By: Dexter Braff
You undoubtedly know the Millennials, that collection of hyper-connected, work-life balance seeking, what-me-worry, hipsters that baby-boom era human resource managers are still trying to figure out.
Well, in niche market sectors that experience sudden and rapid consolidation, you often wind up with cohorts of business owners that can greatly impact the supply side of the supply/demand curve, altering mergers and acquisitions dynamics.
Consider the home medical equipment market.
Propelled by a tailwind of aging baby boomers and generous reimbursement, companies like Abbey Medical, Glassrock, and Foster Medical swooped in to consolidate the sector. Collectively, these and other companies completed so many deals so quickly that the pool of acquisition candidates rapidly began to dry up.
Bit with unsated acquisition demand boosting valuation beyond the sector’s risk-return fundamentals, there were more than enough opportunistic entrepreneurs with a glint of green in their eyes to rush the space with startups.
Therein lies the cohort – a boomer-like surge of new business births over a relatively short period of time (in this case, during the ‘90s and early 2000s).
And just like the snake that swallowed the pig, you can follow this mass as it makes its way from startup, to maturity, and eventually a sale when it, you know, exits the snake (never liked that part of the baby boomer, snake, pig, analogy).
Now this phenomenon is not limited to HME.
In fact, in virtually every health care service sector we track, expectations of increased utilization and out-sized profit margins have created their own cycle of consolidation, depletion, and startup. Post PPS home health. Hospice. Home infusion therapy. And most recently, addiction treatment and urgent care.
But all have had to face the second law of health care M&A – we call it “The Lemmings Lament.”
Once enough me-too startups flood a sector, the regulators eventually notice and initiate a wave of their own. But in this case, the wave is often a series of reimbursement cuts that that can send margins tumbling over the cliff.
And when this happens, many of those would-be sellers become reluctant holders, and our cohort becomes, uh, backed up.
Eventually though, these business owners begin to age-out, reaching the point where the kids are off the payroll and the desire to soldier on gives way to the desire to nod off, and they become – yup – sellennials.
Right now, we are seeing a wave of sellenials emerge from the HME sector. Home health is not far behind. And next up we are likely to see generations of sellenials exit from hospice and infusion.
And while we’re quite a few years out from a generation of addictions providers – and urgent care providers for that matter – making their way through the snake, get there they will, creating a mini-wave of “opportunistic” consolidation.
And all you health information technology companies?
Don’t laugh.
You’re next.