A DME company earns $5 million a year. A private equity firm buys it for 6x earnings, $30 million. They put in $10 million of their own money and borrow $20 million at 9 percent. Interest: $1.8 million a year.
So the company throws off $5 million. Debt takes $1.8 million. That leaves $3.2 million flowing to $10 million of invested equity. A 32 percent annual return. Before anyone improves anything. Before a single patient gets better service. Before one repair happens faster.
That’s the arbitrage: buy earnings cheaper than the cost of money, and the spread is the return. Patient care is not part of the investment thesis. It doesn’t need to be.
And the things that actually help patients, adherence programs, faster repairs, follow-up that keeps people out of the hospital, pay back over 10 to 20 years. The fund has to sell in 3 to 7. So the good stuff gets rejected. Not because anyone is heartless. Because inside a 5-year clock, it’s genuinely a bad investment. The calendar decides before the people do.
Here’s the question I keep asking. Family offices don’t have to sell in five years. Pension funds think in decades. Why doesn’t that long-term money show up and collect the bigger, slower prize?
The uncomfortable answer: under fee-for-service, waiting earns nothing. When my company keeps a COPD patient out of the hospital, who saves? Medicare. The hospital. The insurer. Not us. We often lose revenue for doing it. The payoff from good care is real, but it lands in someone else’s wallet, no matter how long the owner is willing to wait.
So the winning bidder for every DME company is whoever can extract the fastest, because extraction is the only strategy our payment system actually pays. Private equity dominating DME isn’t an invasion. It’s an equilibrium. Blaming the capital is blaming water for flowing downhill.
What flips it? Tie payment to outcomes. CPAP payment tied to documented adherence. Oxygen payment that shares in avoided readmissions. Wheelchair contracts with real repair-time standards. The moment that happens, the 5-year fund can’t underwrite a payback that arrives in year 12. The family office can. Patience stops being a handicap and becomes the winning edge. And patients win automatically, because the owner’s return and the patient’s health become the same number.
So, fellow DME operators:
Would you rather be owned by capital that has to sell you in five years, or capital that wants to hold you for twenty?
And what would you build differently if keeping patients healthy was actually how you got paid?
I’ve been on all sides of this. I have used my own capital, private equity, and public capital. I see this math from the inside. I’d genuinely like to hear from other operators, and yes, from the investors too.