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Q4 2023 Home-Based Care M&A Report

Updated: 6 days ago

Headline: Home-Based Care M&A Report: Q4 2024

The fourth quarter of 2023 closed with an uptick in home-based care transactions, and while the 25 total wasn’t a staggering number, it does represent a significant increase from the just 16 that took place in the third quarter. It is also more in line with pre-pandemic norms of 25-30 transactions/quarter.



For the full year, there were 95 home-based care transactions. That represents a 14% downturn from 2022, and a much more significant dropoff from the frenzy that was 2021.


“We are seeing signs of a thaw in dealmaking,” says Cory Mertz, managing partner at Mertz Taggart. “But the first and second quarter of 2024 will be better indicators.”


There are various reasons behind the slowdown in 2023, but chief among them was the Federal Reserve’s war on inflation, causing interest rates to rise and debt markets to tighten. This spurred nearly every financial sponsor to re-evaluate their acquisition strategies. In most cases, this included taking a much more disciplined approach to investing and, in some cases, kept would-be buyers on the sidelines completely as they focused on shoring up their internal operations.


But there was an increase in deals across home health, home care and hospice in the fourth quarter. And many of those deals were driven by private equity: 18 of the 25 transactions either involved a PE buyer or a PE-backed portfolio company.


“Eventually, PE-driven activity will normalize across industries,” Mertz says. “Considering how in-demand quality home-based care agencies remain, the home-based care industry at large is primed to be a beneficiary of that normalization.”


A huge jump in activity is not guaranteed in 2024, of course. Much will depend on not only what the Fed does next in terms of interest rates, but also consensus opinion of what the Fed will do in future meetings. 


“We expect more companies to go to market in 2024 — reverting back to pre-COVID levels — but it will continue to be a bit more of a challenge to get deals across the finish line as buyers will continue to chant the ‘discipline’ mantra,” Mertz says. “That is, of course, imposed on them by higher interest rates and bank covenants themselves. Prospective sellers would be well-served to perform some level of clinical and compliance audit along with some level of a quality of earnings (QoE) prior to going to market to help mitigate deal risk.”

 

Home Health M&A


Home health care dealmaking ended on an up-note, with 13 transactions completed, up from just four transactions in Q3.


Chart: Home Health Transactions by Quarter

The biggest deal completed was Gentiva’s acquisition of ProMedica’s home health and hospice assets. Worth $710 million, this is Gentiva’s first major deal following its formation out of the divested assets of Kindred at Home. Humana Inc. (NYSE: HUM) formed CenterWell Home Health out of Kindred, and did away with the home care and hospice service lines in the process. What Gentiva decides to do with the home health piece remains to be seen, though they’ve given us no indication they are interested in looking at future home health opportunities.


In late December, Brookdale Senior Living (NYSE: BKD) sold the remaining 20% stake it had in its home health JV with HCA Healthcare (NYSE: HCA).


In early 2021, during the tumultuous COVID-19 period, Brookdale offloaded 80% of its home health segment to HCA Healthcare for $400 million, implying an enterprise value of $500 million at the time.


Later in 2021, some of those assets were then sold to LHC Group, for $197 million.


It sold its remaining 20% stake for $27 million, which has an implied enterprise value of about $135 million. The proceeds were used to refinance Brookdale’s debt obligations.


“Based on the transaction timeline for the original Brookdale assets, and taking into account the earlier LHC transaction, it’s probably safe to assume the JV didn’t create a lot of enterprise value for the agency,” Mertz says.


Among the other notable home health deals in the fourth quarter:


● Blue Wolf Capital-backed Elara Carings’ acquisition of American Family Home Health Services, further increasing its Illinois presence. 

● New Day Healthcare remained acquisitive, closing on Pathfinder Home Health, with four locations in south Texas. The deal was New Day’s eighth transaction since its inception in 2020.

● Two PE-funded private-duty nursing transactions: InTandem Capital’s Pediatric Home Respiratory Services’ acquisition of All About Pediatrics in Jacksonville, FL, and Care Options for Kids’ acquisition of Preferred Home Health Care, with 12 locations throughout New Jersey, Pennsylvania and Delaware.


Home Care M&A


Non-medical home care transactions were a major bright spot for dealmaking in the fourth quarter, with 13 transactions reported.


The 80/20 rule — which has still not been finalized, and would force providers to direct 80% of all Medicaid dollars toward caregiver compensation — does not seem to be deterring investment in home- and community-based services.


Chart: Home Care Transactions by Quarter

Of the 13 home care transactions that took place in the fourth quarter, nine involved HCBS sellers.


Sodexo also completed its sale of Comfort Keepers — one of the nation’s largest home care franchises — to The Halifax Group. The transaction was part of Sodexo’s divestiture of its Worldwide Home Care Operations, with subsidiaries in Europe and South America.


Searchlight Capital Partners-backed Care Advantage acquired Nova Home Health Care, based in Northern Virginia. The deal builds density in the northern Virginia Marketplace. 

 

“Northern Virginia is one of the more populated areas across the state,” Care Advantage CEO Tim Hanold told Home Health Care News. “We’ve done numerous acquisitions there over a period of time. We continue to build out our density, and also the diversity of both payer source and the communities that we serve within that area.” The deal was Care Advantage’s 18th since 2018.

 

New England-based Best of Care acquired Barton’s Angels in November. Best in Western Massachusetts, Barton’s provides both state-funded and private pay services to clients in Western Massachusetts.

 

Finally, Tygon Peak Capital pulled off a rare feat with its five-way merger of agencies in South Texas.  The deal included A Plus Family Care, Axiom Home Health, Bee First Primary Home Care, Elder Homecare and Starr Home Care.

 

Hospice M&A


Hospice saw an uptick to nine (9) total transactions in Q4. This followed a record low two transactions in Q3.


Chart: Hospice Transactions by Quarter

The Pennant Group (Nasdaq: PNTG) led the way with hospice transactions in the fourth quarter.


An aggressive acquirer, Pennant completed two deals in Q4. Acquiring Arizona-based Southwestern Palliative Care Associates and Guardian Hospice, with locations in Texas and Oklahoma.


Other notable hospice deals in the quarter include:


● Trive Capital-backed Choice Health at Home’s acquisition of Lumicare Hospice in Colorado

● Graham Healthcare Group-owned Residential Healthcare Group’s acquisition of Safe Haven Hospice in Illinois

● The aforementioned Gentiva/Promedica deal, which included substantial hospice assets.


Healthcare services M&A is hard to predict due to both economic and regulatory uncertainty, and 2024 presents its fair share of challenges on both fronts. Healthcare-savvy investors who are used to navigating these obstacles are chomping at the bit for quality opportunities. Finding and closing those deals will be the bottleneck for activity in 2024.


If you are interested, you can also download the Q4 2023 Home-Based Care M&A Report via the following link:


Q4 2023 HHH M&A Report
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