Behavioral Healthcare Stocks down 0.5% in June The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 0.5% for the month of June. The S&P 500, by comparison, was up 7.2% during the same period. “We’re seeing some strength from UHS and ACHC, coming off their May lows, while AAC continues to struggle,” said Kevin Taggart, Managing Partner at Mertz Taggart. The BHC index was slightly down after many down months. American Addiction Centers – AAC ( ↓14.9% ) continues to struggle in the month of June. AAC’s second in command, President and COO, Michael Nanko, resigned in mid-June, just weeks after unveiling a new 10-year vision for the company. Nanko will receive over $185,000, paid out over the next four months. Acadia Healthcare – ACHC ( ↑5.9% ) rose nicely in June after a down May. In late June, the company announced that the COO, Ron Fincher, is leaving the company, effective July 15. He will be replaced with Acadia’s Eastern Group president, John Hollingsworth. Fincher’s exit is the latest shake-up of Acadia’s leadership, which started in December after its board voted to oust Joey Jacobs, the company’s longtime chairman, and CEO, in an unusual weekend vote. Since then, Acadia President Brent Turner left the company, and Acadia board member Christopher Gordon resigned. Fincher will receive a cash payment of $1.2 million as part of a separation agreement. Universal Health Services – UHS ( ↑7.4% ) rose steadily throughout the month of June on no news. Perhaps we’ve seen a bottom here. For the last twelve months (LTM), the BHC is well behind the S&P 500 at a -29.7% loss relative to the S&P’s gain of 7.9%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 6/30/19 AAC $0.86 ACHC $34.95 UHS $130.39 Enterprise Value/EBITDA Company 6/30/17 6/30/18 6/30/19 AAC 12.68x 12.04x N/A ACHC 12.98x 11.54x 12.32x UHS 9.23x 8.44x 9.44x Enterprise Value/Revenue Company 6/30/17 6/30/18 6/30/19 AAC 1.31x 1.80x 1.42x ACHC 2.64x 2.35x 2.29x UHS 1.58x 1.30x 1.47x M&A News June 20, 2019 – Kolmac Outpatient Recovery Centers (“Kolmac”) announced the acquisition of BioCare Recovery (“BioCare”). Headquartered in Yardley, PA, BioCare has provided outpatient addiction treatment in the form of medication-assisted treatment (MAT) and individual therapy for the past five years. Kolmac is a network of intensive outpatient (IOP) addiction treatment centers in Washington D.C. and Maryland. The acquisition of BioCare marks the beginning of Kolmac’s expansion into other states and communities. June 19, 2019 – The Stepping Stones Group, a national provider of therapeutic and behavioral health services for children in kindergarten through 12th grade, announced the acquisition of StaffRehab, a California-based provider of therapy, nursing, and behavioral health services for children with autism and special needs in school settings. StaffRehab will operate as a subsidiary of Stepping Stones in the company’s west region, and a pair of executives will transition to new positions in the deal. June 18, 2019 – AppleGate Recovery, a BayMark Health Services company, announced the acquisition of A.M.C. Nashville, an office-based opioid treatment (OBOT) program in Nashville, Tennessee. The facility, established in 2011, provides buprenorphine and Suboxone medication-assisted treatment with counseling in a physician’s office setting. AppleGate Recovery now operates 13 programs across 6 states that focus on outpatient treatment with buprenorphine and buprenorphine compounds. June 14, 2019 – Florida-based trauma center, Next Chapter (“NC”) Treatment Center has announced its merger with All Points North (“APN”) Lodge, the country’s newest comprehensive health and wellness center, with a special focus on substance abuse and addiction. Beginning October 2019, NC’s clinical care services will relocate to the APN Lodge campus in Edwards, CO as a part of APN Lodge’s larger continuum of care. June 11, 2019 – Newport Academy, a series of adolescent and young adult treatment centers specializing in mental health, trauma, eating disorders, and substance abuse, announced the purchase of Gray Wolf Ranch in Washington state. Founded in 1996, Gray Wolf Ranch has treated more than 1,500 young men with substance use and co-occurring mental health disorders. Gray Wolf is now a part of Newport Academy’s growing network of treatment centers across the country, with locations in Northern and Southern California, Connecticut, Pennsylvania, and Maryland. June 10, 2019 – Consolidated Care Inc. (“CCI”) announced that it will be acquired by TCN Behavioral Health Services (“TCN”), effective July 1, 2019. TCN is a not-for-profit agency that has provided adult and youth services in Greene County and the surrounding area for more than 25 years. It has locations in Xenia, Fairborn, and Kettering. The merger of the two agencies will allow for an expansion of behavioral health services.

Behavioral Healthcare Stocks down 7.2% in April The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 7.2% for the month of April. The S&P 500, by comparison, was up 2.7% during the same period. The loss in the BHC index was mainly driven by AAC. American Addiction Centers – AAC ( ↓23.7% ) fell sharply on the delivery of its postponed Q4 2018 earnings call. For Q4 2018, revenue decreased 26.6% to $57.4MM year over year. Net loss was ($1.52) per diluted common share and adjusted EBITDA was ($12.4MM). “The last several months of 2018 saw a census decline that was more significant than we originally anticipated, with an initial 30% drop in call volume resulting in a sharp decrease in admissions in the second half of 2018 which resulted in a corresponding decrease in revenue,” said Michael Cartwright, Chairman, and CEO. “However, admissions have begun to improve in early 2019, with average admissions per day up by more than 25% for March 2019 compared to December 2018.” The company is also exploring strategic alternatives in its real estate portfolio, including sale-leasebacks of individual facilities or larger portions of the company’s real estate portfolio, to generate additional liquidity. In March 2019, the company also closed a $30.0MM incremental term loan with its existing lenders. Acadia Healthcare – ACHC ( ↑8.0% ) increased on positive Q1 2019 earnings. The Company reported revenue of $760.6MM for Q1 2019, a 2.5% increase from the same period the prior year. EPS was $0.34 per diluted share for Q1 2019 compared with $0.58 per diluted share for the same period the prior year. Total same facility revenue increased 5.6% for Q1 2019 YoY, including a 2.8% increase in patient days and a 2.7% increase in revenue per patient day. Total same facility EBITDA margin declined 150 basis points to 22.7%. U.S. same facility revenue rose 6.1%, on a 4.3% increase in patient days and a 1.7% increase in revenue per patient day. U.S. same facility EBITDA margin was consistent with the first quarter last year at 26.1%. U.K. same facility revenue grew 4.7% for the first quarter of 2019 from the first quarter last year, including a 0.9% increase in patient days and a 3.7% increase in revenue per patient day. U.K. same facility EBITDA margin declined 430 basis points to 16.3%. Acadia’s consolidated adjusted EBITDA for Q1 2019 was $136.0MM, compared with $145.7 million for the same period the prior year. Acadia also affirmed its previously established financial guidance for 2019. Universal Health Services – UHS ( ↓5.9% ) was down for the month of April. On April 26th, UHS delivered its Q1 2019 earnings. EPS for Q4 came in at $2.45 per share, down 5.8% from estimates. Revenue came in at $2.75Bn compared to estimates of $2.74Bn. For the Behavioral Health segment, on the same facility basis, adjusted admissions inched up 2.9% while adjusted patient days dipped 0.9%, both on a year-over-year basis. Net revenues were up 3% during the quarter under review on the same facility basis. For the last twelve months (LTM), the BHC is well behind the S&P 500 at a -28.7% loss relative to the S&P’s gain of 11.0%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 4/30/19 AAC $1.61 ACHC $32.02 UHS $126.87 Enterprise Value/EBITDA Company 4/30/17 4/30/18 4/30/19 AAC 12.23x 12.30x N/A ACHC 12.10x 10.91x 11.75x UHS 9.15x 8.59x 9.32x Enterprise Value/Revenue Company 4/30/17 4/30/18 4/30/19 AAC 1.35x 1.69x 1.20x ACHC 2.47x 2.23x 2.18x UHS 1.57x 1.40x 1.45x M&A News April 30, 2019 – BayMark Health Services announced the acquisition of Recovery Services of New Mexico (RSONM). RSONM has three traditional Opioid Treatment Programs (OTP), one physician’s office-based treatment program providing buprenorphine treatment, and a fifth location inside of Bernalillo County Metropolitan Detention Center providing opioid medication treatment services for incarcerated individuals. BayMark Health Services operates more than 218 locations, offering various treatment methods for opioid addiction, across the country. Mertz Taggart acted as exclusive M&A advisor to this transaction, representing the seller. April 23, 2019 – LifeSkills, Inc. (LifeSkills) and Pennyroyal Center, the largest behavioral health care organization in Southern Kentucky, have announced that they will merge as of July 1. The merged entity will total over 875 employees, and 26 service locations, all of which will remain in operation. The combined entity will have a total budget of just over $95 million and will continue to operate under the LifeSkills and Pennyroyal Center names in their respective markets. April 17, 2019 – Pinnacle Treatment Centers (PTC), a provider of accessible treatment for substance use disorders, announced it has acquired four outpatient opioid treatment programs within the state of Virginia, including one office-based opioid treatment program (OBOT) and three opioid treatment programs (OTPs) for adult men and women. The three OTPs are American Addiction Treatment Center (AATC) and the OBOT is Addiction Medicine Specialists Inc. April 16, 2019 – Bridges Fund Management, a specialist fund manager focused exclusively on sustainable and impact investment, with offices in London and New York, has made an investment in Sunrise, a medication-assisted treatment, and behavioral counseling program for individuals suffering from opioid use disorder. Sunrise provides medication-assisted treatment and behavioral counseling programs to individuals suffering from opioid use disorder, treating patients through five clinics in Ohio. Sunrise’s management team is retaining a significant ownership stake in the business. April 16, 2019 – Blue Sprig Pediatrics, Inc. (BlueSprig) announces that it has acquired the assets of West Texas Autism Center, a West Texas-based autism therapy provider with two clinics in Abilene and San Angelo. West Texas Autism Center is a clinic-based provider of Applied Behavior Analysis (ABA) therapy services treating children with Autism Spectrum Disorder (ASD). Headquartered in Houston, TX, BlueSprig is the largest autism services provider in Texas with locations in Ohio, Oklahoma, Oregon, South Carolina, and Washington. April 11, 2019 – Kadiant Inc., which was established in 2019 between Lani Fritts, TPG Capital, and Vida Venturesa as a provider of Applied Behavior Analysis (ABA) therapy to individuals with autism spectrum disorder (ASD), announced it has partnered with two ABA therapy providers: Kids Overcoming (KOI) and Integrated Behavioral Solutions (IBS). The founders of KOI and IBS will join Kadiant on the executive team. April 11, 2019 – Sprout Health Group, a leading network of inpatient and outpatient facilities for treating addiction and co-occurring disorders, announced the acquisition of Endeavor House North, a drug treatment center in Kearny, NJ. Sprout is assuming management of the program, including taking care of current patients, while also investing to revitalize the facilities. The acquisition enables Sprout to serve all regions of New Jersey and surrounding areas, while putting the group in-network with every major insurance carrier in the state, including Horizon Blue Cross Blue Shield, Optum, Cigna, and Aetna. Follow to link to see Behavioral Health Composite – June 2019

The Resurgence of Private Duty Home Care M&A 2018 was a booming year for health care M&A activity. That’s especially true when it comes to private duty home care transactions, largely because services that improve functional mobility, maintain cognitive engagement, and address social determinants of health are being increasingly valued within the broader continuum of care. Of the home health, hospice and home care segments, the home health industry saw the greatest number of total transactions in both 2017 and 2018. Home care, however, saw the most noticeable spike in deal activity. In 2017, there were just 20 home care deals. Last year, that more than doubled, jumping to 46 total transactions. “Private duty has suddenly received more attention and focus than it has in the past few years,” Cory Mertz, managing partner of Fort Myers, Florida-based M&A advisory firm Mertz Taggart, said. “That includes attention from public companies, along with private equity and strategic buyers.” Favorable Conditions for Home Care Indeed, in-home care is being more widely seen as a cost-effective way to monitor and manage patients, preventing unnecessary emergency room visits and potential re-hospitalizations. Part of that shift has been triggered by policymakers, who have opened the door for more in-home services and supports as supplemental benefits under Medicare Advantage plans, a trend that’s likely to continue in years to come. In fact, former U.S. Speaker of the House Paul Ryan recently spoke about the momentum that Medicare Advantage has seen of late during a keynote discussion at the National Investment Center for Seniors Housing & Care’s (NIC) spring conference in San Diego. “I believe the future for Medicare is in the Medicare Advantage type of space,” Ryan, who left office in January, said. “It saves money and it helps patients get better health outcomes.” Of the 46 home care transactions from 2018, 13 came from publicly traded companies, with Canada-based Nova Leap (TSXV: NLH) completing five deals and Baton Rouge, Louisiana-based Amedisys Inc. (NASDAQ: AMED) completing three transactions. Nova Leap has big plans for 2019 as well, already announcing its intent to acquire up to four additional agencies in the year ahead. Private equity companies completed eight “platform” transactions, including Bain Capital Double Impact’s acquisition and subsequent combination of regional health care companies Arosa and LivHome, plus KKR’s move to acquire and merge BrightSpring Health Services and PharMerica. An affiliate of Walgreens Boots Alliance (NASDAQ: WBA) was also a part of that deal. The remaining home care transactions came from PE-owned home health providers, other strategic buyers, and a handful of post-acute care groups. “A lot of these deals have been for standalone agencies, but we’ve even seen interest in franchise networks,” Mertz said. “And that’s for a few of reasons. Franchise deals can capture the growth of the industry, but they’re also more scalable, have a more recurring revenue model than agencies themselves, and the ability to establish regional or national partnerships with other care providers.” Tailwinds, To Be Continued… To some extent, the spike in transactions for home care — and lack of a similar spike in home health and hospice transactions — also has to do with major regulatory and oversight headwinds. On the home health care side, providers are facing the biggest payment overhaul in years under the Patient-Driven Groupings Model (PDGM), which could pose a nearly 6.5% cut to the industry depending on how certain behavioral adjustment aspects shake out. Home health providers also face the looming Review Choice Demonstration, an updated version of the widely opposed Pre-Claim Revenue Demonstration. When it comes to hospice, meanwhile, federal watchdogs have vowed to ramp up their efforts in sniffing out fraud, waste and abuse — positioning home care as a potentially safer bet in a time of change. “Home health, hospice and home care are all still attractive segments bound to see robust M&A activity due to the changing demographics of this country,” Mertz said. “But you can argue home care will see the smoothest sailing in the near-term, further propelled by Medicare Advantage opportunities that arise.” -Mertz Taggart

Considering a Hospice Sale At Some Point? Get Your Documentation in Order Now For hospice organizations looking to sell, the market has never been hotter. That is, of course, if a seller has all of its clinical records and compliance documentation in order. Hospice deal volume increased substantially from 2017 to 2018, increasing from 28 deals in 2017 to nearly 40 last year, proprietary Mertz Taggart data shows. In many cases, these transactions have included double-digit EBITDA multiples and soaring price tags, heightened by hospice’s favorable reimbursement climate and emerging positions within the overall continuum of care. Interest among private equity buyers — and sellers — has helped drive the hospice market as well. For proof, look no further than the recent rumors swirling around hospice giant Compassus’ reported sale interest. “Audax Group and Formation Capital bought Compassus in late 2014, so they’re likely nearing the ideal time to sell,” Cory Mertz, managing partner of Mertz Taggart, says. “But there are several reasons why this is a great time for any size hospice provider to explore the M&A market and capitalize on some of the trends we’re seeing.” “We’ve seen a record number of transactions announced, but we are also seeing a number of transactions not closing…” Clean documentation demonstrating a history of Medicare compliance is paramount to the success of any hospice deal, as unkempt recordkeeping can leave both buyers and sellers exposed to potential risk. That’s especially true with federal watchdogs, such as the U.S. Department Health and Human Services Office of Inspector General, more closely scrutinizing the hospice industry. “We’ve seen a record number of transactions announced, but we are also seeing a number of transactions not closing,” Mertz says. “Most operators assume that because they recently passed a state or accreditation survey, that they’re in good shape. But due diligence is very different from a survey. It’s an audit.” Medicare regulations change on a regular basis, so sellers need to show they’re keeping up, McBee Associates Inc. President Mike Dordick says. Pennsylvania-based McBee delivers financial, operation, and clinical consulting services to health care providers across the care continuum. “A review of your records by a third-party prior to sale can add value to your company in two ways,” Dordick says. “First, it gives the buyer the knowledge that you take compliance very seriously and were willing to show the result of that. Secondly, it can enhance the number of potential buyers by showing why your agency is more valuable than another that may be on the market.” Common Documentation Issues One of the biggest hospice deals to take place in 2018: Baton Rouge, Louisiana-based Amedisys Inc.’s (Nasdaq: AMED) play for New Jersey-based Compassionate Care Hospice for a fixed price of $340 million, inclusive of $50 million in payments related to a tax asset and working capital. The deal — which reflects the strong demand for hospice assets, particularly from home health companies — will effectively make Amedisys the third-largest hospice provider in the United States. But a clean compliance history and quality clinical records are important regardless of size, Rachel Hawkins, senior manager for Simione Healthcare Consultants LLC, says. When there are red flags, hospices generally have the same persistent issues across the board. Hospice agencies using outdated forms is a frequent issue according to Hawkins, who has worked on several hospice transactions in 2018. In some cases, that may mean hospice agencies using old language on notice-of-election forms. Often, hospice agencies fail to provide proof that interdisciplinary meetings included attendance by all core team members as well. “The intensity of the focus on hospice is only growing…” Other common issues: not meeting all face-to-face documentation requirements, using inappropriate diagnosis coding and having certifications of terminal illness (CTIs) that are missing information. While many of these are related to medical needs and Hospice Conditions of Participation (CoPs), agencies can’t afford to drop the ball when it comes to billing either, Hawkins says. “The intensity of the focus on hospice is only growing,” she says. “That said, our hospice leaders need to understand there is clinical compliance with the hospice CoPs, but also billing compliance. It is in this area of billing compliance and the technical requirements required to submit a claim that we see the largest knowledge gap.” Ensuring Best-in-Class Hospice Performance Hospice providers looking to sell can take several measures to ensure best-in-class performance and secure the most value for their business. That starts with educating all levels of staff on the most current hospice CoPs and Medicare billing requirements, while also designating a dedicated person to staff up-to-date on the hospice regulatory agenda — from both a state and federal perspective. Furthermore, sellers need to make sure they have established quality assurance programs in place that are simultaneously realistic and effective. These programs need to be able to monitor and measure key clinical outcomes, regulatory compliance and billing, while holding an agency accountable for performance. Software solutions can likewise serve as valuable tools, experts maintain. By and large, hospice providers that use software solutions to help with documentation and record-keeping report being more confident in their ability to survive audits and respond to formal additional documentation requests. And ultimately, it could make or break a deal when it comes to a potential acquisition down the road. “Buyers will be looking at acquisitions from an audit risk standpoint, anticipating more industry audit activity going forward, and the potential for significant clawback due to items that may have been overlooked in a survey,” Mertz says. “These things are easily correctable, but it’s important for agencies to be proactive and consistent with respect to documentation should they ever want to pursue a sale.” -Mertz Taggart

Why Exit Does Not (and Should Not) Mean Retirement Many people assume that when the subject of “exit” comes up with a business owner, we are discussing the owner’s retirement. This is not always true, and assuming it is true creates problems for owners, their companies, and their families. Exit does not have to mean retirement. Separating exit and retirement (and approaching them differently) makes for  better exit planning , a smoother transition for the company, and happier life for the owner and his or her family. Here’s why. Business owners typically interact with their companies in three ways: O wnership – you own some or all of your company I nvolvement – you are engaged in your company’s activities, usually on a day-to-day basis L eadership – you are a leader within your company, typically the chief executive or similar level Put these three letters together and you get the word OIL. It’s helpful to remember this acronym because it can help owners better understand their personal exit goals and build flexibility into the exit planning process. The OIL Doesn’t Need to Flow Together In most situations, business owners think about and act as though their  o wnership of the company, their  i nvolvement within the company, and their  l eadership over the company are completely intertwined and inseparable. In other words, the OIL must always flow together. Owners often think this way because that’s how it’s been during their careers. Business  o wnership dominates their financial reality, they are fully involved in the company from a time and emotional standpoint, and they are clearly a leader over the company. However, the OIL does not need to flow together. You could sell some or all of your  o wnership of your company but remain fully Involved in the company and continue as the key  l eader. Or, you could keep your  o wnership of your company but hire a new CEO (or equivalent) to replace you as the company’s  l eader. Both examples demonstrate that you can pursue and implement different timelines for reducing or ending your  o wnership of the company,  i nvolvement in the company, and  l eadership over the company. Sure, sometimes at exit all three things end at once, but it does not have to be that way. You absolutely can “exit” your company but not retire. Overcome 3 Common Exit Planning Challenges All of this is significant because sometimes business owners get stuck in their “exit planning” if they think and act as though the OIL must always flow together. Here are three common exit planning challenges, and how thinking about OIL differently can lead to exit success: You want to sell some or all of your business to “take some chips off the table,” but you are worried about not knowing what you would do with yourself because you don’t want to retire. Well, we now know that you don’t have to retire. Consider targeting buyers who will acquire some or all of your company but want to keep you around and can offer exciting opportunities in the new organization. You want to sell your company to one or more employees, but you are worried about control — you must make sure the company performs well while buying you out. Well, we now know that you can continue to be involved in the company and remain the leader over the company while selling your  o wnership of the company. It’s possible for your  o wnership to decrease to nothing while you remain the chief leader of the company! ( Ask us how to do this. ) You want to pass your business down to one or more family members, but you don’t want to retire for now (and maybe never), nor do you want to give up control just yet (and maybe never). It’s possible to transfer some to all of your  o wnership to those family members without ever retiring (meaning without ending your  i nvolvement) and without giving up  l eadership unless and until you are ready. ( Ask us how to do this. ) Assuming that exit equals retirement creates roadblocks to exit success for the owner, his or her family, and his or her company. A better approach is to think about O, I, and L separately, and examine how unbundling these issues can create a better exit plan. -Mertz Taggart

Behavioral Healthcare Stocks Down 4.0% in October The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 4.0% for the month of October. The S&P 500, by comparison, was down 7.3% during the same period. In related news… American Addiction Centers – AAC ( ↓25.7% ) continues its slide. As mentioned in last month’s edition, analysts have become nervous for two reasons: 1) very disappointing Q2 earnings, missing consensus estimates by 50%; 2) spurring uncertainty about what AACs future business will look like after a substantial makeover in both operations and marketing. On October 16, Raymond James lowered its price target for AAC. Zacks Research then downgraded the stock from HOLD to SELL on October 17, which triggered the beginning of its most recent sell-off. Acadia Healthcare – ACHC ( ↑19.2% ) increased on a rollercoaster October after a down month in September: The stock rose nicely – 10% during the first few days of the month until, on October 9th, the law firm of Levi and Korsinsky announced a class action lawsuit against the company. The suit alleges ACHC knowingly issued misleading statements about the quality of its then-recently-acquired UK operations and, while the stock was artificially inflated, the CEO and President collectively unloaded $35 million in company shares. The stock plunged over the next few trading days after the announcement. On October 18, Reuters reported that Acadia had been approached by private equity powerhouses KKR and TPG Global about selling itself. The buyout talks continue to underscore the interest by private equity firms in the sector. Universal Health Services – UHS ( ↓5.5% ) declined slightly through the month on lowered outlook for the balance of the year. On October 26, UHS delivered Q3’18 results, which were generally positive. Revenue lagged estimates by 1.2% but beat prior year by 4.2%. However, EPS beat prior year by 36% and estimates by 11.5%, but it was not enough to overcome the somewhat more pessimistic outlook. For the last twelve months (LTM), the BHC is ahead of the S&P 500 at a 6.8% gain relative to the S&P’s gain of 5.3%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 10/31/18 AAC $5.51 ACHC $41.50 UHS $121.56 Enterprise Value/EBITDA Company 10/31/16 10/31/17 10/31/18 AAC 18.86x 12.66x 10.33x ACHC 13.60x 10.40x 11.51x UHS 9.06x 8.17x 9.03x Enterprise Value/Revenue Company 10/31/16 10/31/17 10/31/18 AAC 2.34x 1.43x 1.39x ACHC 2.89x 2.12x 2.32x UHS 1.60x 1.35x 1.44x M&A News October 1, 2018 – A consortium of investors, including Invo Healthcare Partners, announced the acquisition of Xcite Steps. Based in California, Xcite Steps provides Applied Behavioral Analysis (ABA) to children, adolescents, and adults with autism spectrum disorder (ASD) and intellectual and developmental disabilities. Invo Healthcare, a national provider of school and community behavioral health and other therapeutic services to individuals with special needs, including Autism Spectrum Disorder, acquired the company. This acquisition will build out Invo’s west coast platform by adding Xcite Step’s ABA services to their existing school and related therapy programs. October 2, 2018 – Varsity Healthcare Partners (“VHP”), a lower middle-market private equity firm focused on healthcare services, announced the completion of a growth capital investment in Ideal Option, a provider of medication assisted treatment (“MAT”) and behavioral counseling services for individuals suffering from Opioid Use Disorder. Headquartered in Kennewick, Washington, Ideal Option has delivered personalized medicine to over 20,000 patients through a network of 56 office-based opioid treatment (“OBOT”) clinics across 10 states. October 2, 2018 – BrightSpring Health Services recently acquired Gateway Pediatric Therapy, located in the Great Lakes Region. Gateway is a provider of center-based, in-home and community-based applied behavior analytic (ABA) services to children with Autism Spectrum Disorder. BrightSpring, owned by Onex Corporation, is a leading human services company that provides residential, therapeutic, job training and educational supports to people with developmental or other disabilities, to elderly people who need in-home care assistance, to youth with special needs, and to adults who are experiencing barriers to employment. October 3, 2018 – BayMark Health Services announced the acquisition of Tri-City Institute, a medication assisted treatment provider in Los Angeles, CA. Tri City, established more than 25 years ago, built a strong reputation by providing discreet, patient-focused medication assisted treatment services. Baymark provides medication assisted treatment to more than 46,000 patients in recovery from opioid use disorder. October 11, 2018 – Lighthouse Autism Center, a leading provider of center-based, Applied Behavioral Analysis (ABA) therapy, today announced a strategic investment from Abry Partners, a Boston-based private equity firm. The investment will allow Lighthouse to accelerate geographic expansion and to bring additional services to children with autism. It will also support Lighthouse’s continued focus on driving strong clinical quality and leveraging technology to better track and utilize data to enhance outcomes. The investment in Lighthouse represents the latest platform in the continuation of Abry’s healthcare investment strategy. October 19, 2018 – Seaside Healthcare, a Louisiana-based behavioral healthcare services company, announced that it has acquired Faith in Families Mental Health Agency, which is headquartered in Reidville, N.C. Founded in 2008, Faith in Families provides mental health services for children, families and adults at its four North Carolina locations. Faith in Families joins the Seaside network of treatment centers, which operate in North Carolina, Louisiana and Georgia. October 24, 2018 – NexPhase Capital (“NexPhase”), a lower middle market private equity firm, announced the successful recapitalization of Action Behavior Centers, an Austin-based provider of Applied Behavior Analysis (“ABA”) therapy for children diagnosed with autism spectrum disorder (“ASD”). Action Behavior Centers has five locations in Texas and focuses on early intensive behavioral intervention for children between the ages of 2 and 6 years old in order to maximize clinical outcomes. October 24, 2018 – LEARN Behavioral, a provider network that serves children with autism and other special needs, has acquired Total Spectrum, a provider of applied behavioral analysis services for families and children with autism spectrum disorder. LEARN Behavioral, based in Baltimore, MD, serves more than 3,000 families annually. Based in Elmhurst, Ill., Total Spectrum operates in Illinois, Indiana, Michigan and Wisconsin, providing in-home and clinical-based applied behavioral analysis services for more than 400 clients per year. October 29, 2018 – Pennsylvania Adult & Teen Challenge, an addiction treatment and recovery facility in Rehrersburg, PA, acquired Naaman Center, a provider of outpatient treatment and care in Elizabethtown, PA. This partnership provides opportunities for both organizations to move into geographic areas in need of services for individuals suffering from substance use disorder. Both companies are faith-centered, non-profit organizations.

Ever Hear of ZBB? It Can Make You $$$ If you intend to exit by selling your company, either to an outside buyer (a competitor, private equity group, etc.) or an inside buyer (one or more employees), the price you receive at the sale will likely be closely tied to the company’s earnings. The higher the earnings, the higher the likely sale price. As we know, there are two potential ways to grow earnings — increase revenue and decrease expenses. Both methods can maximize earnings prior to selling your business. In our experience, many companies underestimate the amount of expense reduction that is possible prior to sell the company, without harming morale, the team, or key operations. Remember, if you sell your company for a multiple of six times earnings (commonly calculated as your adjusted EBITDA), then every $1 of expenses you reduce potentially adds $6 to your selling price. Expense reduction prior to sale is a significant opportunity that many owners miss. How ZBB Can Help Transform Cost Management That’s where ZBB comes in to help. ZBB stands for zero-based budgeting , and it’s a little-used and often-misunderstood financial management tool. Zero-based budgeting simply means creating an annual budget for the company by starting at dollar zero, then adding expenses into the plan from there. For each new expense, company management has to justify the item and amount, thus forcing a rigorous and thorough line-by-line examination of expenses that challenges old assumptions and habits each step of the way. (“Why do we spend money on that? Gee, I am not sure. I guess because we always have…”) An excellent online article from McKinsey , one of the world’s largest consulting companies, describes how ZBB transforms cost management: “A world-class ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive yet credible budget targets. The annual budgeting process does in fact start from zero and is very detailed, structured, and interactive in order to facilitate meaningful financial debate among managers and executives. Throughout the year, multiple owners are tasked with managing performance and continuing the healthy debate on cost management. Through new system and process controls, and aligned incentive programs, all employees make cost management a part of their daily routine.” Create a Culture of Accountability and Transparency Learning and adopting ZBB does not require nor lead to cutting expenses to the bone, as the McKinsey article points out. ZBB compels a more thorough, transparent, and objective look at expenses than many companies would otherwise implement. When going through a ZBB exercise, it can be helpful to ask aloud “would anybody miss that?” as you and your team consider adding items back into the budget, working up from zero. If you don’t hear a loud outcry within the company that a certain expense would be sorely missed, that’s a clue that the expense in question might be better converted into savings. Properly implemented, ZBB is more surgical than draconian, and it can help create a culture of ownership thinking, accountability, and transparency. Why ZBB Is a Worthwhile Effort Many business owners, CFOs, and leadership teams are unfamiliar with ZBB and its methods. Some try ZBB but get bogged down in the details. Others fail to realize that ZBB is more than just a financial exercise; implementing ZBB can require rethinking employee communications, internal reporting, and even executive compensation. The effort can be worth it. Following ZBB practices and principles, it is not usual for companies to realize high single-digit or low double-digit reductions in SG&A expenses. Sustained until company sale, that reduction can generate dramatic returns from the increased selling price. To learn more about ZBB, task the company CFO with studying the issue and reporting his or her findings to the team. There is excellent information online, including the article cited above as well as this article by Forbes . Additionally, contact us at Mertz Taggart to discuss your exit plans and how we can help you and your team maximize your company’s sale price at the exit. Schedule my free 45-minute consultation Contributing Author, Cory Mertz, M&AMI – Managing Partner

The Simple Little Org Chart Can Produce Big Value at Your Exit Few business tools are as overlooked and underappreciated as the organizational (“org”) chart. Likely, you have diagramed one for your company. We tend to pull them out at specific moments such as when we need to meet with a third party like a vendor, customer, lender, or new hire. If out of date, which they often are, we quickly update them. Then, after the meeting, the chart gets put away, forgotten until the need arises to pull it out again. Most business owners stop there, having no further use for this unexciting little instrument. But hidden within the org chart is the potential to drive significant value in your company between now and exit. Here’s how. The Future Org Chart Exercise Convene your leadership team for an exercise called “The Future Org Chart.” Pick a future period of time such as three to five years out, and lead the team through the process of diagramming what the company org chart must look like on that date in order to support the expected growth between now and then. Choose a date that matches up with the growth plans and timetable defined in your company’s long-term strategic growth plan. (If your company lacks a written growth plan,  watch this webinar to learn why this is an expensive mistake .) Start with a completely blank sheet, and then discuss and fill in the organizational structure needed to realize and support this growth. Assign job titles (those are the boxes) and define reporting roles and relationships (those are the connecting lines), but do not assign current employees to the future org chart — not yet. You and your team will be tempted to start filling peoples’ names in the boxes, but it is important that you do not do this until you have a completed org chart that the entire team agrees with and supports. At this point, you now have a clear and written vision for the team that is required to grow and lead your company over the next three to five years. Meeting With Your Leaders There’s more to be gained. With the Future Org Chart template built, it is time to put names in the boxes. We recommend you meet individually and confidentially with your leaders to get their input because some of these conversations involve people’s careers: Some of your employees may have ambitions about climbing the organizational ladder and progressing into one of the higher positions forecasted in the Future Org Chart. Some employees may aspire to occupy a position currently occupied by another person. The Future Org Chart may call for adding new management layers into the company, and some employees may worry about being eclipsed or losing status if the level they currently occupy is subsidiary to a new level above it. Issues or opportunities uncovered by these one-on-one conversations have the potential to be good for both the team and the company. Leaders aspiring to do more and earn promotions can be trained and coached on what is necessary to achieve their goals, and any fears about growth can be addressed. By necessitating these conversations, the Future Org Chart helps you develop and grow your current team. Assigning Names After receiving input from your team members, now it’s time to finally put current employees’ names in the appropriate boxes within the Future Org Chart. Once done, you may see the following: Some newly created positions have empty boxes. This indicates that to create the team of the future, your company will need to identify and hire a person qualified to fill that need. Some existing positions that are currently occupied become empty between now and the Future Org Chart’s effective date. This reveals some succession planning that must take place, typically because the employee currently occupying that position is retiring sometime within the next few years. Some names are listed in multiple boxes. This indicates that you have some people doing too many things. You may need to find ways to add new talent into the picture to reduce the organizational dependency on any one person who is over-allocated. The most important person to be wary of here is yourself — as the business’s owner, you cannot remain directly involved in too many functions. If the company is overly dependent on you it will be difficult if not impossible to achieve a successful exit. Some names do not belong in any box. This might happen for a couple of reasons. Perhaps the employee is not in alignment with the rest of the organization, and this exercise is shining a light on that challenging reality. Alternatively, perhaps the direction and pace of the company’s growth will eventually eliminate the need for a person’s role and skills. In either situation, it is best to recognize these inconsistencies and develop a response rather than miss or overlook the issue. With this exercise complete, you now have a written picture of what the company’s team needs to look like in the future, as well as specific insights on what work needs to be done to make that future happen. The Future Org Chart exercise provides you with a road map for the company’s coaching, training, hiring, succession, and team development needs in order to realize the desired growth over the next several years. From there, you and your team can develop the plans and incremental steps required to migrate from the current organization to this organization of the future. Maximizing Company Value Having a solid plan for growth and the right team to achieve that plan would be reason enough to complete a Future Org chart, yet there is one final benefit for you to reap from this exercise. Building a competent team for the future that can deliver on this growth drives value in your company, which in turn supports achieving your exit goals: getting maximum value for the company, building a sustainable organization, and leaving on your own terms. All of this is from the simple, little, often-overlooked org chart. Review our checklist,  25 Business Value Drivers , to identify steps that may enhance your business value. -Mertz Taggart

Inside the Kindred Deal…and Why It Makes Sense As many of you have likely heard by now, on December 18, Humana announced an agreement to partner with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS) to acquire Kindred Healthcare for $4.1 billion in a landmark transaction for the home health and hospice industry. Under the terms of the deal, TPG and WCAS will acquire 100% of Kindred’s long-term care facilities while partnering with Humana to acquire the company’s home care and hospice division, formerly owned by Gentiva. Humana will continue to operate Humana at Home (formerly SeniorBridge) separately, at least for now. Where it gets more interesting is in the deal structure for the home care and hospice assets (Kindred at Home). Initially, Humana will invest $800 million for 40% of what is now Kindred at Home, while TPG and WCAS will own 60%. However, TPG and WCAS will have the option to sell (or “put”) their 60% stake to Humana after three years, at a multiple of between 10.5x and 11.5x (depending on its achievement of certain value-based outcomes tied to clinical metrics). It’s assumed the private equity firms will exercise their option at that time, rounding out their exit. Why it Makes Sense for Humana Despite Wall Street’s tepid reaction to the deal (as of the date of this publication, Humana’s stock is down 3% since the transaction was announced), this transaction makes perfect sense for Humana. While their 40% share of Kindred At Home’s $2.5 billion in revenue barely moves the needle compared to their existing $54 billion, the deal will bring significant value in other ways. “The combination of Humana At Home’s pursuit of improving care for seniors living with chronic conditions, in concert with Kindred At Home’s care delivery, will allow these important capabilities to create more effective care in a compassionate way for our members,” said William Fleming, Humana’s President – Healthcare Services. “We look forward to transforming post-acute care through a value-based approach that will deliver improved clinical outcomes, ultimately lowering medical costs. We believe this work will lead to reduced hospitalizations, reduced emergency room visits, and allow physicians and clinicians to extend their care all the way to the patient’s home.” This is all about value. And it will bring significant value to Humana from a cost-saving perspective, as it will allow them to more closely manage their most frail (costly) client/patient population. The structure of the deal – buying 40% now and the rest later – also allows Humana to “dip their toe in the water” of Medicare home health, hospice, and community-based services while allowing sufficient time to both learn this side of the home care business and take their time to thoughtfully integrate it with their other care providers. All while partnering with a growth-oriented private equity partner. Why it Makes Sense for Kindred There are three main reasons this is compelling to Kindred: 1) It pays their shareholders a premium to Kindred’s recent share price; 2) It gives them a clean balance sheet and plenty of “dry powder” (cash from their equity partners) to do future deals, and; 3) It allows them to grow their core facilities-based business. To expand on the first point, Kindred’s stock has underperformed since its acquisition of Gentiva. Perhaps they assumed better synergies with their facilities business that didn’t materialize as expected. Kindred stock was trading at approximately $23 per share just after the Gentiva acquisition closed in February 2015 and proceeded to nosedive to about $8.60 per share in the 12 month period after the deal was completed. It has never recovered. Since the announcement of the Humana deal, and as of the date of this article, Kindred’s shares have bounced back to $9.80 per share which, oddly, is more than the $9.00/share acquisition price – it will be interesting to see if something else is developing there. Why it Makes Sense for TPG/WCAS Private equity typically makes its money in a number of ways, the primary being “multiple expansion”. They buy a platform and then subsequent add-ons for a weighted-average multiple of earnings (or EBITDA). They put them all together, grow the business, and typically sell in 3-7 years, for a much higher multiple than the weighted-average multiple they paid for their acquisitions. They use leverage to amplify their returns. In this case, it appears the entry and exit multiples are roughly the same from the equity groups’ perspective. So they must be counting on significant growth, both organically — by leveraging Humana’s population health model, and WCAS’ Innovage private duty platform (acquired in 2016) — and through future acquisitions. What this Means for the Industry It will be interesting to see how this plays out. Humana is certainly leading the pack in terms of developing a well-coordinated, value-based, managed care model that others may follow – eventually. In the meantime, I expect we’ll see another major player looking for acquisitions – namely Humana or its new subsidiary. Kindred has been on the M&A sidelines for over a year, has not announced a deal since August 2016, so adding a well-funded, growth-oriented buyer will certainly help strengthen the marketplace for quality home health and hospice providers. Contributing author Cory Mertz, M&AMI – Managing Partner

Across the board, home health, hospice and home care M&A activity was down slightly in the first part of 2021 compared to last year’s busy end. The break in the action isn’t expected to last long, however, thanks to a relatively clear operating landscape across industries and multiple macro-level tailwinds in favor of home-based care. Overall, the home health, hospice and home care segments saw at least 23 combined transactions during Q1 of this year, a substantial decrease compared to the 52 total transactions reported during the last quarter of 2020, according to the latest M&A update from advisory firm Mertz Taggart. “Dealmaking activity was down in the first quarter, but much of that can be attributed to potential buyers finalizing the several deals executed in the second half — especially in the last quarter — of 2020,” Mertz Taggart Managing Partner Cory Mertz says. “We’re headed toward a record high for M&A activity, with robust interest from strategics and private equity buyers alike, across all in-home care areas.” Of the deals that took place during the first quarter of 2021, the home health space saw the most activity, followed by hospice and home care, respectively. Private equity led the way, accounting for 18 of the 23 total transactions. Three of those PE-driven deals were platform transactions, with 15 being add-on transactions. “Hospice has been the big target over the past several quarters, but we may be seeing a shift back toward home health care,” Mertz noted. Note: The sum of sub-industries (broken down below) does not always equal total sector deal volume, as some transactions include more than one sub-industry. No headwinds for home health dealmaking Transactions for Medicare-certified home health assets was steady from early 2018 through mid-2019. But after that period, buyers and sellers went on a dealmaking rollercoaster, with cautious buyers waiting to see how the Patient-Driven Groupings Model (PDGM) played out. Many industry leaders expected PDGM to trigger a wave of transactions in 2020, with smaller agencies unable to adapt to the new payment overhaul. The COVID-19 pandemic threw a wrench in those plans. “The CARES Act delivered tens of billions of dollars to U.S. health care providers,” Mertz says. “On top of that, the U.S. Centers for Medicare & Medicaid Services (CMS) expanded its advanced and accelerated loan program. That helped some home health operators stay in business a little longer as opposed to exploring a sale.” There were at least 12 home health-related transactions in Q1 2021, down slightly compared to the previous quarter, which saw 17 deals. Again, the dip is likely tied to sellers reloading as opposed to a decreased interest in doing deals. Among the deals reportedly taking place in Q1 was BrightSpring Health Services’ acquisition of Abode Hospice and Home Health. According to some reports, BrightSpring’s play for Abode came with a $775 million purchase price, with a multiple rumored to be in the mid-teens. In February, Pharos Capital-backed Charter Health Care Group continued its aggressive growth in early 2021 by acquiring two home health and hospice assets in Omaha, Nebraska. Charter has since announced acquisitions of The Providence Hospice IInc. and The Providence Home Health Services Inc.. In March, LHC Group Inc. (Nasdaq: LHCG) and Orlando Health also expanded their Florida partnership with a move into the St. Petersburg area by realigning Bayfront Home Health Services into their existing joint venture. Hospice M&A down, but not for long Since Q1 2019, there have been at least 11 hospice transactions in each and every quarter. That streak may have ended in the first quarter of 2021 — it’s important to note some deals closed at the very end of March and others may still be unreported. So far, there have been at least 10 reported hospice transactions in Q1 2021. That figure is a dramatic drop compared to both the 26 deals that occurred in Q4 2020 and the 18 transactions that took place during the same quarter a year prior. “Hospice is still at the higher end of the valuation spectrum,” Mertz says. “Demand remains incredibly high for end-of-life care assets, but the supply just isn’t currently there. That’s one of the reasons we anticipate rising levels of interest for home health businesses, particularly with the public companies, since they generally have ample cash on hand that they want to deploy.” In addition to the previously mentioned deals, Charter also purchased Serene Care Hospice in the Omaha market for an undisclosed amount. In February, AngMar Medical Holdings expanded its Angels Care Hospice brand with the acquisition of three unnamed hospice providers with locations in Texas and Nebraska. Looking ahead, Bristol Hospice, backed by Webster Equity, is reportedly moving into the second phase of the acquisition process, with private equity firms standing as the only remaining bidders. Of course, HCA Healthcare (NYSE: HCA) and Brookdale Senior living Inc. (NYSE: BKD) are also still in the process of finalizing a transaction where HCA will take over 80% of Brookdale’s hospice and home health business. More big deals in home care expected There were just nine home care-related transactions in the first quarter of this year, down from the near-term high of 15 that took place in Q4 2020. In January, the Chicago-based Help at Home executed a deal for The Adaptive Group, a home health, hospice and home care services provider that operates across the state of Indiana. Help at Home is the 13-state in-home care provider backed by The Vistria Group and Centerbridge Partners. “The winning combination of Adaptive and Help at Home not only means that we will be able to set the bar for high-quality care and service excellence in the state of Indiana, but also throughout the Midwest and across the broader United States,” Adaptive co-founder Mike Root said in a press release. “By partnering with Help at Home, we are better positioned to execute on our mission — to positively impact as many lives as possible through the delivery of exceptional, patient-centric home care services.” Q1 wasn’t a blockbuster quarter for home care dealmaking, but that’s already changed in Q2. On April 1, Advocate Aurora Enterprises — the investment arm of Advocate Aurora Health, one of the largest not-for-profit health systems in the country — announced it acquired Senior Helpers. With more than 320 franchised and corporate-owned locations in 44 states, in addition to Canada and Australia, Senior Helpers is one of the largest home care organizations in the market. Days later, on April 8, the company that owns Home Helpers Home Care announced it had been acquired by Chicago-based private equity firm RiverGlade Capital. The Cincinnati-based Home Helpers is likewise one of the largest home care franchise organizations in the U.S. “A lot of the big home care franchise companies were acquired between 2015 and 2018 by PE buyers,” Mertz says, “Those PE firms are now nearing their typical exit timeframe, so we should see plenty of additional home care deals to come later this year.” On the horizon The first quarter may have been down somewhat for home health, hospice and home care M&A activity, but the action is all but guaranteed to pick up throughout the rest of 2021. Trackbacks/Pingbacks After slow start, M and A activity set to take off for home health: advisory report – Home Care Daily News – Elderly Senior Corner - […] took a break from a buying binge. But that respite might be short-lived, according to advisory firm Mertz Taggart,… Addus HomeCare looks to expand home healthcare as pandemic wanes – Home Care Daily News – Elderly Senior Corner - […] In the first quarter of 2021, home healthcare led mergers and acquisitions activity, followed by hospice and home healthcare,… Long-Term Clients, Referral Sources Give Home Care Sellers an M&A Edge – My Blog - […] assets in all of 2020, with the most transactions happening in the fourth quarter of last year, according to…

I am ready to sell my business. I have a buyer lined up—a peer in our industry whom I’ve known and trusted for years. At this point, bringing in a mergers & acquisitions advisory firm would accomplish little besides cutting into profits from my sale price, right? History, and research studies, suggest this is not the case. I n 2016, Fairfield University assistant professor of finance Michael B. McDonald published a study1 in which 85 business owners who sold their businesses for a price between $10 and $250 million with the help of an advisory firm between 2011 and 2016 were surveyed. Of those sellers, 84% reported a final sale price that was equal to or higher than initial sale price estimates received from their advisors. Mertz Taggart has reported similar results working with its clients. Prospective sellers approach our firm under the belief that they are already well on their way to a deal, when really, many are en route to a sale that leaves millions on the table. For example, in 2020 we were approached by a business owner who was prepared to sell. The seller presented us with the offer they had received from a prospective, strategic buyer: a sale price of $5 million in cash at close, plus a $1 million earnout contingent payment that wasn’t attainable in our view. The seller asked: Was this a fair offer? In our estimation, it was not, and so we went to work on negotiating a better deal. The result? The same buyer eventually agreed to a sale price of $7.5 million cash at close, plus a $500,000 earnout contingent payment that was more attainable. Our leverage? The threat of going to market, creating a competitive auction process. In a similar deal completed last year, a buyer initially offered $12 million, but ultimately agreed to a price of nearly $20 million. Such deals don’t materialize out of thin air, of course. When considering the sale of your business, enlisting the services of an M&A advisory firm offers several benefits: Perception and leverage. It is widely understood within the buying community that the presence of a professional intermediary, i.e., an M&A advisory firm that represents the seller, will ensure that the seller will accept nothing less than the best terms for their business. Mertz Taggart works hand in hand with clients to identify their objectives in a sale and presents a thorough list of qualified potential buyers and/or investors. Having multiple qualified buyers creates a competitive, seller-friendly market. In many cases, the mere presence of an M&A advisory firm can have the same effect, as competition becomes the expectation for buyers when they know the seller is being represented by an advisory firm. What’s more, buyers who know they face competition for a potential acquisition target are less likely to drag out negotiations and due diligence and run the risk of losing a potential deal. Increased competition and multiple offers create additional leverage for a seller. Put your best foot forward. When working with our clients, we organize and prepare the seller’s financial data and create a Confidential Information Memorandum (CIM) that tells the client’s story, details its financial data, and demonstrates its unique value proposition. The CIM is shared only with buyers who have been vetted, and who have signed a Confidentiality Agreement. Potential suitors may include strategic buyers who are looking to integrate new companies into their existing operations or expand their footprint, or financial buyers, such as private equity firms looking for a return on invested capital. Navigating the process. Selling a business is a complex process that must clear several hurdles along the way. Information must be exchanged between buyer and seller, buyers often want to conduct (confidential) site visits, and other exercises in due diligence must be completed. Failing to successfully complete these steps can often make promising deals fall apart. When sellers choose to go it alone, they can end up spending significant time on tasks other than those that generate revenue and drive up the value of their organization. Hiring an advisory firm allows business owners to maintain their focus on running their organization and trust that the complicated process that must be traversed to close a deal are handled by those who specialize in doing so. It’s why respondents in the McDonald study ranked managing the sales process as the most valuable service offered by advisory firms. * * * Ultimately, enlisting the services of an M&A advisory firm puts the seller firmly in control of the sale. A good advisor maximizes a seller’s chances of getting the best return on their investment by accentuating a selling organization’s best traits, identifying qualified buyers, driving competition, and professionally managing the sales process to completion. Sellers can focus their energies on running their business while knowing they are putting their organization in the best possible position for a deal. Reference: 1 McDonald, Michael B. IV. Fairfield University, 2016. The Value of Middle Market Investment Bankers.

M&A transactions up 70% in Q4. Mertz Taggart completes four in-home care transactions. After months of M&A uncertainty triggered by the COVID-19 pandemic, 2020 ended on a welcomed high note. Overall, there were at least 51 home health, home care, and hospice transactions in the fourth quarter of 2020, the latest data from Mertz Taggart shows. That’s 22 more than in Q3 2020 — and the most deals in any individual quarter over the last three years. “Deal volume started to recover or trend upward across the home health, home care, and hospice markets toward the middle of 2020,” Mertz Taggart Managing Partner Cory Mertz says. “We’re not surprised that Q4 was a big quarter. We called it months ago. Combine that with the threat of a near-term capital gains tax hike, and we expect an active 2021.” There are plenty of industry-specific reasons for the spike in M&A action at the end of 2020, Mertz noted. But buyers and sellers had plenty of macro-level factors to weigh, too, including the shift to a Biden Administration and expected higher capital gains taxes at some point in the near future. Following nine or ten months of a public health emergency, some sellers also probably just hit a wall in the fourth quarter, prompting an exit. Note: The sum of sub-industries (broken down above) does not always equal total sector deal volume, as some transactions include more than one sub-industry. Home Health M&A Activity Rebounds As expected due to the Patient-Driven Groupings Model (PDGM), home health dealmaking started off strong in 2020 , with at least 14 transactions in Q1. There was a sharp dropoff in Q2 before M&A activity started to climb again starting around July. The most recent quarter saw at least 17 deals for home health assets, according to Mertz Taggart data. “There has been a lot of pent-up demand for home health businesses,” Mertz says. “And that demand is only growing strongly now, as the U.S. health care system looks to avoid skilled nursing facilities and facility-based care.” To some extent, the confirmed deals in Q4 were overshadowed by two possible industry-shaping deals to come. Birmingham, Alabama-based Encompass Health Corp. (NYSE: EHC) is a large operator of in-patient rehabilitation facilities (IRFs) that also runs the fourth-biggest home health provider in the nation. On Dec. 9, the company announced it is exploring “strategic alternatives” for its highly successful home health and hospice businesses. Encompass Health said it is exploring a range of options, including full or partial separation through a sale or other transaction. “Since joining together with Encompass Home Health and Hospice in 2015, we have generated substantial growth in both our business segments, and we continue to deliver high-quality, cost-effective, integrated care to a growing number of our patients,” President and CEO Mark Tarr said in a statement upon the announcement. Less than a week later, rumors surfaced that Brentwood, Tennessee-based Brookdale Senior Living Inc. (NYSE: BKD), the country’s largest operator of senior living communities, is also considering a sale of its home health and hospice segments. “If those two items are any barometer, we’re in for a very, very interesting 2021,” Mertz says. Hospice Somehow Gets Hotter Unsurprisingly, hospice again drove home health, home care and hospice dealmaking in Q4. Mertz Taggart data shows there were at least 25 hospice-related transactions for the quarter, six more than the whopping 19 reported in Q3 2020. There have been at least 15 hospice-related transactions every quarter since the end of 2019. “It seems like every quarter we’re saying demand for hospice is at an all-time high — and then we see even more demand materialize,” Mertz says. In December, private equity-backed post-acute care provider Traditions Health purchased Oklahoma-based Centennial Hospice. The Care Team acquired InTeliCare Home Health & Hospice in Michigan the same month. In one of the most significant post-acute care deals of 2020, AccentCare completed its planned merger with Seasons Hospice & Palliative Care in Q4. Combined, the AccentCare-Seasons enterprise becomes a top-five player in both the home health and hospice spaces. “During the last several years, we’ve witnessed a growing need for post-acute care services that are patient-centered and easy to navigate,” Steve Rodgers, CEO of AccentCare, said upon the merger’s closing . “With our expanded organization, we will be able to meet the demands of our patients and partners, and offer a full range of innovative solutions that streamline the process of accessing care.” Home Care Sees Blockbuster Quarter Even more than home health care, home care transactions hit a lull throughout much of 2020. In fact, prior to Q4, no quarter in 2020 saw more than eight home care-related transactions, according to Mertz Taggart data. That all changed from October through December, however. There were at least 15 home care-related transactions during the last quarter of 2020. “We’ll continue to see deals for home care,” Mertz says. “Payers really saw firsthand the value of home care during the public health emergency. It was a vital resource in managing chronic conditions, especially with individuals avoiding in-person trips to the doctor.” Examples of Q4’s home care deals include 24 Hour Home Care’s purchase of Grace Care Management. In December, Care Finders Total Care further builds its Philadelphia blueprint by announcing its acquisition of ORI HomeCare. Mertz Taggart provided sell-sides services for the ORI HomeCare transaction. Mertz Taggart Completes Four Transactions Including the aforementioned Ori transaction, Mertz Taggart completed four in-home care transactions in Q4. The others include: A large private duty home care agency based in Florida sold to a PE-backed strategic buyer; A large private duty home care agency based in North Carolina sold to a PE-backed strategic buyer; A mid-sized Medicare home health agency in Texas sold to a family-office-backed strategic buyer. For more information on these transactions, please contact admin@mertztaggart.com . 2021 Projections Home health, home care, and hospice transaction activity was up across the board in Q4. That should set up an action-packed 2021. “We have a confluence of factors that should drive higher-than-average transaction activity in 2021. The threat of a significant hike in capital gains tax rate and owner burnout as a result of the pandemic are two common themes we are hearing from owners,” Mertz said. Trackbacks/Pingbacks Healthcare M&A Transaction Recap for the Year 2020 - National Business Press - […] Taggart tracked 133 transactions in 2020 in the home health, home care, and hospice sectors, nearly 25% higher than… Top Home Care Trends for 2021 – My Blog - […] continue to see deals for home care,” Mertz Taggart Managing Partner Cory Mertz wrote in a Q4 M&A report.… Top Home Care Trends for 2021 - Healthcare & Pharma and Nutrition - […] continue to see deals for home care,” Mertz Taggart Managing Partner Cory Mertz wrote in a Q4 M&A report.… Top Home Care Trends for 2021 * Blog for Startups - […] proceed to see offers for house care,” Mertz Taggart Managing Accomplice Cory Mertz wrote in a Q4 M&A report.… CareFinders Total Care Reportedly Pursuing Growth Capital – My Blog - […] The fourth quarter of 2020 saw at least 15 home care-related transactions. Prior to Q4 2020, eight deals were… CareFinders Total Care Reportedly Pursuing Growth Capital – Kapi News - […] The fourth quarter of 2020 noticed a minimum of 15 house care-related transactions. Previous to This fall 2020, eight…