Healthcare distribution conglomerate Cardinal Health announced it has acquired Advanced Diabetes Supply Group (ADSG) from private equity firm Court Square for $1.1 billion. The buyout was announced less than four years after Court Square's initial investment in ADSG dating back to early 2021. ADSG will merge with Cardinal's at-home solutions business, which has performed swimmingly in recent quarters, posting double-digit growth. According to Cardinal Health's CEO:
Last January, we elevated the priority of investing in our growth businesses like at-Home Solutions because this is exactly where the future of health care is going. Like at-Home Solutions, ADS has a proven track record for leading this industry with innovation, knowledge and unparalleled commitment to patients. We're confident that the highly synergistic combination will enhance our ability to take advantage of positive industry trends and drive further growth, deliver on our promise of exceptional service and solutions to customers, and create shareholder value.
Home Medical Equipment M&A Volume Trends
Announced durable medical equipment / home medical equipment deal volume has cratered since its 2021 peak. However, a number of large deals such as ADSG, Rotech, and currently on-the-market National Seating and Mobility (NSM) provide optimism for a rebound sooner rather than later.
The universe of potential buyers for smaller tuck-ins is fairly large, and includes almost 30 publicly announced durable medical equipment platform investments since 2020.
Home Medical Equipment EBITDA Multiples
According to press reporting, ADSG was marketed based off of EBITDA of $100 million, implying an acquisition multiple of 11x EBITDA, which is more or less in line with historical DME transactions of similar size.
ADSG is also the first HME / DME deal to fetch a reported multiple above 8x since early 2022, as the even larger Rotech deal in July occurred at only 6.5x (most of the other deals with disclosed financial information since 2022 are much smaller).
National Seating and Mobility is reportedly seeking a 12x to 15x valuation on its $100-120 million of reported EBITDA, implying a valuation in the $1.5 billion range.
THE HME / DME Valuation Disparity
All of this begs the question why Rotech's multiple was so low. We've heard rumors of questionable asset quality and mediocre ROI on acquisitions - retaining top sales staff can be a challenge for acquisitive DME platforms. The company has also been involved in a number of past lawsuits, including one that resulted in a false claims settlement in 2018. Beyond company specific concerns, there also appears to be a (widening?) divide between CPAP / oxygen focused suppliers like Rotech and those focused on other DME segments like diabetes supplies (ADSG) and wheelchairs (NSM). Public companies AdaptHealth and Quipt Home Medical are predominantly respiratory suppliers, and their stock prices have declined precipitously in recent years. While there may be other factors at play, the timing of the declines correspond perfectly with the rise of optimism around GLP-1s, which theoretically have the potential to reduce demand for respiratory machines and supplies if they do in fact put a major dent in the obesity epidemic.
Not everyone is a believer in the overhang, though, as CPAP manufacturer ResMed performed a study that seems to indicate that GLP-1 users are more likely to enroll in sleep studies, hinting at a potential market opportunity... if you believe them ;)
Actively Listed HME / DME Providers for Sale
The following is a summary of a few actively listed durable medical equipment opportunities from our active listings database:
(links will break over time)
Central Michigan DME and Medical Supply: Listed for sale at $1.9m, this company is marketed based on estimated revenue and adjusted EBITDA of $1.9m and $546k, respectively, implying multiples of 1x revenue and 3.5x EBITDA. According to the listing, the business has been operating for over 20 years and serves a 17-county area. It specializes in providing manual wheelchairs, power wheelchairs, hospital beds and supplies, patient aids, and respiratory equipment.
National Online Orthopedic DME Provider: Listed for sale at $2m, this company is marketed based on estimated revenue and cash flow of $5.4m and $454k, respectively, implying multiples of 0.4x revenue and 4.4x cash flow. According to the listing, the business provides DME for orthopedic rehabilitation including soft goods and training to patients, hospitals and facilities across the country. The company’s corporate office is located in Colorado with satellite offices and warehouses in Minneapolis, Portland, Denver among others.
Nebraska DME Provider w/ Two Locations: Listed for sale at $2.85m, this company is marketed based on estimated revenue and cash flow of $2.6m and $640k, respectively, implying multiples of 1.1x revenue and 4.5x cash flow. According to the listing, the business supplies DME to hospitals, clinics, and through two retail locations, with 80% of revenue stemming from long-term relationships with over 40 healthcare facilities.
Alabama DME Provider: Listed for sale at $1.2m, this company is marketed based on estimated revenue and cash flow of $1.8m and $350k, respectively, implying multiples of 0.3x revenue and 4x cash flow. According to the listing, it has a retail presence but also derives significant revenue from its online division using lockers at Amazon. It has a diversified payer base including Medicare, Medicaid, commercial insurers and worker's comp.
Other Healthcare Distribution and Equipment Services Deals
Read Scope Research's take on other healthcare distribution and equipment services M&A transactions:
About Scope Research
The Scope Research Healthcare M&A Valuation Database currently has financial details for 95 healthcare distribution and equipment services deals going back to 2010, 68 of which include reported EBITDA multiples. The home medical equipment data can be purchased individually, while our affordable annual subscriptions provide access to all of our healthcare M&A databases and segments, updated continuously.
Don't hesitate to reach out to Will Hamilton at will@scoperesearch.co with questions about your specific situation.