Sleepcair Acquires Spectrum Medical Equipment

April 2011       Download PDF      Print

Client Objective

Spectrum Medical Equipment was formed in 2006 after a group of investors purchased the company from a non-profit provider of home medical services. Headquartered in Kansas City, Spectrum was a rental distributor and retailer of home healthcare equipment with a special focus on respiratory products.

After several years of strong growth, Spectrum faced new challenges due to changes in healthcare legislation. The passage of the Affordable Care Act (ACA) in 2010 expanded the Medicare competitive bidding program, requiring Spectrum to compete for Medicare reimbursement contracts on certain products. Spectrum was able to win reimbursement contracts for three of its products; however, the companyís owners realized that the drastic cuts in Medicare reimbursements seriously threatened their ability to compete with larger companies.

Ultimately, Spectrumís owners decided that in order to stay competitive, the company would need to partner with a larger player in the durable medical equipment (DME) industry. Furthermore, they wanted to find a buyer for Spectrum that would retain all of the companyís 15 employees.

Solution

Spectrumís owners approached Allied Business Group and requested our expertise to help them find a suitable buyer for the company. As a first step, we developed a detailed confidential information memorandum that featured Spectrumís growth opportunities and past financial performance. We then performed a targeted search for strategic buyers, focusing primarily on larger DME suppliers throughout the Midwest.

Our team conducted a confidential marketing process that generated inquiries from multiple prospective buyers. Sleepcair, a local competitor of Spectrumís in the DME industry, showed great interest in the opportunity. Sleepcair shared few overlapping referral sources with Spectrum and saw an opportunity to increase its customer base substantially by acquiring the company. Additionally, the opportunity provided Sleepcair with a way to expand its geographic presence throughout Kansas and would allow them to acquire Spectrumís existing Medicare reimbursement contracts.

Result

Allied Business Group completed the sale of Spectrum Medical Equipment to Sleepcair in April 2011. By finding a strategic buyer that could gain synergies by acquiring Spectrum, our clients were able to earn a 20% premium over fair market value for the company. The acquisition of Spectrum allowed Sleepcair to be reimbursed by Medicare for additional products and services. This not only gave Sleepcair a strong competitive advantage, but it also made the company one of the largest privately held DME players in the Kansas City market.

About Spectrum Medical Equipment

Founded in 2006, Spectrum Medical Equipment is a rental distributor and retailer of home healthcare equipment. Its equipment offerings include 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.