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.
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.
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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.