There has been much talk lately about M&A activity in the addiction treatment industry, prompting questions from many practitioners about the process of valuing and selling a treatment center. The purpose of our “Value Insights” series is to address these questions and more. Before considering a sale, owners should be aware of the numerous factors that can make or break a transaction. In this article, we will focus on the most important issue of all: Trust. Seller Beware In any transaction, it is paramount that the two parties trust each other. Without some level of trust, it will be difficult to move a transaction forward to closing. But what do we mean by trust? And why is it important? Certainly, we can’t expect the parties of a transaction to trust each other as they would a family member or close friend. However, when selling your treatment center, there are a number of critical questions you should ask: Does my company fit into the buyer’s strategic plan? This may be the most fundamental question of all. If you can’t understand why someone wants to buy your facility or program, you will likely find each step in the process to be more difficult to take than the last. Don’t be afraid to ask these questions directly to the buyer: Have you acquired similar treatment providers in the past? What is your plan to integrate my facility into your business? How does my company fit into your overall plan? Is the buyer working in good faith to close the transaction in a timely manner? Or do they seem more interested in learning the details of my company? Does the buyer have the wherewithal to close on the transaction? Do they have a fund established, a credit facility, or cash in the bank? Can they secure the necessary funding if they plan to use a combination of debt and equity? Do they have a track record of closing transactions in a timely manner? Will my legacy be carried on? For many owners, their facility represents a labor of love – they started not only to build a business but to help others. If leaving something behind is important to you, make sure this question is answered to your satisfaction. Will my employees be treated well after the sale? Many small businesses have a family atmosphere where employees have been present through good times and bad; you will want to make sure they are taken care of. Ask this question specifically to the buyer. Valuable employees should be viewed as valuable assets to a future owner. Make sure this is the case. Walk a Mile in the Buyer’s Shoes Remember, there are two parties to the transaction. What will the buyer need from you in order to feel comfortable with the transaction? The buyer will have three main concerns: Have I been given information that is 100% complete and accurate? Buying a treatment center is a big decision for a buyer, and a lot of money is involved. Buyers need to feel comfortable that they have placed the appropriate value on your business. Complete and accurate financials are critical in this respect as they serve as the basis for calculating value. Most credible buyers will want confidence that the value they’re placing on your treatment center will hold up under the scrutiny (and expense) of due diligence. Will the seller continue to focus their energy on the business while the transaction is proceeding? Naturally, this process is time-consuming and distracting. But if the business falls off during the transaction, the buyer could come back and ask for a lower valuation, which would not be in the seller’s best interest. Maintain your focus on running the business to ensure a positive outcome for all parties. Are there any issues lurking in the shadows that could affect the value of the business? Potential litigation? Payor disputes? Compliance or labor issues? A Two-Way Street The further you go into a transaction, the more important the issue of trust becomes. If either party feels uncomfortable, the transaction is in jeopardy and significant time and money have gone to waste. Communication is critical. Proceed cautiously – get all of your questions answered, and remember to see things from the buyer’s point of view. You have poured your heart and soul into building your treatment center. Make sure you walk away with more than just a big payday.

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:

Mertz Taggart follows the publicly traded home-based care companies and reports on their earnings calls each quarter. As a group, public company performance and share price serve as a proxy for industry performance and investor sentiment, respectively. Historically seen as the “ultimate consolidators”, the publicly traded home-based care trading multiples have a downstream effect on lower middle market home-based care M&A. Addus Homecare (Nasdaq: ADUS) Highlights Addus' top-line growth continued with a 10% revenue gain in Q2 2024 vs. Q2 2023, driven by a 57% increase in the Home Health segment, an 11.6% gain in Hospice revenue, and a 7% rise in its Personal Care segment compared to Q2 2023. The revenue increase in the hospice and home health segment was primarily due to the acquisition of the operations of Tennessee Quality Care on August 1, 2023. Admissions and patient days increased in Q2 2024 compared to Q2 2023.  In Q2 2024, ADUS saw a slight increase in gross profit and operating income margins compared to Q1 2024, with gross profit margin rising from 31.4% to 32.5% and operating income margin growing from 8.4% to 9.1%. This increase was driven by higher margins in home health and hospice segments due to the acquisition of the operations of Tennessee Quality Care.  For the three and six months ended June 30, 2024, the company received ARPA funding totaling $2.0 million and $12.2 million, respectively, for supporting caregivers and boosting recruiting and retention efforts. Key Financial Figures M&A Activity On May 21, 2024, the company agreed to sell its New York operations to HCS-Girling for up to $23 million, with the transfer contingent on regulatory approvals. Addus CEO Dirk Allison stated, "We are pleased to divest our New York personal care operations and exit the state, as this challenging market no longer fits our growth strategy.”  Acquisition: On June 8, 2024, the company agreed to purchase the personal care operations of Gentiva (Curo Health Services, LLC) for approximately $350 million in cash, pending regulatory approvals. The acquisition spans seven states and serves approximately 16,000 patients. Addus CEO Dirk Allison stated, “Once this deal is closed, Addus will be the number one provider of personal care services in the state of Texas, which is primarily a managed Medicaid market.” On June 28, 2024, Addus raised $175.6 million through a public offering of 1,725,000 shares at $108.00 each. The company used $81.4 million to repay debt and may allocate the rest for general purposes, including acquisitions like Gentiva's personal care assets.  Guidance For 2024, ADUS anticipates maintaining a stable gross margin percentage; however, ongoing caregiver shortages may potentially impact the levels of service provided. Aveanna Healthcare (Nasdaq: AVAH) Highlights Q2 2024 revenue reached $505.0 million, a $33.0 million (7.0%) increase compared to $471.9 million in Q2 2023. This growth was driven by the following segment performance: Private Duty Services revenue increase by $30.2 million (8.0%), driven by approximately 10.3 million hours of care, reflecting a 4.8% increase in volume compared to the previous year. Medical Solutions revenue increased by $3.6 million (9.3%), while Home Health & Hospice revenue declined $0.8 million (1.4%). Gross margin improved by 1.9% to $158.3 million compared to Q2 2023, reflecting the improved payer rating environment as well as cost reduction efforts taking. Operating income margin improved 9.5%, reaching $37.1 million. The improvement in operating income margin was primarily due to reduced branch and regional administrative expenses (restructuring portions of the branch and regional operating structure). Adjusted EBITDA was $45.6 million, a 27.3% increase as compared to the prior year period.  Demand for home and community-based care remains strong, with governments and managed care organizations seeking solutions to expand capacity. AVAH results show its continued alignment with the objectives of the preferred payers and government partners. Key Financial Figures M&A Activity In Q2 2024, AVAH made no comments on potential acquisitions. The company's current priorities are to improve profitability through organic growth, expand payer partnerships, strategic cost reductions and continue to invest in its caregivers. Guidance The company expects adj. EBITDA to ramp up throughout 2024 as reimbursement rates and caregiver hires increase. The company is looking for continue to leverage their growth through strategic cost reductions and lower overhead while building on the success of our preferred payor strategy and Government Affairs rate improvements. According to Jeff Shaner, CEO of Aveanna, “The labor environment represented the primary challenge that we needed to address to see Aveanna resume the growth trajectory that we believed our company could achieve. It is important to note that our industry does not have a demand problem. The demand for home and community-based care continues to be strong”  2024 full year projections: Full Year 2024 Revenue guidance increased to over $1,985 million. Full Year 2024 Adjusted EBITDA guidance raised to over $158 million.  The Pennant Group, Inc. (Nasdaq: PNTG) Highlights Q2 2024 total revenue reached $168.7 million, up $36.5 million or 27.6% compared to the same quarter last year. The Home Health and Hospice Services segment generated $125.3 million in revenue, marking a $30.3 million increase or 31.9% year-over-year. Adjusted EBITDA for the quarter was $13.2 million, a rise of $3.1 million or 30.6% from the previous year.  Home health admissions totaled 14,140 in Q2 2024, up 3,699 or 35.4% from Q2 2023, while Medicare home health admissions increased by 889 or 18.3% to 5,738. The hospice average daily census grew to 3,220, an increase of 726 or 29.1% year-over-year. Revenue for the Senior Living Services segment reached $43.4 million, up $6.2 million or 16.6% compared to the same quarter last year, supported by a higher occupancy rate and higher average monthly revenue per occupied room. Key Financial Figures M&A Activity Since the beginning of the year, the company expanded its operations with the addition of four home health agencies, two hospice agencies, and three senior living communities. The company also acquired the real estate of two of three senior living communities.  Brent Guerisoli, CEO & Director of PNTG, reported, “In the process, we've added more than 2,200 lives under the Pennant umbrella through acquisitions and organic growth, along with approximately 4,000 lives under the Hartford management agreement. Collectively, this represents a greater than 50% increase in the number of lives we touch each day as compared to the end of 2023. And this does not include the impact of the Signature transaction, which will add an additional 2,500 lives.” On August 1, 2024, The Pennant Group, Inc. announced the successful completion of its acquisition of Signature Healthcare at Home’s assets in Washington and Idaho. Guidance Management updated its annual guidance, projecting total revenue to range from $654.0 million to $694.5 million. Full-year 2024 adjusted EBITDA is expected to be between $50.7 million and $53.8 million. The company’s updated guidance anticipates organic growth, strong operational performance for the remainder of the year, hospice reimbursement rate adjustments, and the contributions from the joint ventures and management agreements.  Enhabit Home Health & Hospice (Nasdaq: EHAB) Highlights Q2 2024 total revenue slightly decreased by 0.6% vs Q2 2023. In the Home Health segment, revenue declined $3.6 million or 1.7%, primarily due to lower Medicare re-certification.  The company’s payer innovation strategy continues to drive non-Medicare growth, with non-Medicare admissions up 25.2%, leading to a total admissions increase of 6.4% year-over-year. Currently, 43% of non-Medicare visits are under payer innovation contracts at improved rates. In the hospice segment, the company has seen consistent progress in census growth, with the average daily census increasing each month since January 2024, resulting in a 2.7% year-over-year increase. The company's focus on recruitment and retention continues to support long-term growth.  This quarter, the company reduced bank debt by $15 million and opened a new home health location in Florida in April. Key Financial Figures M&A Activity EHAB is actively evaluating potential acquisition opportunities but is currently constrained by its credit agreement, which limits its ability to pursue acquisitions due to existing leverage or debt levels. The company remains focused on its long-term goals and is not allowing these short-term limitations to affect its overall strategic outlook. Guidance The company expects home health admissions and hospice volumes to grow in the mid to high single digits annually over the next three years, driven by investments in case management and team development. According to Barb Jacobsmeyer, President & CEO, ”In our Home Health segment, our payer innovation strategy continues to succeed, with our field teams successfully shifting admissions out of historically lower-paying contracts to better paying contracts that recognize our better way to care.”  The company has revised its full-year 2024 guidance: Net Service Revenue: Updated to a range of $1.05 to $1.06 billion, down slightly from the previous forecast of $1.07 to $1.10 billion Adjusted EBITDA is now projected to be between $100 million and $106 million, up from the previous range of $98 million to $110 million. This update reflects improved cost performance, leading to a more refined adjusted EBITDA range. BrightSpring Health Services, Inc. (NASDAQ: BTSG) Highlights Q2 2024 total revenue was $2,730 million, up 26.0% compared to $2,167 million in the second quarter of 2023. Net revenue growth was driven by strong performance in both segments, particularly Specialty and Infusion Pharmacy. Adjusted EBITDA reached $139.1 million, a 17% increase year-over-year, exceeding internal forecasts. Pharmacy Solutions revenue was $2.1 billion, growing 32% compared to the second quarter of last year. The segment growth was driven by ongoing execution supporting specialty product ramp-ups and launches from 2023 to 2024, infusion patient and volume growth and strength in home and community pharmacy volume.  The Provider Services segment generated $616 million in revenue, reflecting an 8% increase compared to Q2 2023. The average daily census in home health care increased 13% year-over-year to 44,246 in the second quarter, while Rehab billable hours increased at a high single-digit rate. The company's success in the second quarter is attributed to its focus on timely, preventative, and coordinated care for seniors and specialty patients in the home and in low-cost settings. Key Financial Figures M&A Activity During the six-month period ending June 30, 2024, BTSG successfully completed four acquisitions in the Pharmacy Solutions and Provider Services segments. The company had entered these transactions to expand their services and geographic offerings. The total aggregate consideration, net of cash acquired, for these acquisitions amounted to approximately $43.9 million. The company is currently evaluating the fair value of the assets acquired and liabilities assumed. The recent acquisitions contributed approximately $15.1 million to the company’s revenue for the second quarter of 2024.  Jon Rousseau, President & CEO, commented, “We've been focused on deals that are very accretive here in the last year in particular that are four times pro forma EBITDA or less typically. And that's really where our focus has been. And we believe we can continue to augment our growth rate through very accretive M&A combined with organic growth to achieve our growth objectives.”  Guidance BTSG has revised its revenue and Adjusted EBITDA guidance for the full year 2024 as follows: Revenue: Increased to a range of $10.45 billion to $10.90 billion. Adjusted EBITDA: Revised to a range of $570 million to $580 million, reflecting anticipated growth of 12% to 14%. Option Care Health, Inc. (NASDAQ: OPCH) Highlights The company’s top-line performance remains strong, with a year-over-year revenue growth of 14.8%. In Q2 2024, OPCH reported net revenue of $1,227.2 million, up from $1,069.1 million in the same quarter of 2023. Growth was well-balanced across the portfolio, with particularly strong performance in the newer limited distribution and rare orphan therapies within the chronic portfolio. Gross profit for the quarter was $249.4 million, or 20.3% of net revenue, compared to $250.8 million, or 23.5% of net revenue, in Q2 2023. Adjusted EBITDA of $108.4 million, down 1.5% compared to $110.1 million in the second quarter of 2023.  The decline in gross profit percentage was primarily due to ongoing supply chain challenges affecting certain drugs and inputs, as well as issues related to the Change Healthcare cyberattack, which disrupted pharmacy operations and led to operational inefficiencies.  The company believes it has effectively resolved supply chain issues by the end of the quarter and has made significant strides in mitigating the impact of the Change Healthcare situation. Additionally, the company has made substantial progress in reducing accounts receivable and accelerating revenue collection during the quarter. Key Financial Figures M&A Activity In the second quarter, the company repurchased approximately $78 million of its stock and intends to continue this focus on share repurchase in the near term. According to Mike Shapiro, CFO, “We remain focused on M&A efforts and continue to assess acquisition opportunities. We have also reengaged on share repurchase activities and repurchased approximately $78 million of stock in the second quarter. Our efforts ramped up as our cash flows improved in the quarter and year-to-date we have repurchased more than $118 million of stock. And given the momentum in cash flow generation, we intend to remain focused on deploying capital through M&A and share repurchase strategies.” Guidance According to Shapiro, “We believe we have effectively resolved the supply chain challenges late in the second quarter… we have made significant progress in recovering from the Change Healthcare situation. SG&A was flat in the quarter as we continued to drive efficiencies through investments in technology and operational excellence. SG&A as a percent of revenue dropped to 12.5%, our lowest ratio on record.” Based on the first half results and the revised expectations, Option Care Health has updated its financial guidance for the full year 2024, projecting: Revenue: $4.75 billion to $4.85 billion Adjusted EBITDA: $435 million to $450 million To download the .pdf version of this report, click below.

Transaction activity across behavioral healthcare in the second quarter of 2024 was marked by a pair of distinct trends: growth funding continues to flourish, while mergers and acquisitions have dipped to early COVID-19 pandemic levels. A total of 30 deals were reported in Q2, down by nearly a third from the 44 announced in the year’s first 3 months. Investors poured more than $400 million to 11 growth funding-focused transactions—building off a first quarter in which 18 such deals accounting for more than $350 million were completed. Meanwhile, the 19 true M&A transactions reported in Q2 were the fewest since the onset of the pandemic in Q2 2020.  The drop-off has been driven by a decline in private equity-backed portfolio company acquisitions, Mertz Taggart managing partner Kevin Taggart said. To wit: A typical quarter sees about 15 to 20 PE-back strategic deals reported. In Q2, just 5 such transactions were announced. “Private equity has been historically aggressive when trying to get into the industry, and while building out their portfolio companies, most recently on the mental health side,” Taggart said. “As a result, they have historically been the winning bidders when companies went to market.” Addiction Treatment M&A A total of 10 transactions within the addiction treatment subsector were announced in Q2, holding steady with the 12 deals announced in the fourth quarter of 2023 and the first quarter of 2024. Of the 10 transactions announced within the addiction treatment subsector, 4 fell into the category growth equity/venture capital deals: Wayspring (formerly known as Axial Healthcare), a value-based provider of substance use disorder (SUD) treatment services, received a $45 million investment from venture capital investment platform CVS Health Ventures. Boulder Care , a digitally based SUD treatment provider, raised $35 million in a Series C funding round led by Advance Venture Partners, along with participation from growth equity firm Strips and several existing investors. Hope River Ranch , a Park City, Utah-based provider of treatment for co-occurring addiction and mental health conditions, raised $16.7 million in equity funding from undisclosed investors. Marigold Health , a Boston-based virtual peer-support startup, raised $11 million in a Series A funding round led by Rock Health and Innospark Ventures. The following transactions involving addiction treatment provider organizations were also announced in Q2: T&R Recovery Group  completed an acquisition of a portfolio of Origins Behavioral Healthcare  facilities in Texas from the Hanley Foundation. The sale included 2 residential treatment centers, 2 intensive outpatient programs, and a transitional sober living facility. Pathways Recovery Centers  expanded its multi-state portfolio of programs with its acquisition of  Serenity Park Recovery Center  in Little Rock, Arkansas. In May, Tulip Hill Recovery , Louisville Addiction Center  and Lexington Addiction Center announced a merger to create Tulip Hill Healthcare. The aligned organizations will provide partial hospitalization program (PHP) and intensive outpatient program (IOP) services across multiple states. FOXO Technologies  entered into share exchange agreement with  Rennova Health  to acquire equity in Myrtle Recovery Centers , a 30-bed facility in East Tennessee. California-based  Your Behavioral Health , a Comvest Partners portfolio company, announced its acquisition of Insight Treatment Programs , expanding Your Behavioral Health’s network across Southern California to 25 sites. Brightside Health  announced an expansion into virtual intensive outpatient SUD treatment services through an acquisition of  Lionrock Recovery . Mental Health M&A Transaction volume within the mental health subsector fell significantly quarter-over-quarter. A total of 15 deals involving mental healthcare providers were reported in Q2, half of the 30 that were announced the prior quarter. The dip largely was attributed to a decline in private equity-backed strategic deals, of which just 2 transactions were announced in Q2 (vs. 9 in Q1) and a drop in PE platform deals. The following mental health M&A transactions were reported: Refresh Mental Health  acquired CARE Counseling Services  in April, a continuation of parent organization Optum’s strategy to cut patient wait times for behavioral healthcare services, according to a media report . Kentucky Counseling Center  announced the acquisition of Flourish Psychotherapy , an Ohio-based mental health company. As part of the acquisition, Flourish was rebranded as Counseling Now . Texas-based  Mind Body Optimization , a provider of outpatient mental health services, announced in May that it has acquired Mind Body Wellness , a mental health practice with 2 locations in Tennessee. Salveo Counseling Center  sold to an undisclosed strategic buyer. Mertz Taggart provided sell-side advisory services.       The following mental healthcare provider organizations announced growth funding completed in Q2: Talkiatry , the New York City-based provider of telepsychiatry services, secured $130 million in a funding round led by Andreesen Horowitz, along with participation by Perceptive Advisors and debt financing provided by Banc of California. Talkiatry said the funds will be used to help the company scale up its value-based care services. Two Chairs , a San Francisco-based hybrid provider of behavioral healthcare services, completed a $72 million Series C funding round led by Amplo and Fifth Down Capital. InStride Health , an outpatient pediatric behavioral healthcare services provider, raised $30 million in a funding round that included participation from General Catalyst, .406 Ventures, Valtruis, Mass General Brigham Ventures and Hopelab Foundation. Telehealth-based provider Brightside Health raised $33 million in financing that the company said will be applied toward fueling growth in new markets, as well as new product offerings. Participating investors included S32 Kennedy Lewis and Time BioVentures. Valera Health  raised $9 million in equity from undisclosed investors, bringing its total raise to more than $73 million. Grow Therapy , a mental healthcare technology startup company, announced in April that it raised $88 million in a Series C funding round that was led by Sequoia Capital, along with participation from Goldman Sachs Alternatives, PLUS Capital and 3 existing investors. Seven Starling  raised $12.63 million in a funding round led by Ulu Ventures. Backpack Health , a pediatric mental healthcare services provider previously known as Youme Healthcare, raised $14 million a Series A funding round led by PACE Healthcare Capital, along with participation from 9 other firms. Autism and Intellectual/Developmental Disabilities M&A The autism and intellectual/developmental disabilities (I/DD) subsector saw a modest increase in deal volume in Q2, with 8 transactions reported, up from the 5 announced in the prior quarter. In a massive deal reported in May, Tenex Capital Management, a New York City-based private equity firm, acquired Behavioral Innovations for about $300 million. One of the largest providers of autism services in the United States, Addison, Texas-based Behavioral Innovations had been backed by private equity firm Shore Capital Partners of Chicago since 2017. Two additional PE platform deals involving providers of autism and I/DD services were also announced: Private equity firm Optimal Investment Group acquired Orange, California-based autism therapy provider  Spectrum Behavioral Therapies . The deal marked Optimal’s entry into the behavioral healthcare sector. Apollo Behavior  received an investment from Mirimar Equity Partners, a Dallas-based firm that invests in mid-sized businesses. In another notable transaction,  LITALICO , the largest I/DD provider in Japan with 300 locations, announced its entry into the U.S. market with its acquisition of Developmental Disability Centers of Nebraska for $50 million. Other deal involving providers of autism and I/DD-related services included the following: Amazing Care Home Health Services announced in April that it acquired Straka Pediatric Therapies . Opya , a multidisciplinary early intervention autism therapy provider, acquired the Center for Autism Spectrum Therapy , an early intervention autism therapy clinic located in Los Angeles. 1Care Hospice , part of 1Care Health, expanded its presence in Nevada with its acquisition of Reset Behavior Health . FullBloom , a youth-focused education and behavioral health platform, acquired 2 locations from Lexington Life Academy  in Arizona. “Strategic and financial buyers are still hungry for acquisitions, but there is a lack of ‘quality’ deals for them to look at,” Taggart said. “How they define quality deals is different today than it was 2 to 3 years ago. They have gotten much more discerning about which deals they will pursue and ultimately close on. This is somewhat driven by the debt markets, which have gotten tighter.” Looking ahead to the remainder of 2024, Taggart said the firm is seeing signs of optimism in the M&A marketplace. "Recent inflation and employment data have significantly increased the likelihood that the Federal Reserve will begin cutting interest rates as soon as September. Credit markets are also poised to ease up, which will also facilitate more deal flow at higher values," Taggart said. “Buyers will have more wiggle room to pay a premium for the right opportunity,” he said. If you are interested, you can also download the Q2 2024 Behavioral Health M&A Report via the following link:

Discover the journey behind the sale of For Papa’s Sake Home Care—a story of legacy, family, and commitment to compassionate care. Named in honor of a promise to family, this top-rated agency became a beacon of excellence in senior care. Yet, when it came time to sell, the path was more than a business decision; it was a deeply personal mission. Through the dedication and support of Mertz Taggart, the agency’s founder, Becky Reel , found the right partner to carry on its legacy. Read the full story to see how empathy and expertise came together to honor a lifetime of care. Honoring a Promise and a Legacy For Papa’s Sake Home Care was born from a promise and a mission close to my heart. Named in honor of my grandfather, who I called Papa, who endured a tragic experience in a nursing home, the agency represented our commitment to create a better option for seniors—one rooted in dignity, safety, and genuine care. My promise to my parents was equally important: to build and grow the agency to a point where its sale could fund their fulfilling retirement. Over my 10 years, we grew by 300%, was ranked the #1 agency in North America by Home Care Pulse (now Activated Insights), and received the Leader of Excellence award for seven consecutive years. Selling this agency was not just about a transaction; it was about finding someone who would continue this legacy of care. Balancing Family, Legacy, and the Demands of the Sale The journey to sell was a long and intensive process. As a mother to two young children and a wife, I still had my day-to-day responsibilities: running the agency, being present with my family, and somehow balancing all this with the intense demands of the sale process. The emotional weight of parting with something so personal was heavy, compounded by the need to maintain the agency’s standards and focus on my family’s needs. Bruce , my advisor from Mertz Taggart, recognized this balancing act and stepped in as more than a business guide; he became my greatest advocate and support system. Empathy and Strategic Expertise Bruce and the Mertz Taggart team brought a unique blend of empathy and strategic acumen to every aspect of the process. Bruce understood that selling our agency was not just about numbers—it was about preserving a legacy. His focus was not only on maximizing the agency’s value but also on finding a buyer who respected the values that built it. He guided me with skill and precision, making complex decisions easier and ensuring I felt confident at each step. Ongoing Support During Critical Moments One of the most telling moments was when a potential buyer arranged a meeting that could determine the future of the agency. The stakes felt high, and I was nervous about facing such a pivotal moment alone. Without hesitation, Bruce booked a flight the very next day to be by my side, offering both his strategic insights and his steadfast support. His presence turned what could have been an overwhelming experience into one where I felt empowered and reassured. Client-Centered for Every Step of the Journey Throughout the 14-month process, Bruce and Mertz Taggart never made me question their commitment to me and my goals. In moments of doubt and exhaustion—when the balance of family, agency responsibilities, and the emotional toll of the sale felt like too much—Bruce reminded me of the impact we had made and the legacy it would leave behind. His encouragement and compassion kept me grounded and helped me see the journey through to the end. A Partner Who Truly Cares Selling For Papa’s Sake Home Care was one of the most significant and emotional decisions of my life. Bruce’s empathy, dedication, and strategic guidance made it possible to honor my promise to my parents while ensuring the agency’s legacy would continue. For anyone considering the sale of a home care agency they’ve poured heart and soul into, Mertz Taggart is more than an M&A firm—they are partners who truly care about their clients’ well-being and success. Conclusion We are delighted to have received this incredibly in-depth testimonial from our client, Becky Reel . It shows us just how much our work means to our clients. Testimonials such as this one motivate us to continue our hard work on bridging the gap between healthcare agency owners and a successful exit strategy, all while maximizing value, minimizing surprises, and keeping our clients in control throughout the process. For similar stories from our other clients, visit our Testimonials page Planning an eventual sale of your healthcare business? Contact us: info@mertztaggart.com To stay up-to-date with our day-to-day activities, follow us on LinkedIn

If you are an agency owner who is thinking about selling your business someday, you might want to take some cues from the experts in the field of buying and selling companies: Private Equity (PE) firms. PE firms are professional investors who acquire, transform/grow, and exit businesses with the goal of maximizing returns for the limited partner (LP) investors, and the firm itself. They have significant experience and know-how when it comes to maximizing the value of their portfolio companies and executing successful exits. They are the “Pros” at creating and maximizing value. Here are three things that home-based agency owners can learn from PE firms on how to achieve a successful exit: 1. Plan your exit early One of the key principles of PE exit excellence is to keep a clear and consistent view of why your business is a great asset, how it will improve, and why it will be attractive to potential buyers. PE firms plan their exit strategy before they even close on purchasing a platform company, or as soon as possible after acquiring it. They identify the most likely buyers, the key value drivers, and the optimal timing for the exit. They also align their business strategy and performance improvement initiatives with their exit objectives. As one PE executive reminded us at a recent conference, “We make our money when we sell, not when we buy." In fact, PE will often “overpay” for the initial platform acquisition, just to get a foothold in the industry. As an agency owner, you should also have a clear vision of your exit goals and how to achieve them. You should know who your target buyers are, what they are looking for, and how you can differentiate your business from the competition. You should also have a realistic valuation of your business and a plan to increase it over time. An exit plan doesn’t need to be elaborate to be effective. Having an early idea of your “magic number”, your target buyer/investor category (usually a strategic buyer or private equity firm), and an ideal exit date is a great start. Keep in mind your exit plan is a living document. It will evolve, along with you and your business. We suggest taking a few minutes each quarter to review, modify, and expand on it as appropriate. 2. Be big on KPIs PE firms are obsessed with measuring and improving the performance of their portfolio companies. They use Key Performance Indicators (KPIs) to track progress, identify issues, and drive actions. They also use KPIs to communicate the value proposition and growth potential of their businesses to potential buyers. As an agency owner, you should also use KPIs to monitor and improve your business performance. You should focus on the metrics that align with your values, such as quality of care, revenue growth, gross and net profit margins, client satisfaction, employee retention, and market share. You should also use KPIs to showcase your agency’s achievements and demonstrate your future potential. 3. Run a banker-led competitive auction process when you sell This sounds self-serving, and it is, but it’s also true. PE firms typically hire investment bankers to run a competitive auction process when they sell their portfolio companies. This involves creating and sharing the appropriate marketing materials with the most qualified buyers at the right times, soliciting bids, negotiating terms, and closing the deal. A competitive auction process helps PE firms achieve the highest possible price for their businesses, as well as favorable deal terms and conditions. It also creates a sense of urgency and scarcity among buyers, which can motivate them to act quickly and decisively. As an agency owner, you should also consider hiring a professional advisor to run a competitive auction process when you sell your business. A professional advisor can help you prepare your business for sale, market it effectively, attract multiple offers, negotiate the best deal, and navigate the due diligence and closing process. Selling your home-based care agency can be one of the most important decisions of your life. It can also be one of the most rewarding if you do it right. By following the best practices of PE firms, the “Pros,” you can increase your chances of achieving a successful exit that meets or even exceeds your expectations.

Adjusted EBITDA is an estimate of the normalized pre-tax cash flow to all providers of capital (debt and equity) for the business. ‘Normalized’ means it is the expected cash flow under normal conditions in the immediate future – it excludes one-time, extraordinary events. Let’s begin by defining EBITDA, which is an acronym for Earnings Before Interest Taxes Depreciation and Amortization. E : Earnings = Revenue minus Cost of Sales minus G&A (General & Administrative) expenses. In other words, net income. B : Before = Illustrates the requirement to exclude or back out certain expenses included in the earnings definition above. I : Interest = Interest paid on debt and interest received. Since the calculation of earnings above includes interest, we will add back interest expenses and subtract interest income. T : Taxes = State and federal income taxes. We will add back state and federal income taxes because another owner may have different tax implications. D : Depreciation = Depreciation expense. This is a non-cash expense. A : Amortization = Amortization expense. Another non-cash expense. Next, we will make the appropriate adjustments to arrive at Adjusted EBITDA. We can group adjustments into four categories: One-time extraordinary income or expenses Business expenses that will not reoccur in the future Non-business-related expenses Personal expenses run through the business that a buyer will no longer incur One-time extraordinary income or expenses include: Gain/loss on sale or disposal of an asset. If it is a gain, then you would subtract it from EBITDA. If it is a loss, then you would add it to EBITDA. Restructuring expenses such as moving expenses, severance packages, etc. Legal expenses – due to a lawsuit Consulting expenses for a specific project Accounting expenses for an audit Non-business-related expenses include: Owner’s compensation relative to fair market. Suppose the owner is the administrator, and has a salary of $225k. Assume the salary market rate for an administrator of an agency with similar characteristics is $100k. The adjustment would add the difference between these two amounts ($125k) to EBITDA. Non-market rent expense. Suppose the agency owner owns the building and leases the office to the business. If the rent charged to the agency is greater than the market rate, then you will add the difference to EBITDA. If it is lower, you will subtract it from EBITDA. Personal expenses include: Owner’s non-business meals and entertainment Owner’s personal auto expenses Owner’s cell phone bill Owner’s non-business travel expenses Family members who are paid by the agency, but who are not necessary for operations Once we have completed the list of adjustments, we add or subtract each to EBITDA to arrive at Adjusted EBITDA. Why is Adjusted EBITDA important, and what is its role in your hospice or home health valuation? It provides a future cash flow estimate for potential acquirers to build their valuation models, specifically discounted cash flow models (DCF). It is the industry standard for valuing home health and hospice agencies, and provides a method for buyers to project their expected cash flow of the agency and the ability to pay for the acquisition. Finally, “the multiple” often quoted in home health and hospice M&A deal announcements is a risk-adjusted number that is applied to the Adjusted EBITDA to determine Total Enterprise Value, or purchase price. For a confidential valuation of your home health or hospice, please email us at info@mertztaggart.com

Mertz Taggart announced today that it was recognized as the M&A Source Top Firm of the Year  for its outstanding performance in 2023. The company is one of three advisory firms in the United States to earn the award, which is based on total enterprise value transacted. M&A Source is the leading professional association of lower middle market M&A advisors nationwide. The association focuses on education, professional development, and networking opportunities for M&A intermediaries. “We are grateful once again to our friends and colleagues at M&A Source and honored by this award,” stated Cory Mertz, Managing Partner. “This recognition highlights the dedication and expertise of our talented team and their commitment to maximizing value for our clients.” Additionally, we extend our heartfelt thanks to our clients for entrusting us with their most valuable assets—their businesses. We appreciate the opportunity to serve them and support their goals. We cherish the relationships we've built over the years and look forward to continuing our partnerships within the industry. Mertz Taggart is an industry-leading healthcare services mergers and acquisitions firm based in Fort Myers, Florida. Our industry focus includes home-based care (home health, hospice, home care) and behavioral health (mental health services, addiction and eating disorder treatment, autism services). We represent owners of companies with between $500K to $20 million in EBITDA. Since 2006, our team has helped over 140 healthcare services business owners achieve their exit planning goals. If you are interested in learning how we can help you maximize your exit value, while minimizing surprises, contact us via email at info@mertztaggart.com  and arrange a confidential discussion!

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:

If you’re an agency owner, you may be getting overwhelmed with emails and phone calls from brokers, M&A advisors (and increasingly, buyers themselves) with catchy subject lines, or lofty promises tied to an unnamed buyer (or buyers), which can at times be hard to ignore.   If you are considering an exit or sale, how do you decide who deserves your response?  Let’s start with this fact:  Finding a quality buyer for your agency is the (relatively) easy part. Maximizing value, getting a transaction through diligence, successfully executing a purchase agreement, and closing on the transaction with few or no surprises takes skill, foresight, healthy respect from the buyer universe, and relentless advocacy on your behalf. Deciding to take your agency to market is often the biggest decision of an owner's career. Running a competitive process  to maximize value is almost always the best decision (Do What the Pros Do)  but choosing the best firm to represent you is equally important. Some of the key factors to consider are: 1. Respect/Credibility from the Buyer Universe:  The firm representing you and your business must have earned respect from the buyer universe. The credibility of the firm representing you will ultimately correlate with the buyer's confidence in marketing materials, adjustments, and negotiations. Buyers respond positively to established firms that prioritize advocating for their clients throughout the entire process while adding value to the transaction. Working towards the best deal for a client could extend or draw out a deal, but this advocacy creates a firm tone and respect from buyers.  2. Customized Confidential Approach Every M&A transaction is unique, and a good advisor will tailor their approach to your specific needs and goals. Confidentiality is paramount to a successful transaction. An advisor should prioritize confidentiality to protect the business during the period in which a transaction will take place. Oftentimes, online listings or blasts about a business going to market will give competitors and other agencies in the local market clues that your business is being sold, which can negatively impact your operations, staffing, and flow of referrals. Business owners will have different wishes and goals with an exit so while running a competitive process will always extract the most value, it can look different based on your business, objectives, and timeframe.  3. Track Record Assess the M&A advisor's track record in successfully completing transactions in the healthcare sector, particularly within the home-based care industry. Look for evidence of their ability to facilitate deals, negotiate favorable terms, and achieve positive client outcomes. Client testimonials  and case studies can provide valuable insights into their past performance.  4. Candor Engaging with an advisor is a commitment.  Trust  and integrity are critical in the M&A process. Most engagements include a one-year term plus a commitment to the firm for 18-24 months for those buyers the firm has “introduced” to the seller (also known as a tail period). Be sure the firm is not selling you on an inflated valuation just to lock you into this agreement. The right firm will create a competitive process among the best buyers in the industry and allow the market to decide value. If it sounds too good to be true… 5. Strong Communication and Negotiation Skills Effective communication and negotiation skills are vital in M&A transactions. The advisor should be a strong communicator who can articulate complex concepts clearly, facilitate discussions between parties, and advocate for your interests. They should also possess excellent negotiation skills to secure favorable terms and resolve any conflicts arising during the deal process. 6. Industry Expertise It is crucial that the M&A advisor has deep knowledge and understanding of the home-based care industry. They should be familiar with the market dynamics, regulations, trends, and key players within the sector. This expertise will help them identify potential opportunities, evaluate potential acquirers accurately, and navigate the industry's complexities.

Behavioral Healthcare Stocks down 14.8% in March The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 14.8% for the month of March. The S&P 500, by comparison, was up 1.1% during the same period. The gain in the BHC index was mainly driven by AAC. American Addiction Centers – AAC ( ↓35.9% ) fell sharply as the company postponed its conference call, which was scheduled for March 13, as it needs additional time to complete the consolidated financial statements for 2018. The company continues to have liquidity and leverage issues. The press release indicated the following highlights: (i) the census downturn experienced in the last several months of 2018 was more significant than originally anticipated, with an initial 30% drop in call volume resulting in sharply decreased admissions in Q3 and Q4; (ii) implemented over $30.0MM in annualized expenses reductions to benefit 2019 margins and (iii) closed an additional $30.0MM incremental term loan to provide liquidity into 2019. The company is also exploring alternatives to generate additional liquidity from its real estate portfolio. Acadia Healthcare – ACHC ( ↓3.6% ) decreased slightly on mixed Q4 and year‑end 2018 earnings. Q4 revenue was $743.5 million, an increase of 2.6% compared with $724.5 million for Q4 2017. Net loss per diluted share was $3.80 for Q4 2018 compared with $0.80 per diluted share for Q4 2017.  Adjusted for non-recurring items, Q4 2018 net loss per diluted share was $0.47.  Same facility revenue in the U.S. grew 3.5% in Q4 year-over-year, with a 3.5% increase in patient days and flat revenue per patient day.  Same facility revenue in the U.K. increased 4.4% in Q4 year-over-year, with a 1.5% increase in patient days and a 2.8% increase in revenue per patient day.  For the full year 2019, the company is guiding to revenue of $3.15 – $3.2 billion, adjusted EBITDA $610 – $630 million, and adjusted earnings per diluted share of $2.15 – $2.30. Universal Health Services – UHS ( ↓5.0% ) was down for the month of March.  On February 27th, UHS delivered its earnings.   EPS for Q4 came in at $2.37 while expectations were $2.34.  Revenue came in at $2.75 billion compared to estimates of $2.74 billion.  For the Behavioral Health segment, on the same facility basis, adjusted admissions rose 4.5% while adjusted patient days dipped 1.2%, both on a year-over-year basis. Net revenues were up 2% in Q4 due to higher admissions. For the last twelve months (LTM), the BHC is well behind the S&P 500 at a -30.9% loss relative to the S&P’s gain of 9.8%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS.  The valuations provide a relative barometer for what smaller companies can expect.  Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 3/1/19 AAC $2.87 ACHC $30.41 UHS $140.80 Enterprise Value/EBITDA Company 3/1/17 3/1/18 3/1/19 AAC 13.05x 11.12x 12.00x ACHC 12.37x 11.23x 10.26x UHS 9.60x 8.66x 9.96x Enterprise Value/Revenue Company 3/1/17 3/1/18 3/1/19 AAC 1.49x 1.53x 1.18x ACHC 2.55x 2.30x 1.95x UHS 1.67x 1.44x 1.56x M&A News April 3, 2019 – Vizion Healthcare LLC announced that it has acquired Panola Medical Center, a 112-bed acute care medical hospital located in Batesville, Mississippi.  Vizion partnered with Progressive Medical Management of Batesville, LLC, Whitwell Holdings, LLC, and Java Medical Group on this acquisition.  The Panola Medical Center is Vizion’s third acquisition. Vizion currently owns two facilities in Miami, Oklahoma; Willow Crest Hospital and Moccasin Bend Ranch. March 20, 2019 – Ashley Addiction Treatment announced that it has acquired Aquila Recovery, an outpatient addiction treatment provider with four locations across Maryland, Virginia, and Washington, DC. Aquila will become a member of Ashley’s network by July 1, with both organizations retaining their respective names in the meantime. Ashley president and CEO Rebecca Flood will serve in the same role once the merger is completed, overseeing all operations. March 15, 2019 – Audax Private Equity (“Audax”), a Boston-based private equity firm, acquired Proud Moments, an autism behavioral health services provider.  Proud Moments operates in New York, New Jersey, Maryland, Tennessee, and Nevada. March 13, 2019 – Gryphon Investors (“Gryphon”), a San Francisco-based private equity firm, announced that it has acquired a majority stake in LEARN Behavioral (“LEARN” or “the Company”), from LLR Partners.  LEARN is a network of providers serving over 4,000 families with autism and other special needs in 23 states. LLR and senior management will maintain minority stakes alongside Gryphon. The transaction marks Gryphon’s first investment in the behavioral health sector. March 1, 2019 – Perimeter Healthcare, a network of mental and behavioral health treatment centers backed by Ridgemont Equity Partners, announced the acquisition of Lake Pines Hospital, a 36-bed behavioral healthcare facility, and the St. Theresa Hospital building that houses the program in Kenner, La.  Perimeter plans to add 40 to 45 beds to the inpatient facility over the next eight months as part of a renovation project. The facility will be renamed Perimeter Behavioral Hospital of New Orleans. February 22, 2019 – Family Counseling Services of Cortland County and Family & Children’s Society announced the merger between the two services.  The renamed Family & Children’s Counseling Services will serve as a joint urban-rural agency focused on essential behavioral healthcare services throughout the Oneida, NY region February 19, 2019 – Ryan Chapman, who grew and sold a nationwide service company, Premier Parking, before age 35, purchased Integrative Life Center (ILC), a provider of residential and outpatient treatment for substance abuse, eating disorders, and mental health disorders.  The company was founded in 2010 and has two facilities in the Nashville, TN area.  Ryan Chapman is now the majority shareholder and CEO. February 6, 2019 – Ideal Option, a provider of Medication-Assisted Treatment (MAT) and behavioral counseling services for individuals suffering from Opioid Use Disorder (OUD), announced today a strategic minority investment by BlueCross BlueShield Venture Partners (BCBSVP). BCBSVP invests on behalf of 33 BlueCross BlueShield entities in healthcare companies of strategic relevance to BlueCross BlueShield Plans. January 24, 2019 – Pharos Capital Group-backed Beacon Specialized Living Services acquired Owakihi, Inc., which provides home and community-based support services to individuals with intellectual and developmental disabilities.  Headquartered in Saint Paul, MN, Owakihi serves over 200 individuals across 14 sites in the seven counties surrounding Minneapolis and Saint Paul. Also read Behavioral Health Composite – April 2019

What is Driving the Surge in Hospice M&A? And how long will it last? 2019 was a banner year for hospice mergers and acquisitions activity. Of the roughly 101 home health, home care, and hospice M&A transactions that took place, 42 were hospice-related deals. Hospice didn’t just make headlines for volume, it also accounted for the largest deals in the fourth quarter of 2019. Multiple factors created an impressive 2019 that helped hospice providers ride a wave of successful transactions, however, there are potential market changes in the future that could turn, or at least slow, the tide in 2020. “While they won’t last forever, we see three main drivers behind the surge in hospice M&A,” says Mertz Taggart Managing Partner Cory Mertz. “First, hospice offers desirable health care synergies; second we are seeing a huge wave of private equity deals; and third, this sector has historically shown immunity to payment changes under the Centers for Medicare and Medicaid Services (CMS).” Synergy Seekers As the U.S. health care sector continues to progress toward a more value-based model, hospice allows buyers to better align themselves with this change. Because of their ability to provide the right care setting at the right time for the patient, hospice is becoming an appealing addition to some organizations. Accountable care organizations (ACOs) and payers are attracted to the continuum of care that results from adding hospice to the menu of institutional offerings. Hospice also creates the opportunity for payment diversification, which is especially important as the recent implementation of the Patient-Driven Groupings Model (PDGM) has created some disruption for home health operators. Organizations that have both home health and hospice assets have the ability to leverage referral synergies, essentially becoming a one-stop shop for post-acute care services. Hospice usually boasts stronger margins than home health. “More and more, hospice has become favorable among buyers due to those strong margins,” Mertz says. “Many have caught on to this; in fact, the number of hospices operating in the U.S. has almost doubled since the year 2000.” Private Equity Leading the Charge Heading into 2020, private equity firms have more funds than ever before; a reported $1.5 trillion in unspent capital. These private equity players, whose interest in health care has grown significantly over the years, have taken notice of hospice, accounting for 54 of the 107 hospice transactions from 2017-2019. “Private equity firms also have aggressive growth mandates, and, given their supply of cash, often this growth is best achieved through acquisition,” Mertz says. “Typically, these firms look to buy and sell an asset within three to seven years, making the hospice sector, with its relatively strong margins, very attractive.” Protected Payments Historically, the hospice market has been shielded from significant reimbursement changes — making it a bright spot in the post-acute care market. This has also made hospice relatively stable when compared to the home health market, which has to navigate tricky reimbursement hurdles due to PDGM. “Nothing lasts forever, but this care setting has certainly fared better across the reimbursement landscape than its home health and skilled nursing counterparts,” Mertz says. Potential Headwinds While we have seen a significant amount of hospice mergers and acquisitions activity, there are a number of possible headwinds to look out for on the horizon. Turning market cycles: All markets are cyclical, and high public company valuations allow for high private company valuations. Home health and hospice operators could see a valuation hit in upcoming years, and hospice will not always have the sky-high multiples of EBITDA seen today. An economic downturn: An economic downturn would carry an impact on the hospice market, with many expecting a recession in the next few years. This could lead capital markets to tighten and interest rates to rise. For context, it’s been over 10 years since the Great Recession hit. Payment rates: Last month, the Medicare Payment Advisory Commission (MedPAC) made a lot of noise with its vote to recommend that Congress skip Medicare payment increases for hospices in 2021. The vote also called for a 20% reduction in the aggregate payment cap. “It’s not immune to a downturn,” Mertz says. “But hospice has seen a boom year for transactions. Pending economic shifts, changes to the payment landscape, and other unforeseen factors, those who are currently active in the hospice space are continuing to enjoy a strong M&A market.” CLICK HERE for a downloadable pdf of this article.