In mid-September, the Federal Reserve slashed interest rates for the first time since March 2020. And, with that news, there are signs of life in home health, hospice and home care M&A.
Though there are certainly internal issues affecting each sector, recent macroeconomic pressures have impacted the number of transactions more than any other factor.
Home-Based Care M&A
After a flurry of deals in 2020 and 2021, home-based care M&A plunged. That low level of dealmaking bottomed out in Q1 2024 (Home-Based Care M&A Report Q1 2024), with just 14 total transactions closed. Transaction volume has since picked up, with 24 deals closed in Q2 (Home-Based Care M&A Report Q2 2024) and 19 in Q3.
Dealmaking is expected to continue its positive momentum. However, that is assuming the Fed will continue to lower rates over the next 6-9 months. “Many folks assume since the fed started lowering rates, that they will just continue down this path going forward,” Mertz Taggart Managing Partner Cory Mertz said. “We are optimistic, but rates will still largely depend on inflation, which the Fed is watching closely.”
Overall, there were six home health deals, six hospice deals and eleven home care deals completed in the third quarter. (Note: The sum of the sub-industry transactions is greater than the total number of deals reported, as many transactions include more than one sub-industry.)
Private equity accounted for more than half of all the deals executed in the quarter.
“We’re climbing out of the slump and confident there was a bottoming out in Q1 2024 in terms of deal activity, but the recovery may not be perfectly smooth when looking at quarter-to-quarter data,” Mertz said.
The third quarter did see a few large deals completed, however, including BrightSpring Health Services’ (Nasdaq: BTSG) $60,000,000 acquisition of Haven Hospice and The Pennant Group’s (Nasdaq: PNTG) acquisition of Signature Healthcare at Home’s assets.
Home Health M&A
Since the 2020 and 2021 flurry, there have been fewer quality home health agencies that have gone to market. That, combined with the macroeconomic environment, has led to fewer deals in the home health space.
There’s also rate pressure pushing down on home health providers. The Centers for Medicare & Medicaid Services (CMS) has reduced payment over the last few years in traditional Medicare. Meanwhile, Medicare Advantage (MA) penetration has continued, and MA plans tend to pay at a lower rate for home health services.
Still, the demand for solid home health organizations has not waned.
“Home health M&A activity remains slow. There just aren’t very many attractive targets that have come to market over the past eighteen months or so,” says Mertz. “Demand remains strong, and the constant reimbursement pressure has not deterred buyers.”
“Home health remains central to nearly all the larger strategic buyers’ value-based care strategies,” Mertz continued. “Some include personal care, some include hospice, but they almost all include home health.”
In the quarter, The Pennant Group acquired Signature Healthcare at Home’s Washington and Idaho assets from Avamere. The $80 million purchase price represented the largest deal in Pennant history.
The deal is one of many that Pennant has executed of late. It has been one of the more active acquirers during a quiet M&A period.
Ascension Health/TowerBrook Capital-owned Compassus also stayed on track with its joint venture strategy, forming an agreement with OhioHealth that includes four home health locations that the former will now operate. The company has also recently agreed to JVs with the health systems Ascension and Providence.
“We are seeing much more interest from historically strategic acquirers in exploring joint ventures with health systems,” Mertz commented. “It just makes sense, for both the operator and the health system. And LHC has successfully proved the model out.”
Home Care M&A
Home care M&A remains the most active of the three sectors, with 11 reported transactions closed. Despite the Medicaid Access Rule being finalized, and the looming 80-20 provision being included, buyers have not backed off of inorganic growth. Many of the home- and community-based services (HCBS) strategists believe that significant scale is necessary to survive under 80-20.
“On the personal care side, deal activity remains pretty steady, buoyed by government-funded personal care agencies, predominantly HCBS, which has not slowed despite the 80-20 provision,” says Mertz. “If the provision were to take effect in January 2025, we would be telling a different story. But so much can – and likely will – happen between now and when this is supposed to take effect, including at least one or maybe two changes in administration.”
Vistria- and Centerbridge-backed Help at Home – one of the largest home and community-based providers in the country – has continued to acquire, announcing three more deals in the third quarter: acquisitions of Care By Your Side, AA Medcare and One Care Health.
“Growth continues to be really strong in what we do, both organic growth and M&A activity,” Help at Home President Tim O’Rourke recently told Home Health Care News. “We continue to see that as a big opportunity for us, not only today, but in the future.”
Avid Health at Home, backed by Havencrest Capital Management, also logged another deal, acquiring Central Illinois Care Services. InTandem Capital-backed HouseWorks, too, stayed busy, acquiring Bridge City Home Care.
Hospice M&A
Hospice M&A transaction volume remains low, but it is not a reflection of buyer sentiment. “Of the three home-based care service lines, hospice still commands the highest multiples, and it’s largely a reflection of a historically stable reimbursement environment,” Mertz added. “However, we are seeing, and expect to see, more regulatory scrutiny in hospice. This has forced the buyer universe to become much more discerning about which opportunities they will pursue and, ultimately, close on.”
The U.S. Government Accountability Office (GAO) urged CMS to step up hospice oversight earlier this year, and steps are being taken to reduce fraud in a number of states already.
In the third quarter, Ridgemont Equity’s Agape Care acquired Crossroads Hospice, while Gilchrist Hospice Care acquired Hospice of Washington County.
“We’re encouraged to see the continued positive momentum in home-based care M&A, both in terms of data and real-time buyer sentiment” Mertz said. “And Q4 is historically the strongest of the four quarters. But continued momentum will be largely dependent on the Fed and what they are expected to do, and ultimately do, with interest rates. Inflation can be stubborn and difficult to tame. We’ll know over the next couple quarters if they have done enough to continue to lower rates.”
If you are interested, you can also download the Q3 2024 Home-Based Care M&A Report via the following link:
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