Post-Acute Care Transaction Activity Remained Robust During the First Quarter of 2020

Despite the continued transition to the Patient-Driven Groupings Model (PDGM), as well as the emergence of the COVID-19 national health emergency and other strong health sector headwinds, post-acute care transaction activity remained robust during the first quarter of 2020.

Overall, the home health, hospice and home care industries saw a combined 27 transactions during Q1, a slight uptick from the 25 total transactions reported in the same period a year ago, according to the latest M&A update from advisory firm Mertz Taggart.

“There are some very real challenges on the horizon right now, but there’s still ample interest in quality home health, hospice and home care assets,” Mertz Taggart Managing Partner Cory Mertz says. “And on the lending side, we’ve been hearing that banks are still open for business, though they might be behaving a bit more cautiously.”

Of the deals that took place during the first quarter of 2020, the hospice segment saw the most activity, followed by home health.

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.

Home Health Transactions Rebound

With 13 transactions, home health deals were up in Q1 compared to the previous quarter, which saw six deals. Both totals were sharp declines from the three-year high of 18 transactions recorded in Q1 and Q3 2018.

However, this data is somewhat misleading, as all but seven of the 13 transactions included hospice.

The decline in standalone home health deal volume is clearly linked to PDGM, as some buyers have chosen to observe the transition on the sidelines before jumping back into the M&A game. That’s primed to change throughout the rest of 2020, as PDGM has, for the most part, turned out to be a more manageable transition for many home health providers than expected.

“I think all the preparation throughout 2019 really paid off,” Mertz says. “Many agencies and ownership groups have a good grasp on the model, so it’s probably not going to be the big speed bump for quality agencies that everyone anticipated.”

Among the home health transactions to take place in the quarter was Louisville, Kentucky-based BrightSpring Health Services’ deal for the home health and home infusion businesses of Advanced Home Care. For BrightSpring, the deal helps the company double down on its multifaceted care delivery strategy, which ranges from skilled home health and hospice to non-medical home care and pharmacy services.

“Advanced Home Care has a 30-year heritage,” BrightSpring CEO Jon Rousseau said in an interview with Home Health Care News. “It offers tremendous partnership, innovation and care management solutions to their ACO and hospital partners, so we’re really excited to build on that.”

Additionally, at the very start of 2020, Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) announced several joint venture purchase and expansion agreements with partners in Texas, Arkansas and Louisiana. In total, the January moves accounted for annualized revenue of approximately $23.8 million, according to the company.

Meanwhile, on the private equity front, Seattle-based Fedelta Home Care received an investment from Montlake Capital.

Hospice Stays Hot

As has been the tale for the better part of two years, interest in the hospice space was substantial in the first quarter of 2020.

At least 15 hospice transactions took place in Q1, one more than the previous quarter and six more than the first quarter of 2019.

“The first quarter of 2020 saw more hospice M&A activity than any other quarter we’ve ever tracked,” Mertz says.

Similar to home health agencies, hospice providers have been forced to navigate significant change over the past couple months because of COVID-19. Those changes include pausing volunteer activities, redesigning bereavement care due to social distancing and figuring out new electronic face-to-face flexibilities.

Salt Lake City-based Bristol Hospice — a portfolio company of investment firm Webster Equity Partners — alone announced at least three hospice-related deals.

At the end of March, Briston acquired the Utah and California locations of Sojourn Hospice & Palliative Care, a Healthy Living Network company, for an undisclosed amount. About a month prior, Bristol announced a new partnership with Front Range Hospice and Palliative Care and its patient care services team in the Frederick, Colorado, area.

Bristol additionally made a move in Texas — partnering with New Dawn Hospice — in January.

Apart from Bristol’s transactions, PE firm Pharos Capital Group LLC recently announced that its post-acute care provider platform — Charter Health Care Group — acquired two hospice service providers: St. Luke’s Home Hospice LLC and Arizona Select Hospice LLC. Both providers were part of the VeraCare Hospice system.

Home Care M&A Activity Rebounds

The first quarter of 2020 saw a slowdown in home care deals, with only seven transactions reported.

“Home care remains attractive to buyers.  I would not mistake a drop in home care volume for a decline in investor interest,” commented Cory Mertz, “The low volume is more reflective of a lack of quality providers in the marketplace.”  Q1 home care deals included MGA Homecare’s partnership with Chicago-based Flexpoint Ford LLC, announced in March. MGA Homecare is a provider of home health care, home  therapy, and home- and community-based services to pediatric patients throughout Arizona, Colorado and Texas.

Arosa+LivHome — backed by Bain Capital Double Impact — also made another move in the first quarter of 2020 by acquiring Life Care Innovations in Illinois.

And in another Q1 home care transaction, Care Advantage, a provider of home-based care services in the Mid-Atlantic, acquired Amaisa Home Care. Care Advantage is a BelHealth Investment Partners portfolio company.

Looking Ahead

The coming quarter will likely shift in terms M&A activity given the COVID-19 pandemic and the sweeping impact it has had on the health care system and global economy. Stay tuned for future updates, or click here to learn more about our recent survey of healthcare M&A buyers and what they are anticipating in the near team for transaction activity.