Heading into 2020, the home-based care world was geared up for a large year of consolidation
and M&A. Of course, this shift did not immediately come to fruition due to the COVID-19
pandemic, but experts warned it was still coming.
Toward the end of 2020 and into 2021, the onslaught came. With some variance across the
three sectors, 2021 marked a record-breaking year for home care, home health and hospice
M&A.
Then the year turned, and the deal volume slowed. The first quarter of 2022 was not merely
quiet — it was record-breaking on the opposite side of the spectrum. February tied the lowest
number of closed home care, hospice, and home health M&A transactions in one month in over
four years, with a total of three transactions reported.
Yet as Mertz Taggart Managing Partner Cory Mertz notes, this trend is not expected to
continue.
“Transaction volume is down considerably, however, there is no reason to rush to conclusions,”
Mertz says, “Demand for quality agencies has not slowed one bit. This is a ‘first quarter’
phenomenon, which is a result of a rush of sellers exiting at the end of 2021, leaving deal
pipelines low in early 2022.”
Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry.
The first quarter of 2022 saw 26 home health, home care and hospice deals, a dramatic decline
from over 50 transactions in both the third and fourth quarter of 2021.
One active acquirer in Q1 was Choice Health at Home, which closed three transactions. Choice
is one of the growing regional players in home health care, backed by two private equity firms:
Coltala Holdings and Trive Capital. Choice also secured in January a $190 million credit facility.
“Our partnership with Trive Capital and Coltala Holdings coupled with the recent credit facility
provided by Oxford Finance, AB Private Credit and Maranon Capital have placed Choice in a
position to grow,” Choice President David Jackson told Home Health Care News this month.
“We will continue to look for quality businesses in the home health, private duty and hospice
space.”
LHC Group also completed two deals in the quarter, but those ended up looking insignificant
compared to where else the company drew headlines.
After all, one of the biggest deals in recent memory — though not yet closed — came to the
surface at the end of March. UnitedHealth Group (NYSE: UNH) announced that it would buy
LHC Group Inc. (Nasdaq: LHCG) for a purchase price of about $5.4 billion, or approximately
23x EBITDA.
If all goes according to plan, the deal will eventually pair UnitedHealth’s Optum with LHC Group.
“LHC Group’s sophisticated care coordination capabilities and its warm, human touch is so
important for home care, and will greatly enhance the reach of Optum’s value-based capabilities
along the full continuum of care, including primary care, home and community care, virtual care,
behavioral health and ambulatory surgery,” Dr. Wyatt Decker, Optum Health’s current CEO,
said when the deal was announced.
Home health M&A volume down
While home health M&A volume fell, albeit in line with the overall industry declined, Mertz
expects increased demand for quality home health assets will fuel transaction growth. “2022 will
be an interesting year for home health M&A,” he says. “I expect we’ll start to see some
bifurcation, with those agencies that appear to be well-positioned for Value-Based Purchasing
(HHVBP) receiving premium values,” Mertz noted. “2023, the performance year, is just around
the corner, and a 5% payment increase will drive significant value from an investment
standpoint.” Additionally, 2023 is not immune to a reimbursement adjustment, and a June
proposed rule could disrupt deals that are in the works.
Another reason for optimism is that some of the larger operators have re-doubled their home
health M&A development efforts, considering the out-of-this-world valuations hospices have
been receiving. “Problem is, the market is so overheated in the hospice valuations that it just
doesn’t work. I think where there’s more confusion — which is obviously where we want to go —
and [where there’s] more realistic valuations is in home health,” stated Amedisys Chairman,
Paul Kusserow at a recent conference.
Home care M&A leads the way
It’s important to note that LHC Group does have a personal care arm, and thus the UnitedHealth
Group deal, if or when it closes, will also mark a large home care transaction.
Although a decline from Q4 2021, home care led the way, with thirteen transactions reported.
A Place for Mom, a private duty home care franchisor, received $175 million in development
capital from Insight Partners and two of its existing investors, Silver Lake and General Atlantic.
The funds will be used for expansion.
Michigan-based Bayside Home Care sold to a private equity-backed strategic buyer. Mertz
Taggart provided exclusive M&A advisory services in this transaction, representing Bayside.
The private equity-backed operators continue to grow through acquisition. One of the largest
home care providers, Centerbridge Partners-backed Help at Home, announced three deals at
the end of 2021, in Ohio, Pennsylvania and Georgia. The company then entered the New York
market at the beginning of the second quarter with the sizable acquisitions of both Edison Home
Health Care and Preferred Home Care of New York.
Hospice M&A volume down, for now
Hospice transaction volume was down, in line with the rest of the market, with a total of ten
transactions reported. But demand has not waned. “There is a reason some of the bigger
providers have switched their focus back to home health,” commented Mertz. “Private equity
loves hospice. And with a short supply of quality agencies on the market, their collective
appetite remains as strong as ever.”
Similar to the aforementioned Choice, the Dorilton Capital-backed Traditions Health is a
regional provider that continues to grow. The home health and hospice provider made two
hospice acquisitions in the quarter.
Demand remains high
The lull in deal making can be attributed to a variety of factors, none of which suggests
continued stasis.
“Across all three sub-sectors, demand remains as strong as it has ever been,” says Mertz. “The
themes remain the same, and they’re driven by the public companies, private equity and,
increasingly, ‘pay-viders.’”
“Pay-viders” refer to payers that are becoming hybrids of payers and providers, such as
UnitedHealth or Humana Inc. (NYSE: HUM).
For instance, assuming the LHC Group deal is closed, both UnitedHealth and Humana will have
embedded home health agencies within their networks. In fact, each will have one of the biggest
home health agencies — between LHC Group and Kindred at Home, respectively — in the
country.
Besides “owning the continuum,” the biggest reason for this shifting strategy for payers is the
overall trend to value-based care in health care.
While value-based care is a hot topic in most health care sectors, it is especially so in home
health care, as, again, the nationwide expansion of the HHVBP Model is looming – a potential
catalyst for consolidation.
“Valuations have not weakened,” Mertz says. “We will see a strong back half of the year.”
The M&A landscape in home-based care continues to fill up with interested parties. Payers,
providers and private equity firms are all looking to make splashes — another reason why the
deal making lull will likely not last.