Hospice Dominates 2019 M&A, as Home Health Buyers evaluate PDGM’s Impact

Hospice-related transactions dominated much of the M&A landscape in 2019, with home health buyers taking a cautious but still active approach prior to the Jan. 1 implementation of the Patient-Driven Groupings Model (PDGM). Meanwhile, total sector transaction activity was down slightly on a year-over-year basis.

That’s according to the latest quarterly and year-end data from M&A advisory firm Mertz Taggart.

Overall, there were at least 101 home health, home care and hospice transactions that took place in 2019, down more than 20% compared to the 127 deals that took place in 2018. Last year’s M&A total included at least 42 home health-related deals, 36 home care-related deals and 42 hospice-related deals.

Note: The sum of sub-industries does not always equal total sector deal volume, as some transactions include more than one sub-industry.

“Buyers weren’t as active as 2018 when looking at the care-at-home sub-industries combined,” Mertz Taggart Managing Partner Cory Mertz says. “But 2019 was still a big year, particularly for hospice deals. The 42 hospice-related transactions we tracked marked a record year, and we see that trend continuing in the near future for many reasons.”

The fourth quarter of 2019, in particular, saw a total of 23 sector transactions, a slight decrease compared to the 29 sector transactions recorded in the third quarter.

Home Health Care

As expected, home health transaction activity dipped in Q4 2019, as all eyes turned toward PDGM.

Generally speaking, PDGM isn’t expected to have a major long-term impact on home health agencies’ Medicare reimbursement rates, at least for those who strike a balance between nursing and therapy visits. However, the payment overhaul is expected to hit cash flows hard early on in 2020.  Between this cash flow crunch and target agencies getting their operational footing,  some buyers may wait until the dust settles to pursue new acquisition opportunities.

Only five transactions for Medicare-certified home health businesses took place during Q4 2019, down from the 14 deals that Mertz Taggart recorded during Q3. In comparison, there were 16 home health deals that took place during Q4 2018.

“We expect some opportunistic consolidation in Q1 for home health,” Mertz says. “But we’re not sure if that consolidation will take the form of actual acquisitions — or simply companies informally ‘merging.’ In some cases, you may see the dominant provider retaining the name and back-office capabilities, while bringing on caregivers and marketers from the other entity.”

Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) accounted for the bulk of home health M&A activity during Q4.

In November, LHC Group and LifePoint Health announced an agreement to expand their existing joint venture partnership through the purchase of one home health provider with a location in Wilmington, Ohio. The expansion also included two hospice providers located in Sierra Vista, Arizona, and Lewiston, Idaho.

Meanwhile, in January, LHC Group announced it finalized joint venture purchase and expansion agreements with partners in Texas, Arkansas and Louisiana. That news included LHC Group and Ochsner Health System purchasing five Egan Home Health and Hospice provider locations across south Louisiana as part of their existing JV partnership, operating as Southeast Louisiana HomeCare.

“There are some agencies that are going to go out of business because they’re not well-managed,” LHC Group CEO and Chairman Keith Myers said during a recent interview with Home Health Care News, speaking about PDGM’s impact. “We’re focused on the high-quality ones. We’re focused on the ones with good reputations that just aren’t big enough to make it on their own.”

Home Care

When it comes to non-Medicare home care, Mertz Taggart recorded nine deals in the fourth quarter of 2019. That total was on par with the previous quarter, when Mertz Taggart tracked 10 transactions.

Similar to the hospice sub-industry, buyer interest in home care is likely to remain robust moving forward, thanks to strong consumer demands, fewer regulatory headwinds and continued macro-demographic shifts.

“Home care dealmaking has picked up ever since, really, the second quarter of 2017,” Mertz says. “There’s no reason to believe that’s going to change anytime soon. In fact, with home health buyers taking a wait-and-see approach, they may start looking at home care more closely.”

Nova Leap, CareFinders and Care Advantage were among the home care buyers in Q4 2019.

In October, Nova Leap — the Canadian-based provider that has rapidly expanded in the U.S. of late — completed an acquisition for the business assets of Oklahoma-based Around The Clock Home Care LLC.

CareFinders — one of the fastest-growing home-based care providers in the Northeast — acquired Pennsylvania-based At Home Quality Care in December.

In January, Care Advantage — the in-home care provider backed by BelHealth Investment Partners — acquired Amaisa Home Care, a provider located in Virginia. Care Advantage announced a separate deal in December as well.

“As our neighbors in the northern part of Virginia, Amaisa stood out to us as the type of high quality, compassionate organization that we love to partner with,” Care Advantage CEO Tim Hanold said in an announcement. “Culturally, it is a terrific fit.”

Hospice

Hospice accounted for the largest deals during 2019’s fourth quarter, according to Mertz Taggart data.

In October, for example, Addus HomeCare Corporation (Nasdaq: ADUS) announced it had completed its purchase of Hospice Partners of America LLC, a multi-state provider of hospice services with headquarters in Birmingham, Alabama. The deal’s purchase price: $130 million.

Amedisys Inc. (Nasdaq: AMED) also finalized a significant hospice deal, propelling the Baton Rouge, Louisiana-based home health, home care and hospice provider further into the end-of-life care space. Amedisys announced it closed on its transaction for Asana Hospice in January for an undisclosed price.

The biggest of the hospice deals? PE firm Towerbrook Capital Partners and health system Ascension Health agreed to purchase the Nashville, Tennessee-based hospice provider Compassus at a valuation of $1 billion. The agreement was announced in October and concluded months of speculation regardings Compassus’s ultimate sale.

Traditions Health — a hospice and home health provider based in Texas — made two noteworthy acquisitions. In November, the provider acquired Pathways Hospice in Arizona; it followed that up by acquiring Guiding Hospice in December.

There were a total of 10 hospice transactions in Q4 2019, steady with the 10 that also took place in Q3, according to Mertz Taggart data.

– Mertz Taggart