The past year has been unusual — to say the least — and the home health and hospice M&A landscape is no exception. While the hospice industry has continued to count strong deal numbers over the course of 2020, home health and home care have fallen far behind in their year-over-year deal tallies. The coming year, however, is poised for a comeback of deal flow for several reasons, including Medicare reimbursement changes and pent-up demand.
The Year 2020 and COVID-19
In some ways, 2020 should have been a blockbuster year for home health deal-making. The transition to the Patient-Driven Groupings Model (PDGM) on January 1, initially set the stage for mass consolidation within the space.
However, that expected M&A activity was curtailed significantly by the COVID-19 emergency beginning in Q1. Many of the small and mid-size agencies that were expected to hit the market never did. Agencies that were expected to struggle under the new payment model were suddenly given a lifeline through Medicare loans, the Paycheck Protection Program (PPP) and Provider Relief Fund grants.
Additionally, travel restrictions and social distancing measures curbed buyers’ ability to conduct due diligence on possible acquisition targets, further slowing deal flow.
So far, there have been 75 transactions across home health, home care, and hospice in 2020, Mertz Taggart data shows. In comparison, there were 79 deals just in the first three quarters of 2019, and 99 deals over the same period of time in 2018.
Of the 75 deals that took place in 2020, 27 were home health related.
The Comeback Ahead
Despite ongoing COVID-19 disruptions, there are indications that 2021 will likely be a strong year for home health M&A.
While this year has only seen 27 home health transactions in the first three quarters, this doesn’t tell the full story. A closer look reveals that eight deals have taken place during the third quarter of 2020. This is a rise from Q2, which only saw five deals. This suggests deal-making action is finally starting to heat up again due to pent-up demand.
Among the deals that have taken place recently The Pennant Group Inc. (Nasdaq: PNTG) announced that it had acquired the assets of two home health agencies from Signature Healthcare at Home in July. The company remained active on the M&A front, later announcing its purchase of CMS Home Health Care, a Texas agency, in September.
Around the same time, Actinium Healthcare Holdings — a Dallas, Texas-based investment firm — announced it had acquired Central Home Health Services of Texas Inc. in August.
Additionally, several new deals have sprung up in the final few months of the year. Charter Health Care Group announced its acquisition of Vitality Home Healthcare and Heartwood Home Health & Hospice in October. Earlier that month, Bridges Health Services also announced a series of transactions with four home health and hospice providers.
Over the past couple of years, hospice has dominated the M&A spotlight with home health taking a backseat in comparison. But with hospice acquisition targets dwindling, buyers are starting to turn to home health.
The Medicare reimbursement increase, taking effect Jan 1., also places home health in a favorable position moving forward.
As the number of COVID-19 cases continues to rise, there’s every reason to believe that the demand for home health care will increase.
“COVID will ultimately increase home health utilization as payors look for safer, cheaper solutions,” says Cory Mertz, Managing Partner for Mertz Taggart. “More than ever, folks want to keep themselves and their families at home.” Cory Mertz, Managing Partner, Mertz Taggart
Preparing for 2021
Despite the challenges relating to 2020 and the COVID-19 pandemic, many signs point to 2021 being a major deal-making year. The consumer preference for receiving home-based care is expected to continue well after the pandemic is over, which should bolster the sector for years to come. And if the deals picking back up in the last few months are any indication, it’s not unlikely that the industry could see record home health M&A activity in the year ahead.