The owners of Spectrum Medical Equipment, a rental distributor and retailer of home healthcare equipment, desired to sell the business due to changes in the industry with regard to Medicare reimbursements. Recent cuts in Medicare reimbursements require distributors of home healthcare equipment to compete on service. These cuts created a competitive bidding environment, requiring companies to compete for Medicare reimbursement contract. Even though Spectrum acquired three of these contracts, Medicare cuts were so drastic that the owners still felt they needed to sell in order to stay competitive. Allied Business Group conducted a directed search for strategic buyers that led to Sleepcair, a local competitor of Spectrum's in the durable medical equipment industry. Sleepcair acquired Spectrum because of the strategic fit between the two companies, as well as its need to acquire the competitive bid contracts awarded to Spectrum.
Client Objective
Spectrum Medical Equipment had four owners, three of which were not active in the company. The fourth active owner knew that because of drastic cuts in Medicare reimbursements, the company would have to expand in order to stay competitive with its two largest national competitors, Apria and Lincare. Therefore, merging with a similar company was the logical step. The owner also wanted to find a buyer who would be willing to retain his 15 former employees.
Solution
Allied Business Group began its sale process by reviewing the client's objectives, particularly those associated with finding a buyer that fit Spectrum's qualitative expectations. We developed a detailed offering memorandum and performed a directed search for strategic buyers, focusing primarily on durable medical companies both in and around Spectrum's geographic area. While there were multiple buyers interested, Sleepcair was not only a qualified strategic buyer, but it also fit the qualitative criteria Spectrum desired.
Result
Allied Business Group completed the sale of 100% of the company to Sleepciar in April of 2011, achieving a 20% premium over fair market value. The acquisition of Spectrum's stock allowed Sleepcair to be reimbursed by Medicare for certain products and services provided in the Kansas City area. This not only gave Sleepcair a strong competitive advantage, but it also made it one of the largest independently owned durable medical equipment players in the Kansas City market.
Company Info
About Spectrum Medical Equipment
Founded in 2000 as a nonprofit agency, Spectrum Home Health Agency branched off to form Spectrum Medical Equipment in 2006. Spectrum is a rental distributor and retailer of home healthcare equipment, including: oxygen compressors and concentrators, portable oxygen systems, BiPAP and CPAPs, humidifiers, nebulizers, home diagnostic equipment, specialty mattresses, hospital beds, wheelchairs, walking aids, and bariatric home medical equipment.
About Sleepcair
Locally owned, Sleepcair is Kansas City's largest provider of CPAP and oxygen products. With locations in Lenexa, North Kansas City, and Lee's Summit, it offers a large variety of home medical equipment.
