While perhaps not as active as the M&A community anticipated, a strong final quarter of 2021 led to another record year of dealmaking for home health, hospice and home care operators.
The landmark year was driven primarily by two factors: private equity’s insatiable appetite for home-based care, and more sellers heading for an exit.
“PE buyers continue to see long-term opportunity in the home health, hospice and home care sub-sectors — and they continue to have vast stockpiles of cash they’re looking to deploy,” Mertz Taggart Managing Partner Cory Mertz says. “Meanwhile, across those sub-sectors, we’re seeing more sellers due to pandemic-induced burnout and the threat of capital gains tax rates going up.”
Overall, there were at least 166 home health, hospice and home care transactions in 2021, up from 153 in 2020.
The fourth quarter of last year saw 49 transactions, a bit higher than the average of the past five quarters, according to Mertz Taggart data.
“It wasn’t a huge quarter for transactions completed, as we thought it might be,” Mertz adds. “However, I think that likely bodes well for a strong Q1, as many year-end transactions haven’t been announced and other deals will carry into early 2022 as we get more clarity on potential tax increases.”
Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry.
Strong momentum for home care transactions
For years, non-medical home care was an afterthought in the care continuum. That has changed, with health systems and payers increasingly viewing home care as a key tool for preventing costly hospital admissions and supporting patients’ activities of daily living (ADLs).
In turn, home care M&A activity skyrocketed in the end of 2020 and hasn’t stopped.
In Q4 2021 alone, there were at least 19 home care-related transactions, according to Mertz Taggart data. That completed a year in which home care transactions nearly kept pace with hospice and surpassed home health, rather than trailing both in 2020 and 2019.
“Of the three sub-sectors, home care has gained the most steam over the past 12 months, with a record 70 transactions announced, which doesn’t include individual franchisee transactions,” Mertz says. “That’s an 84% increase compared to 38 transactions in 2020.”
One of the most notable home care transactions was PE firm Wellspring Capital Management’s purchase of Caring Brands International, the parent company of Interim HealthCare in the U.S., Bluebird Care in the U.K. and Just Better Care in Australia. PE Hub reported the deal’s price tag at about $500 million.
Another significant transaction from Q4 was Aveanna Healthcare Holding Inc.’s (Nasdaq: AVAH) acquisition of Accredited Home Care, a Medicaid home care agency, for $180 million.
"We are excited to add Accredited’s growing and well-respected business to Aveanna’s offerings in California,” Rod Windley, executive chairman of Aveanna, said in a press release. “Accredited’s strong unskilled home care business has provided thousands of patients the ability to reduce their need for institutional care and reduce their overall health care expenditures.”
As Mertz Taggart has previously written, dealmaking activity around home care franchisors was the real story of 2021.
Expect a home health M&A rebound
There were 15 home health-related transactions in the final quarter of 2021, down from the 19 deals observed in Q3. There were at least 62 home health transactions in 2021 as a whole.
“The demand remains strong, even though it didn’t materialize in a large number of transactions in Q4,” Mertz says. “I expect we’ll see a strong Q1 for home health.”
In October, Addus HomeCare Corporation (Nasdaq: ADUS) announced the purchase of Summit Home Health in Illinois. Summit has annualized revenues of approximately $7 million, according to the Frisco, Texas-based Addus.
In November, LHC Group Inc. (Nasdaq: LHCG) finalized its acquisition of 47 Brookdale Health Care Services agencies from the joint venture between Brookdale Senior Living Inc. (NYSE: BKD) and HCA Healthcare Inc. (NYSE: HCA). The deal included 23 home health locations, 11 hospice locations and 13 therapy agencies across 22 states.
Early 2022 may see a home health rebound, again, due to pandemic-induced burnout. Operators had steadily recovered from the worst of COVID-19 throughout 2021, but the emergence of the Omicron variant has once again strained agencies.
Additionally, home health agencies have a year to prepare for the Home Health Value-Based Purchasing (HHVBP) Model and its first performance year, 2023. Some current owners may ultimately decide to bypass yet another payment change by seeking an exit while demand remains robust.
Hospice remains strong
There were 23 hospice-related transactions in Q4 2021, repeating the total from the previous quarter. The hospice sub-sector experienced at least 74 transactions all of last year.
As has been the case in previous quarters, PE buyers accounted for the bulk of the transactions – 18 of the 23, to be exact.
Aveanna also accounted for the largest home health and hospice transaction in Q4, acquiring Comfort Care, a leading home health and hospice company with operations in Alabama and Tennessee, for $345 million, representing $290 million in enterprise value and $55 million in tax benefits. Comfort Care generated approximately $100 million in annual revenue, with approximately 53% of its revenue derived from hospice services and approximately 47% of its revenue from home health.
Webster Equity-backed Bristol Hospice, and Dorilton Capital-backed Traditions both remain among the most active hospice buyers, each having completed three hospice transactions in Q4.
On the lookout
Beyond Q1, it’s hard to forecast what’s in store for the home health, hospice and home care markets. With inflation growing at a faster rate than originally feared, the Federal Reserve is starting to signal interest-rate increases starting in Q1, through the end of 2022.
“This can certainly put a damper on values, which can, in turn, slow deal volume,” Mertz says. “It will also be interesting to watch what CMS does with its proposed rule for 2023 for both home health and hospice. The threat of a significant reimbursement change, such as, for example, a behavioral adjustment in home health, can change momentum pretty quickly. I’ll also be curious to see how much weight buyers will place on agency-level metrics in advance of HHVBP (Home Health Value-Based Purchasing Model) expansion.”