Today, families provide nearly $40 billion of uncompensated pediatric home health care (parents are believed to lose about $3,200/year in income when caring for a sick child), though this picture is rapidly shifting with the expansion of Medicaid, the increasing influence of managed care organizations (MCOs), and the Centers for Medicare & Medicaid (CMS) emphasis on providing pediatric care in client homes. This accelerating change offers an opportunity for home health care providers to enter and/or increase market share in an area of demonstrated need.

Several years ago, DME competitive bidding was instituted by Medicare and the impact has been dramatic. Many smaller DMEs that could not successfully compete sold their assets, restructured their business, or simply closed their doors.

Other DME companies, however, saw an opportunity to be exploited. In our national DME merger and acquisition practice, we've seen a number of success stories of companies that have both survived and thrived in this increasingly competitive environment. Here's what they did.

Today, financial buyers, especially private equity groups (PEGs), are competing pedal-to-the-metal with strategic buyers for quality healthcare IT deals. Healthcare IT companies are at the forefront of these heated competitions, as they seek all-time-high valuations from financial and strategic pursuers alike. While strategic buyers look to capture immediate synergies with acquisition targets, PEGs often do not have that luxury for their platform investments. This disparity can leave a gap in valuations between the two types of buyers.

We have entered an era of unprecedented consolidation of healthcare organizations. Whether nonprofit or for profit, large of small, DME or I/DD, consolidation is inescapable and on the mind of every healthcare business owner or executive in America. The continuing unknowns of Trumpcare, the unraveling of Obamacare and many other factors are obvious contributors. But the following reasons for the acceleration of consolidation are remarkable in the view of our team.

The rapidly evolving DME/HME market continues to grow in volume despite significant downward pressure from insurers. This market has experienced significant consolidation in recent years, in part as a result of fee schedule changes introduced by the Centers for Medicare & Medicaid Services (CMS). Further cuts in Medicaid and private insurance reimbursements are expected in 2018 as the DMEPOS Competitive Bidding Program continues to play a significant role nationwide. This has led to continued market uncertainty. It has also meant that many so-called “Mom and Pop” companies have been squeezed out as greater economies of scale are increasingly needed for DME/HME providers to be profitable.

Some of the most significant trends include...

Money is money, right? While that's undoubtedly true, investment money always comes with strings attached. Private equity groups, venture capital, and personal investors are all looking to achieve certain growth and revenue targets. For example, venture capital notoriously likes the capability to replace a company’s founder if revenue targets are not achieved. Founders looking for investment capital need to be aware of these kinds of stipulations inherent in each investment partner. If you are not careful, those unforeseen nuances can lead to long-term problems.

In 2016, Private Equity Groups (PEGs) made big investments in home health and hospice providers. And they weren't the only ones. 2016 also saw hundreds of smaller add-on acquisitions in the this space.

At VERTESS, we expect this consolidation and maturation of the homecare industry to continue throughout 2017, limited only by the ability of provided PEGs to find high-quality companies to purchase. In other words, it's a seller's market, but only if those sellers have the specific characteristics that fund managers want to see.

no secret that the home care industry has been in a downward spiral for the past decade, primarily due to declining reimbursements and audits, among other obstacles. As a direct result, the number of providers has decreased, leading to larger and larger companies that can take advantage of economies of scale. Despite these concerns, demand has continued to rise as older citizens and people with disabilities want care in their own homes.

Every sector of the healthcare industry is struggling to figure out what TrumpCare will mean to their businesses. Some will do better under TrumpCare, but most will do worse. There is one sector, however, which is guaranteed to grow like gangbusters under a Trump administration: Healthcare IT. Here’s why.

Several years ago, DME competitive bidding was instituted by Medicare and the impact has been dramatic. Many smaller DMEs that could not successfully compete sold their assets, restructured their business, or simply closed their doors.

Other DME companies, however, saw an opportunity to be exploited. In my national DME merger and acquisition practice, I've seen a number of success stories of companies that have both survived and thrived in this increasingly competitive environment. Here's what they did.

Search funds, originally conceived in 1984, are investment vehicles through which investors financially support an entrepreneur’s efforts to locate, acquire, manage, and grow a privately held company. A 2013 study by the Stanford Graduate School of Business tracked nearly 200 search funds with investments in the US, Canada, Latin America, and Europe and found that the aggregate pre-tax internal rate of return was 34.9% for these funds. The aggregate pre-tax return on invested capital was 10x. With these results, search funds have become an attractive alternative to classic Private Equity Group (PEG) investment in healthcare.

With over 50 combined years in the healthcare marketplace, we have seen many successes and some initial failures when representing healthcare owners who could not sell their businesses.  In these latter examples, they learned a hard lesson and, fortunately in some cases, were able to eventually transact.

Here are seven reasons why they encountered failure the first time around.