Home care M&A is in the midst of a growth spurt.
When it comes to dealmaking, non-medical home care long seemed like the younger sibling compared to its home health and hospice counterparts. That’s changing though, as the home care value proposition is more apparent amid the COVID-19 emergency.
The results are clear: for the second straight quarter, non-medical home care led the home-based care pack with the most transactions. The segment saw 10 transactions in the second quarter of 2022, followed by eight for Medicare-certified home health and seven for hospice.
Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry.
Home care leads the pack
For the year, home care has seen 23 transactions compared to 17 apiece for both hospice and home health. Home care’s lead this quarter was largely driven by Help at Home Inc., the Chicago-based home- and community-based services company that completed three acquisitions during Q2. Help at home is backed by PE firms Vistria Group and Centerbridge Partners.
Help at Home was particularly active in April, purchasing New York-based home care agencies Edison Home Health Care and Preferred Home Care. The acquisitions gave Help at Home an additional 10,500 clients and 12,000 employees. Two months later, Help at Home expanded its southwest Michigan footprint by acquiring Alliance Home Health Care Services and its six Michigan locations.
And don’t expect Help at Home to slow down anytime soon. The company will likely remain aggressive for the remainder of the year, acquiring accretive companies with their eyes set on an exit.
Last year, rumors swirled that the company was considering going public, but with the softening of the equity markets, including home care stocks, they seem to have delayed IPO plans for now.
Other home care-related transactions during Q2 include Personal Touch Home Care’s acquisition of Neighbors Home Care in April. Parentis Health, a California-based senior care company, also bought home care provider Pop-in Care that same month.
In June, PE-backed home health and hospice company Excelin Health acquired On My Care. Along with offering personal care, On My Care also provides skilled nursing, physical, occupational and speech therapy, as well as social worker services.
The uptick in home care dealmaking is especially notable because, overall, transactions were down year over year from the first half of 2021 to the first half of 2022. The first half of last year saw 69 combined home health, home care and hospice transactions reported compared with just 48 in the first half of 2022. Yet the home care segment’s share of transactions has increased from 42% in the first half of last year to 48% in the first half of this year.
Home health still riding high
The home health industry was hit hard in June when CMS released its new proposed payment rule with a 4.2% decrease to payment rates. Even though the rule is still in the proposal stage, the cut sent waves of concern across the sector.
“The entire home health community is in a bit of a tailspin, given the release of the rule,” Joanne Cunningham, the CEO of the Partnership for Quality Home Healthcare, told Home Health Care News. “We are continuing to peel back the analysis and get a full understanding of all of the components of it, but it certainly has been a real stemwinder of a reaction from urban, rural, big and small home health agencies across the country.”
Despite industry backlash to the proposal, demand and valuations for home health agencies remain at an all-time high. Still, the 4.2% proposed cut could impact deals down the road.
“It will impact deals and deal volume as some would-be sellers will be in a wait and see mode,” Mertz says. “For deals in the works, it can certainly create a valuation gap between the buyer and seller that will need to be worked through. Any time there is uncertainty — 4.2% is significant but far from certain — in the marketplace, valuation gaps occur.”
Home health giant Amedisys Inc. (Nasdaq: AMED) was responsible for some of the more notable deals this quarter. The company closed on both its AssistedCare and Evolution Health deals, building on their presence in North Carolina and Texas. The former was completed for a price tag of $25 million, the latter for $70 million.
Another big story this quarter, perhaps the biggest, was Humana Inc. (NYSE: HUM)’s announcement in April that it would sell 60% of its hospice and personal care assets from Kindred at Home to the private equity firm Clayton Dubilier & Rice (CDR).
“What is nice about this transaction is that it allows Kindred to free up some cash, while still maintaining a strong connection with the hospice and personal care division,” Mertz says. “This will allow them to wait and see how value-based purchasing evolves over the next few years. If hospice and personal care services become a bigger part of the value-based ecosystem, though I’m not privy to details, I would imagine Humana has an option of some sort in place to acquire CDR’s interest at some point in time.”
Hospice M&A demand still strong
On its end, hospice remains active. The sector is still seeing high demand, as well as sky-high valuations.
In June, Vistria-backed St. Croix Hospice of Minnesota acquired Illinois-based Lexington Hospice Care. Over the last couple of years, the company has been bullish when it comes to its expansion efforts. Hospice of the Chesapeake agreed to buy fellow non-profit Calvert Hospice in April.
Other deals included Webster Equity-backed Bristol Hospice’s acquisition of Hospice Select in April, and Ridgemont Equity-owned Agape Care’s purchase of Hospice of the Carolina Foothills in May.
Sector-wide, the slow-down in dealmaking activity is largely seller driven.
“We have not seen any softening in values across the care-at-home sector,” Mertz Taggart Managing Partner Cory Mertz says. “Private equity loves the industry, especially since COVID. U.S. private equity firms are still sitting on roughly $1 billion in dry powder with a mandate to invest. Interest rates are going up, but in the lower middle market, it hasn’t had a meaningful negative impact on values.”
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