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Sunday, 24 January 2016 22:15

Health care, financial sectors remain hot markets for M&A

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North Ottawa Community Health System sold off its home medical equipment business, including a retail location in Grand Haven pictured here, to Grand Rapids-based CareLinc Home Medical & Equipment Supply Co. North Ottawa Community Health System sold off its home medical equipment business, including a retail location in Grand Haven pictured here, to Grand Rapids-based CareLinc Home Medical & Equipment Supply Co. COURTESY PHOTO

Mike Damstra’s chance to fill a gap in his company’s service footprint along the lakeshore arose last year when North Ottawa Community Health System came knocking.

The Grand Haven health system wanted to sell its home medical equipment business and saw the Grand Rapids-based CareLinc Home Medical & Equipment Supply Co. as a potential buyer.

Damstra, who started CareLinc 18 years ago and has grown the business to 20 locations with 330 employees, was eager to cut the deal.

“We jumped on it quick. It fits right into our wheelhouse,” said Damstra, who remains in acquisition mode and has another deal “in the bin right now” that he expects to close in the first quarter.

CareLinc’s acquisition of the North Ottawa home medical business, which closed Jan. 1, was brought on by declining Medicare reimbursements. It was a strategic acquisition for CareLinc that’s part of a growing volume in M&A in the health care industry today.

Experts forecast health care will remain one of the hot markets for M&A activity in 2016.

In law firm Dykema’s annual M&A survey, respondents ranked health care as the sector that will see the most activity in 2016. The activity will range from mega-deals involving hospitals, health insurers and biotech companies, to far smaller transactions for physician practices, long-term care facilities, and home health equipment suppliers, according to the Dykema survey.

Survey respondents also ranked the technology, energy, industrial/manufacturing, and financial services sectors as the most active markets this year for M&A.

In the CareLinc deal, North Ottawa Community Health System decided to part with the home medical equipment business because it was a small, non-core part of the overall operation and faced challenges from a 30-percent cut in Medicare payments, said Chief Operating Officer Dan Holwerda.

The Grand Rapids-based CareLinc has the economies of scale and purchasing power to better sustain and manage the business, Holwerda said, adding that Medicare accounts for about 50 percent of revenues at North Ottawa Home Care.

“From a financial viability, we knew this was something that we were not going to be able to sustain, but on the other hand, there was a need in the community,” Holwerda said, explaining why North Ottawa decided to sell the home medical equipment business.

“We could not continue with that program and absorb the reduction in what we were getting paid,” he said. “It’s a reflection of everything else going on in health care.”

And it’s not just in health care.

Financial institutions have been consolidating as well to drive economies of scale and growth, and to better cope with increasing regulatory compliance costs from legislation enacted after the 2008 financial crisis.

After a spate of bank mergers in 2014 and early 2015, activity in Michigan has been quiet as of late, although attorney Phil Torrence, a partner at the Kalamazoo office of Honigman Miller Schwartz and Cohn LLP, expects it to pick up again eventually.

“Banks have not consolidated at near the rate we expected them to with the passage of Dodd-Frank (in 2010). I still think it’s coming, but it’s unclear whether it’s going to be in 2016 or what will be the watershed event for them,” said Torrence, whose law practice includes working with banks.

His view follows the expectations of respondents to the Dykema survey. Nearly 28 percent of the business executives, M&A attorneys and business brokers surveyed said they expect bank M&A in the U.S. to gain momentum through mid-year and another 27 percent see it happening through December 2016.

More than 35 percent of respondents expect M&A in the financial services sector to gain momentum into 2017.

One of the most recent bank acquisitions in Michigan was Chemical Financial Corp.’s acquisition of the former Holland-based Lake Michigan Financial Corp., a $187.4 million transaction that closed in 2015.

Consolidation among credit unions in Michigan also remained steady in 2015. Mergers approved during the year lowered the number of state-chartered credit unions in Michigan to 162 at the end of December, compared to 174 at the start the year, according to the Michigan Department of Insurance and Financial Services.

However, one of the largest mergers recently broke down, as Grand Rapids-based Lake Michigan Credit Union and United Federal Credit Union in St. Joseph decided not to proceed with the deal they announced last fall. The proposed merger would have created one of the largest credit unions in the U.S.

Read 2218 times Last modified on Sunday, 31 January 2016 21:53

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