Home-based care M&A transaction volume remained flat in Q4, finishing off a slow year for transaction volume. The quarter yielded at least 24 completed transactions, nearly equaling Q3’s 25 deals reported, but down from previous years. So how much has volume slowed? That is a matter of perspective.
“We ended the year with a little over 100 M&A transactions in the Care-at-Home sector,” Managing Partner Cory Mertz commented, “Volume is down about 40% and 30% from 2021 and 2020, respectively, which brings us back in line with pre-Covid (2020-2021) levels of 100-120 transactions per year. 2020 and 2021 were outlier years, driven by significantly more quality opportunities in the marketplace."
Note: Total industry transactions do not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry.
The exodus of sellers was driven by two factors: 1) COVID burn-out, and 2) owners seeking an exit before an unfavorable change to the capital gains tax rate, which has not materialized.
“Demand for quality providers remains very high. As a result, the lower M&A transaction volume, at least in the sub-$100 million range, has been primarily seller-driven,” Mertz added, “Generally speaking, buyers have become more disciplined, however, as their cost of capital has gone up.”
While rising interest rates did not impact demand in the lower-middle market, it has impacted valuations at the higher end of the market, delaying multiple previously-targeted private equity platform exits. “Multiple private equity groups have shared with us that they’ve pushed off their exits for now while they wait for the credit markets to ease up a bit, and with the hope that trading multiples of some of the public companies normalize at a higher level,” Mertz said, “In the meantime, most have chosen to double-down on acquisitions.”
Home Health M&A
Q4 saw the completion of at least 11 Medicare-certified home health transactions, up slightly from previous quarters. While the final rule, published in late October, turned out much more favorable than anticipated and likely served as a short-term catalyst for home health M&A transactions, buyers remain cautiously optimistic as they evaluate quality providers that are well-positioned for 2024 and the HHVBP Performance Years, starting in 2023.
Mertz Taggart completed two Medicare-certified home health transactions in Q4:
In November, Newsome Home Health sold to Lorient Capital-backed PurposeCare. Mertz Taggart provided exclusive sell-side M&A advisory services to the transaction, representing Newsome. The deal marked PurposeCare’s fifth add-on acquisition since being acquired by Lorient in December 2021. Transaction details and client testimonials can be found here.
In December, Enhabit Home Health and Hospice acquired Southwest Florida Home Care’s Fort Myers location, filling a care need in the southern half of Florida’s District 8, spanning Sarasota to Naples. As with the Newsome transaction, Mertz Taggart provided exclusive M&A advisory services to the transaction, representing the seller. Transaction details and client testimonials can be found here.
Elsewhere, Addus acquired Apple Home Healthcare, based in Chicago. The acquisition allows Addus to leverage its substantial personal care presence in the Chicago MSA to provide skilled care when necessary. “We are pleased to announce the addition of Apple to our expanding operations in the greater Chicago area, one of our largest markets,” Addus CEO Dirk Allison commented. “This acquisition is commensurate with our growth strategy to leverage our strong personal care presence and add clinical services.”
Additionally, The Pennant Group acquired the assets of the Wisconsin-based not-for-profit Kenosha Visiting Nurse Association. The 95-year-old KVNA provides skilled home health and non-medical personal care services in the Kenosha area. This acquisition allows Pennant to further its continuum of services in southern Wisconsin, where it currently has a senior living presence.
Of the three sectors we cover in home-based Care, hospice shares the lead for the most significant volume decline in 2022, down 50% from its 2020 and 2021 highs. The quarter yielded nine transactions, in line with previous quarters.
Beyond the broader-industry downturn from 2021, other factors are at play in the hospice sector. “We are seeing more buyers fine-tuning their valuation methodology, preferring to give more weight to current adjusted EBITDA as the basis for enterprise value vs. what they could achieve in 12 or 24 months after an acquisition. The latter can also be referred to as the ‘ADC-based’ valuation method,” Mertz said, “I’m not suggesting buyers have gotten away from the ADC-based methodology altogether. We’re just seeing less of it.”
Enhabit remained active, purchasing Caring Hearts Hospice in Texas and Scottsdale-based Unity Hospice. According to Enhabit’s Form 10-Q, it paid an aggregate total purchase price of approximately $18 million for the two transactions. No deal-specific terms were released.
St. Croix Hospice continued its Midwest expansion by acquiring Adaptive Hospice, with 3 locations in Indiana. Adaptive was acquired by Help at Home in late 2020 as part of a larger acquisition, which included a substantial personal care division. The divestiture was a strategic move by Help at Home by divesting its non-core hospice assets.
Home Care M&A
Home Care finished the year on a down note, with nine transactions completed. Overall, there were 49 transactions reported in 2022, down approximately 50% from 2021’s peak. However, as with the broader industry, a little perspective is needed.
“Demand for non-medical home care, including both traditional Medicaid and home- and community-based services providers, is at an all-time high,” Mertz commented, “If you look historically, 2021 was the outlier for personal care. However, 2022 is stronger than the previous years. The bullishness is buoyed by the evolving healthcare eco-system focused more closely than ever on value-based care for our growing elderly population.”
In a unique, 3-way transaction, TheKey and AccordCare jointly announced the acquisition of Connecticut-based Companions and Homemakers. Under the terms of the transaction, TheKey will continue to operate Companions and Homemakers’ private pay division while AccordCare acquires its Medicaid assets.
Searchlight Capital’s Care Advantage was active again, completing two transactions in the quarter, both in Virginia. First, they acquired Lighthouse Healthcare, a private-pay personal care company based in Reston. Then, a week later, they closed on Care Perfections Health Services, which provides personal care services to the Warrenton area.
Vistria- and Centerbridge-backed Help at Home has remained acquisitive, as it doubled down its acquisition strategy while it backburnered its anticipated IPO. In December, it announced its acquisition of Open Systems Healthcare’s Pennsylvania and Delaware operations, which provides personal care services to 70 counties.
Meanwhile, Charter Oak Equity’s Boca Home Care completed its 3rd south Florida add-on acquisition of 2022, acquiring nurse registry Florida First Senior Home Care in November.