After a historically slow first quarter that saw only 13 total deals in the home-based care space, M&A picked up significantly in the second quarter, albeit not in every aspect.
Home health, home care and hospice saw 20 total deals in the second quarter, with the home health and hospice sectors leading the way at 10 and nine deals, respectively, while home care dealmaking mostly held steady at seven. (Note, many transactions include more than one service line.)
Home-Based Care M&A
Dealmaking generally picks up in the second half of the year due to rate setting, particularly in home health and hospice. Both proposed payment rules are now out for each respective sector.
But this year, there could be additional factors contributing to back-half activity. For instance, inflation has continued to cool, and investors have renewed optimism around a rate cut or two from the Federal Reserve in the back half of 2024. That in turn would clear the runway for more deals, particularly for private equity.
Private equity only accounted for six of the 20 deals in the second quarter, a smaller proportion than usual, notes Mertz Taggart managing partner Cory Mertz.
“We saw fewer private equity-backed strategic transactions hit the wire relative to the whole,” says Mertz. “This is primarily tied to the tightened credit markets, and an increasing number of smaller, in-market transactions that don’t get reported.”
The second quarter did see a few large, standout deals announced, including Addus’ agreement to acquire Gentiva’s personal care business, Amedisys’ agreement to divest approximately 100 locations to VitalCaring and Pennant’s deal with Hartford HealthCare. These transactions have been announced, but have not yet closed and therefore do not contribute to the totals. However, “We’re seeing optimism around a thaw in dealmaking,” Mertz commented.
Home Health M&A
Over the last few years, the reduction of quality home health assets going to market has contributed to a dealmaking downturn.
There was a decent amount of home health activity in the second quarter, but the proposed payment rule — released at the end of June — will likely affect M&A the rest of the year. That said, determining how proposed and finalized payment reductions will affect the market is always difficult.
The Centers for Medicare & Medicaid Services (CMS) proposed a 1.7% aggregate cut to 2025 payments, or about $280 million.
“Industry stakeholders are justifiably up in arms over the proposed cut, which includes another ~4% permanent cut,” Mertz said. “From an M&A perspective, it’s another step towards certainty, which helps unlock transactions.”
The Pennant Group (Nasdaq: PNTG) agreed to a partnership with Hartford HealthCare at Home (HHCAH), the home health and hospice segment of Hartford HealthCare, in the second quarter. That deal would take Pennant into Connecticut, bringing the company into the East Coast for the first time. Pennant had previously not had any home health locations east of Wisconsin.
Amedisys Inc. (Nasdaq: AMED) also agreed to divest approximately 100 locations to VitalCaring. The exact location count and price tag have not been announced, but that deal would be a major one. It will only go through if UnitedHealth Group’s takeover of Amedisys goes through. But the divestment likely clears the path for the UnitedHealth Group-Amedisys deal, which was receiving antitrust scrutiny from regulators. Amedisys stock jumped from $92 to $97/share on the news.
Finally, HCS-Girling — which recently acquired the personal care assets of Addus HomeCare Corp. (Nasdaq: ADUS) in New York — agreed to acquire Pinnacle Home Care, a large Medicare-certified home health provider with locations throughout Florida.
Home Care M&A
Home care was the slowest of the three categories in the second quarter, but Mertz also notes that some PE-backed strategics don’t always disclose personal care add-ons as they happen.
“These same strategic buyers are still active, but many of them are sourcing their own transactions, which include some smaller deals which don’t ever get reported,” says Mertz.
While Addus exits the New York market, it immediately set out to gain significant personal care market share elsewhere. If its $350 million deal for Gentiva’s personal care assets is finalized, it will become the largest home- and community-based services (HCBS) provider in Texas, a state it did not previously have a significant personal care presence.
Addus also entered other states for the first time, including Missouri and North Carolina.
Other notable deals from the home care world in the second quarter:
● HouseWork’s acquisition of AccordCare’s Connecticut personal care division
● Family Resource’s acquisition of Specialty Service Solution in Washington state
● Commonwise Home Care’s acquisition of Caregivers of Charleston
Hospice M&A
While the home health industry continues to face cuts, hospice providers have mostly had a stable payment environment. In March, CMS proposed a 2.6% increase to hospice per diems for 2025.
The Pennant Group was also one of the more active buyers in hospice, acquiring South Davis Home Health & Hospice in Utah and Texas-based Nurses On Wheels.
There were also more pure-play hospice deals in the second quarter than there were in the first quarter. One of the larger home-based care companies got involved too, as BrightSpring Health Services (Nasdaq: BTSG) agreed to acquire the nonprofit Haven Hospice, based in Florida..
Other notable hospice deals in the quarter:
● Northrim’s acquisition of Noble Hospice and Palliative Care, based in Phoenix
● Dover Health’s acquisitions of Centered Care Hospice and Palliative, based in Illinois
● Vitas Healthcare’s acquisition of the previously-announced Covenant Care, with locations in Florida and Alabama, for $85 million.
"It's one quarter worth of data, but it's encouraging to see," Mertz said. "We talk with buyers and private equity regularly. The general opinion is that we saw the bottom in healthcare services M&A transactions in Q1. We'll be monitoring the inflation numbers and the Fed's comments over the next few months."
If you are interested, you can also download the Q2 2024 Home-Based Care M&A Report via the following link:
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