on the other hand, there are more companies out there making acquisitions, as well as more consultants working in the industry.
Baker anticipates that the hard working people who have worked long and hard hours to build these businesses will eventually tire of being in a business where the price for products and services are dictated by the government and will seek an exit strategy. Reimbursement cuts in the industry will make it difficult for independent providers to continue operations without making major changes in personnel or product lines. If reimbursement cuts are in the 10%-15% range, then a company with for example $1M in annual revenue will see their revenue drop by $100K to $150K; this loss will then also reduce the profit by this amount.
Smaller companies will find it more difficult to replace this loss in both revenue and profit. Likewise, at the same time a $5M company will lose $500K to $750K in revenue and profitability. This will result in unhappy owners. Independent HME owners are not getting rewarded for success that is the American Dream, but because the industry has found ways to build sales and profit, the reimbursement keeps getting reduced, which is demoralizing. When owners finally find a way to survive under the pending reimbursement cuts, you look into the future and you see future cuts and the possibility of competitive bidding. This will again affect sales and profits. At a point, independent owners will experience total frustration and seek an exit from the industry.
Perhaps Acquirers will be there to lend them a parachute, but the larger companies making acquisitions will have the same reductions and offers will also have to be reduced from current pricing because of the domino effect.
In addition to the healthcare industry, JB&A is also active in many other consolidating industries. For more information about the related transaction, JB&A or about buying or selling a business, please contact Jerry Baker at (888) 792-2537.
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