Heading into 2020, the home-based care world was geared up for a large year of consolidation and M&A. Of course, this shift did not immediately come to fruition due to the COVID-19 pandemic, but experts warned it was still coming. Toward the end of 2020 and into 2021, the onslaught came. With some variance across the three sectors, 2021 marked a record-breaking year for home care, home health and hospice M&A. Then the year turned, and the deal volume slowed. The first quarter of 2022 was not merely quiet — it was record-breaking on the opposite side of the spectrum. February tied the lowest number of closed home care, hospice, and home health M&A transactions in one month in over four years, with a total of three transactions reported. Yet as Mertz Taggart Managing Partner Cory Mertz notes, this trend is not expected to continue. “Transaction volume is down considerably, however, there is no reason to rush to conclusions,” Mertz says, “Demand for quality agencies has not slowed one bit. This is a ‘first quarter’ phenomenon, which is a result of a rush of sellers exiting at the end of 2021, leaving deal pipelines low in early 2022.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. The first quarter of 2022 saw 26 home health, home care and hospice deals, a dramatic decline from over 50 transactions in both the third and fourth quarter of 2021. One active acquirer in Q1 was Choice Health at Home, which closed three transactions. Choice is one of the growing regional players in home health care, backed by two private equity firms: Coltala Holdings and Trive Capital. Choice also secured in January a $190 million credit facility. “Our partnership with Trive Capital and Coltala Holdings coupled with the recent credit facility provided by Oxford Finance, AB Private Credit and Maranon Capital have placed Choice in a position to grow,” Choice President David Jackson told Home Health Care News this month. “We will continue to look for quality businesses in the home health, private duty and hospice space.” LHC Group also completed two deals in the quarter, but those ended up looking insignificant compared to where else the company drew headlines. After all, one of the biggest deals in recent memory — though not yet closed — came to the surface at the end of March. UnitedHealth Group (NYSE: UNH) announced that it would buy LHC Group Inc. (Nasdaq: LHCG) for a purchase price of about $5.4 billion, or approximately 23x EBITDA. If all goes according to plan, the deal will eventually pair UnitedHealth’s Optum with LHC Group. “LHC Group’s sophisticated care coordination capabilities and its warm, human touch is so important for home care, and will greatly enhance the reach of Optum’s value-based capabilities along the full continuum of care, including primary care, home and community care, virtual care, behavioral health and ambulatory surgery,” Dr. Wyatt Decker, Optum Health’s current CEO, said when the deal was announced. Home health M&A volume down While home health M&A volume fell, albeit in line with the overall industry declined, Mertz expects increased demand for quality home health assets will fuel transaction growth. “2022 will be an interesting year for home health M&A,” he says. “I expect we’ll start to see some bifurcation, with those agencies that appear to be well-positioned for Value-Based Purchasing (HHVBP) receiving premium values,” Mertz noted. “2023, the performance year, is just around the corner, and a 5% payment increase will drive significant value from an investment standpoint.” Additionally, 2023 is not immune to a reimbursement adjustment, and a June proposed rule could disrupt deals that are in the works. Another reason for optimism is that some of the larger operators have re-doubled their home health M&A development efforts, considering the out-of-this-world valuations hospices have been receiving. “Problem is, the market is so overheated in the hospice valuations that it just doesn’t work. I think where there’s more confusion — which is obviously where we want to go — and [where there’s] more realistic valuations is in home health,” stated Amedisys Chairman, Paul Kusserow at a recent conference. Home care M&A leads the way It’s important to note that LHC Group does have a personal care arm, and thus the UnitedHealth Group deal, if or when it closes, will also mark a large home care transaction. Although a decline from Q4 2021, home care led the way, with thirteen transactions reported. A Place for Mom, a private duty home care franchisor, received $175 million in development capital from Insight Partners and two of its existing investors, Silver Lake and General Atlantic. The funds will be used for expansion. Michigan-based Bayside Home Care sold to a private equity-backed strategic buyer. Mertz Taggart provided exclusive M&A advisory services in this transaction, representing Bayside. The private equity-backed operators continue to grow through acquisition. One of the largest home care providers, Centerbridge Partners-backed Help at Home, announced three deals at the end of 2021, in Ohio, Pennsylvania and Georgia. The company then entered the New York market at the beginning of the second quarter with the sizable acquisitions of both Edison Home Health Care and Preferred Home Care of New York. Hospice M&A volume down, for now Hospice transaction volume was down, in line with the rest of the market, with a total of ten transactions reported. But demand has not waned. “There is a reason some of the bigger providers have switched their focus back to home health,” commented Mertz. “Private equity loves hospice. And with a short supply of quality agencies on the market, their collective appetite remains as strong as ever.” Similar to the aforementioned Choice, the Dorilton Capital-backed Traditions Health is a regional provider that continues to grow. The home health and hospice provider made two hospice acquisitions in the quarter. Demand remains high The lull in deal making can be attributed to a variety of factors, none of which suggests continued stasis. “Across all three sub-sectors, demand remains as strong as it has ever been,” says Mertz. “The themes remain the same, and they’re driven by the public companies, private equity and, increasingly, ‘pay-viders.’” “Pay-viders” refer to payers that are becoming hybrids of payers and providers, such as UnitedHealth or Humana Inc. (NYSE: HUM). For instance, assuming the LHC Group deal is closed, both UnitedHealth and Humana will have embedded home health agencies within their networks. In fact, each will have one of the biggest home health agencies — between LHC Group and Kindred at Home, respectively — in the country. Besides “owning the continuum,” the biggest reason for this shifting strategy for payers is the overall trend to value-based care in health care. While value-based care is a hot topic in most health care sectors, it is especially so in home health care, as, again, the nationwide expansion of the HHVBP Model is looming – a potential catalyst for consolidation. “Valuations have not weakened,” Mertz says. “We will see a strong back half of the year.” The M&A landscape in home-based care continues to fill up with interested parties. Payers, providers and private equity firms are all looking to make splashes — another reason why the deal making lull will likely not last.

Words cannot express our gratitude and gratefulness to the Mertz Taggart team for their successful handling of the marketing and sale of our 27-year-old prized possession, our business. We tried selling our business on our own and were both unsuccessful and stressed out from the experience. Due to those negative interactions, we then researched and interviewed many of the M&A firms out there and Mertz Taggart easily stood above the rest. They really get to know your business and try to find you the best match. To our surprise, they were able to directly contact the CCO of our preferred buyer which did two things; it cut down on the usual time involved in a sale (only took 3 and a half months from the signing with MT to the closing of the deal) and they were able to negotiate a price that was more than double our original offer! The people at Mertz Taggart are very patient and reassuring as they walk you through the process of the ups and downs of selling your business. They are highly professional and knowledgeable and are very well connected to and in the behavioral health field. They provide you with solid understandable information and give you options to help you make the best decisions and choices. They are strong advocates not only for you, but also for the people that work for you. Overall, they looked out for our interests and did it with a personal touch that we feel we would not have received elsewhere. We trusted Mertz Taggart with our business and you can too. We are thankful to them for helping us turn a dream into a reality. Take care, Tim Markwell

Managing Partners Cory Mertz and Kevin Taggart and guests have an open discussion regarding the latest in various health care mergers and acquisitions industry trends. Up for discussion: where the marketplace is going and what advice the Mertz Taggart team can offer to those in the home health, home care, hospice, and behavioral health sector. The Insight Series Videocasts offer on-demand M&A information as well as expert answers to all of your M&A questions. Streaming: Streaming NOW: Managing Partners Cory Mertz and Kevin Taggart discuss the Q3 2020 Home Health, Home Care and Hospice M&A Quarterly Report Streaming NOW Managing Partners Cory Mertz and Kevin Taggart discuss the Q3 2020 Behavioral Health M&A Quarterly Report Have a question for the Mertz Taggart team? Contact us with your question for a chance to hear your question answered on an upcoming videocast!

Federal Reserve Chair Jerome Powell signaled Friday from Jackson Hole that the US central bank is likely to keep raising interest rates and pushed back on the idea that the Fed would reverse course anytime soon. “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.” ”Interest rate increases result in lower asset values,” said Mertz Taggart Managing Partner, Cory Mertz, “We saw this in the equity markets on Friday. Chairman Powell's words signaled more aggressive future rate hikes than Wall Street analysts had built into their models. The result was a broad market sell-off, resulting in lower values, with the Dow losing over 1,000 points." That begs the question: if the Fed is intent on raising rates, in an effort to restore pricing stability, i.e. lower asset values, what impact will rising rates have on the value of your home health agency or hospice? To illustrate, let's walk through two of the more common approaches to business valuation: The Market Approach (multiple of EBITDA) and the Discounted Cash Flow, or DCF. Market Approach (or EBITDA Multiple) In short, the EBITDA multiple method is analogous to how residential real estate is valued. To value residential property, stakeholders find the most appropriate, recent “market” comparable transactions to get a range of values, which are driven by, among other things, size, location, and construction. Similarly, with at-home care agencies, we look at market “multiples”, which can vary significantly from one transaction to another depending on, among other variables, size, geography and payor mix. Under the EBITDA multiple method, a risk-driven multiple is applied to the agency's EBITDA during a recent time frame. EBITDA is a proxy for normalized 12-month cash flow. The multiple is determined by the multiples used in recently closed comparable transactions and then adjusted for risk associated with the post-closing cash flow of the agency. EBITDA is then multiplied by the chosen multiple to arrive at the enterprise value for the agency. How the rate hike can affect agency values under EBITDA multiple Let’s examine the two most active types of acquirers for private home health, home care and hospice companies -- private equity groups and public companies. Private equity groups implement various strategies to create value for their investors, but acquiring an agency using debt leverage is one of the more commonly used methods for stoking returns. Historically around 30-60% of funding for platform acquisitions has come from debt. When rates rise, the borrowing costs for private equity firms increase, lowering returns, if all else remains static. Since lower ROI is not in the private equity playbook, something has to give, and it’s usually purchase price. Public companies, meanwhile, are under the market's microscope, with many parties publicly judging their acquisitions for the investment community. When an acquisition is completed, Wall Street analysts determine if the transaction is accretive or dilutive. An accretive transaction will increase the acquiring company's earnings per share, while a dilutive company will decrease the acquiring company's earnings per share. Broadly speaking, if the acquiring company has a higher EBITDA multiple than its acquisition target, the transaction will be considered accretive to earnings to the acquiring company. This means the increased value of the buyer will exceed what they paid for the target. If the target agency’s EBITDA is higher than that of the acquiring company, the transaction will be dilutive, and not typically looked at favorably by the analysts. Now, how do interest rates influence all of this? As illustrated above, when interest rates rise, stock market values tend to drop as the public company business costs increase. Consumers enjoy less disposable income and wealth to spend on goods and services these Companies provide, and investors shed equities in favor of safer investments. The resulting lower multiples of public companies (considered the ultimate consolidators) trickle downstream to private equity investors seeking their respective exits. For example, a publicly traded home care company trading at 12x EBITDA will have a difficult time justifying paying 16x for a large PE portfolio company without a significant strategic angle or synergies, especially under the microscope of Wall Street. Discounted Cash Flow (DCF) method In the DCF method, when an investor analyzes a business investment opportunity, an agency’s future cash flows are forecasted for a period of time (typically three to five years) after which a terminal value, the agency’s expected value at that future date, is estimated. The final step in determining the agency's present value is to discount those future cash flows, including the terminal value, back the present day. Buyers will discount those future cash flows using a discount rate, which is their minimum required rate of return given their cost of capital and the risk of the investment. As interest rates go up, discount rates increase, thereby lowering present values. ”As interest rates rise, buyers’ cost of capital increases. This ultimately increases the discount rate buyers will be forced to use in evaluating home care and hospice acquisition opportunities. The end result, according to the math, is a lower present value, which is, effectively, a lower purchase price,” Mertz said, "The good news is, a 3-4% difference on interest rates isn't really going to make much of a difference with private equity groups interested in healthcare services, especially care-at-home opportunities. It's still very much a seller's market, with too much money chasing too few quality M&A opportunities."

When Humana Inc. (NYSE: HUM) joined forces with TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS) to acquire Kindred Healthcare in July 2018, it saw an opportunity to test out the home health waters. As a result of that $4.1 billion deal, Humana landed a 40% stake in Kindred at Home, with the aforementioned private equity giants controlling the remainder. After determining those waters were to its liking, the Louisville, Kentucky-based health insurer decided to dive deeper and acquire all of Kindred this April for $5.7 billion. More than revenue upside or future financial gains, Humana saw the move as a way to keep its members healthy, happy and out of costlier health care settings. “We continue to invest in assets that allow Humana to better manage the holistic needs of our members and patients by expanding care in the home, including primary care, telehealth and emergency room care, while also addressing social determinants of health,” Humana President and CEO Bruce Broussard said when the deal was first announced. “Since our initial investment in Kindred at Home, in partnership with [TPG and WCAS] and Kindred at Home management, we’ve learned a great deal about the home health space and recognize the significant value we can deliver to members and patients by integrating this asset into our holistic approach to care.” There’s plenty to like about this move for Kindred shareholders, so let’s take a closer look. Bargain hunting Home health, hospice and home care assets have hit record multiples over the past several months, particularly when those assets are larger in scale. Apart from Kindred at Home’s ability to keep Humana members out of the hospital, a full acquisition made sense from a dollars-and-cents perspective. Humana is acquiring 100% of Kindred for an all-in financial commitment of roughly $7.1 billion (a $5.7 billion purchase price for the final 60% and an initial weighted investment of $1.4 billion). After doing the math, the transaction EBITDA multiple comes out to roughly 11 times － a relative steal for a home health business of Kindred’s size. “The market multiple for a home health business with the scale of Kindred is significantly higher than 11x. So Humana is getting a fantastic deal from a valuation perspective,” Mertz Taggart Managing Partner Cory Mertz commented, “But the real value to Humana will be realized in savings across their membership base.” The 2018 deal between Humana, TPG and WCAS included a built-in option for the PE firms to sell their 60% stake to Humana after three years at a multiple of between 10.5 and 11.5 times. Hospice plans There’s a chance that Humana’s Kindred play turns out even better, too. Once Humana acquires all of Kindred at Home, it will rename the business under its “CenterWell” brand. It then plans on separating Kindred’s hospice and personal care capabilities through a sale or spinoff, capitalizing on the sky-high demand for those service lines. “We expect that we will be able to capitalize on a robust market for hospice assets by divesting a majority stake in that portion of the business in what we anticipate will be an attractive valuation,” Humana CFO Brian Kane said during a Q1 earnings call. It’s not that Humana doesn’t see the value of end-of-life care. Rather, the company’s leadership team sees ample opportunity to deliver hospice care through partnership models. Humana is just one of 53 direct-contracting entities under the new value-based care initiative from the U.S. Centers for Medicare & Medicaid Services (CMS), giving it an edge on the partnership front. Within direct-contracting models, providers can assume 100% of the risk associated with eligible patients in the “global” option or 50% of the risk under the “professional” option. Additionally, Humana will likely be able to find more hospice and palliative care partnerships as those services are progressively carved into Medicare Advantage (MA). #hospice #mergers #behavioralhealthmergersandacquisitions #behavioralhealth #humana #hospicemampa #mergersandacquisitions #hospicemergerandacquisition #acquisitions

The first quarter of 2020 brought 20 behavioral health M&A transactions, according to the latest data from M&A advisory firm Mertz Taggart. Deal volume among mental health organizations led the segment with 10 announcements—a peak not seen since the third quarter of 2017. But the biggest question is the impact the Coronavirus will have on healthcare M&A going forward. Predictions indicate that investors will be cautious for the next couple of months. “We know that strategic buyers in healthcare are still moving forward to close deals that were already in progress,” said Mertz Taggart Managing Partner Kevin Taggart. “And it’s certainly in their best interest to stay the course because they’re really playing the long game right now.” Taggart also said that private equity firms have been anxious to close on outstanding transactions while lenders are still making good on their commitments. Undoubtedly, economic recovery from COVID-19 will take some time, and resources could quickly shift toward working with lenders to restructure debt in the coming months. “We do anticipate a modest slowdown in behavioral health deal activity in the short term but the industry continues to be attractive for investment overall. We anticipate that healthcare M&A, in general, will rebound sooner than other industries, and behavioral health will be on the front edge of that,” Taggart said. According to a recent survey by Mertz Taggart, strategic buyers forecast a slower pace of healthcare M&A transactions only for the short term. Most have strong balance sheets and are optimistic that their momentum will hold steady. Meanwhile, buyers remain committed to building their portfolios to achieve scale. “Disruption in the market could actually produce opportunities for buyers with cash or access to credit,” Taggart said. “Buyers that keep their eyes open could sight desirable targets that weren’t available previously.” Providers that have been able to expand or create new telehealth capacity are delivering outpatient care virtually and maintaining at least a portion of their operations. However, some center-based programs, most notably Autism services have temporarily shut down. Taggart believes providers will slowly transition to restore access to in-person services once it makes sense in their local community. As access improves, demand will likely surge. He also forecasts that where the delivery system has adopted telehealth, those telehealth services will only gain traction. “The sudden, unforeseen interest in telehealth services has resulted in added reimbursement opportunities for providers,” Taggart said. “And reimbursement potential is always an attractive feature.” The National Council for Behavioral Health and more than 40 other industry groups recently requested $38.5 billion in emergency funds from Congress to support community-based providers in their efforts to maintain services under coronavirus concerns. Without added assistance, they said, providers will be forced to close, placing greater demands on the acute care system. “It’s likely that some not-for-profits are now using their reserves,” Taggart said. “We could easily see some rescue mergers take place among like-minded organizations before long.” Mental Health Mental health M&A deal volume has been somewhat hit-or-miss over the past few years, according to Mertz Taggart tracking data. But services remain in high demand, and there continue to be significant unmet needs, marking robust growth opportunities. Among the transaction highlights, healthcare growth equity investment firm Galen Partners acquired Evolve Treatment Centers in January. The Los Angeles-based Evolve provides adolescent behavioral health services as well as addiction treatment. Great Lakes Bay Health Centers acquired the McLaren Bay Psychiatric Associates practice in Bay City, Michigan. The deal brings the Great Lakes Bay Health Centers portfolio to 32 sites in Michigan. The nonprofit Center for Balanced Living in Columbus, Ohio, announced in February an agreement to transition its eating disorder treatment services to The Emily Program following process completion in March. The Emily Program provides outpatient services and residential programs at 15 locations across the country. Salt Lake City-based private-equity firm Cimarron Healthcare Capital completed the acquisition of Ascent Behavioral Health in February, in partnership with, Monroe Capital and Veronis Suhler Stevenson (VSS). Ascent provides wilderness therapy, residential treatment, and therapeutic boarding school programs for adolescents through its six residential programs in Utah. The investment will be used to support the expansion of Ascent’s programs and potential acquisitions in the future. Early this year, the city of San Francisco announced its intention to purchase two residential care facilities—Grove Street House and South Van Ness Manor—which were at risk of closing. Grove Street House is a state-licensed, nine-bed residential mental health treatment facility. The city is in negotiations to purchase the 29-bed South Van Ness Manor facility. Bay Psychiatric Associates acquired Lenox Hill TMS Psychiatric Associates Bay Area in late February. Bay Psychiatric Associates has locations throughout California, offering office- and hospital-based services. New Era Partners announced the development of multiple healthcare assets in Texas and Indiana. Assets include three behavioral hospitals that were acquired or developed for Oceans Healthcare and the development of inpatient rehabilitation hospitals for Nobis Rehabilitation Partners. Discovery Behavioral Health acquired the residential treatment center New Hope Ranch in Austin, Texas. Discovery also announced the acquisition of Associated Behavioral Health Care of Seattle in January. The transactions follow an active 2019 for the organization, a year in which it built a network of outpatient mental health, addiction, and eating disorder treatment centers now spanning 11 states. In March, MindCare Solutions Group announced a merger with PsychNow. Combined, the two telepsychiatry providers offer virtual services to more than 200 clinical care settings in the United States. MindCare is a portfolio company of WP Global Partners. Finally, at the end of March, in what was clearly the highlight transaction of the quarter….. Cielo House sold to Refresh Mental Health. Cielo House provides eating disorder treatment with four locations throughout the San Francisco Bay area. Mertz Taggart provided exclusive behavioral health M&A advisory services in this transaction, representing the seller. Addiction Treatment M&A Interest has slowed a bit in addiction treatment mergers and acquisitions, according to Taggart, and the nine deals recorded for Q1 were on target with expectations. However, Mertz Taggart expects addiction treatment M&A transaction volume to pick up towards year-end. Outpatient services and the ability to negotiate network contracts with commercial payers remain attractive features among deal targets. In January, Turnbridge acquired the Clearpoint Recovery Center in Westport, Connecticut. The outpatient treatment center treats adults with substance use and co-occurring mental health disorders and will now be branded Turnbridge Westport. Franklin, Tennessee-based Summit BHC acquired Peak View Behavioral Health in Colorado Springs, Colorado. This deal marks Summit BHC’s first facility in Colorado and its 19th facility overall. Peak View Behavioral Health opened in 2009 and offers acute psychiatric services as well as addiction treatment. The non-profit NUWAY Alliance acquired the Gables Women’s Treatment Program in a transaction that doubles NUWAY’s residential women’s treatment capacity. Additionally, the Gables will become a subsidiary of the NUWAY Alliance, a recently established management company. Pinnacle Treatment Centers, which offers inpatient, outpatient, and medication-assisted treatment, has acquired Aegis Treatment Centers, a California-based provider of outpatient opioid treatment programs with 35 locations. With the transaction, Pinnacle now operates facilities in seven states. I/DD & Autism Services M&A Much of 2019 was marked with interest in the intellectual/developmental disabilities (IDD) and autism services M&A market. As payers feel pressure to provide reimbursement for more comprehensive care for individuals, the subsegment has been ripe for growth as well as consolidation. The Stepping Stones Group in January acquired STAR of CA, a California-based provider of home, community and school-based applied behavioral analysis and mental health services. STAR of CA will operate as a subsidiary of The Stepping Stones Group. This is the group’s second acquisition of an autism services provider. Last September, it acquired New England ABA in Massachusetts. Acorn Health acquired Autism University in Macomb, Michigan, in January. With this acquisition, Acorn now operates 11 facilities in the state under the Autism Centers of Michigan brand. Fort Worth, Texas-based Caregiver Inc. has acquired four companies. In March, it closed on the acquisition of Indiana-based Houston Group Homes. In Q4 2019, it completed the acquisition of Cori Care and Absolute Care. Also in Q4 2019, Caregiver closed on the acquisition of Personal Care Choices in eastern Tennessee. Houston-based Blue Sprig Pediatrics, Inc. announced a merger with the Florida Autism Center and the Fusion Autism Center, which officials called a “landmark transaction.” Blue Spring, which was formed in 2017 with the backing of KKR, now has 110 centers in 13 states. The merger follows a deal inked in the third quarter of 2019 when Blue Spring acquired Thrive Autism Solutions, a multi-state clinic and home-based provider of autism services.

By Eduardo Tavel For many agency owners, selling their home care or hospice agency will be the most important financial decision of their life. Not only is this a difficult decision because of its emotional ties, but it is also tough to know when to sell or to "let go". Furthermore, it is also a very private issue, so confidentiality is paramount. The complexity and uncertainty surrounding the idea of selling often lead agency owners to ignore or postpone it. The good news for agency owners is that an M&A advisor can add value well before they are ready to sell their agency, or if they are not considering a sale at all. Here are some of those benefits an agency owner can get from engaging with an M&A advisor: Valuation Guidance and Exit Planning: There are three widely accepted valuation methodologies that every professional valuations firm will most likely employ to value businesses: 1) discounted cash flows (DCF), 2) comparable company analysis, and 3) precedent transactions. To truly understand home care, home health, and hospice agencies and their value, M&A firms need a specialized body of knowledge. When seeking valuation guidance for your agency, choose an advisory firm with experience in these topics. An even better selection would be a firm that has experience valuing agencies and has participated in prior transactions in the marketplace. Below are some questions an M&A firm can answer in this sense: Which valuation methodology is most appropriate for my agency? How is my agency valued? How much is my agency worth today? What operational changes should I make today that will ultimately increase the value of my agency? Who can help us achieve these changes? Are there any operational changes I can make today to increase the value of my agency? What are the high-risk elements that caution buyers the most? Education: Learning about what a well-run and professionally managed M&A process looks like and what it entails for every stakeholder. Some of the most frequently asked questions include: How long will the process take from beginning to end? How much additional work will be required from the owner and potentially from key employees brought into the circle of trust? How can confidentiality be managed so thatkey stakeholders do not find out before you'd like them to? What type of information do M&A firms need to build the necessary materials to manage an effective, competitive process? M&A Marketplace Updates: M&A advisors live and breathe transactions. Their wealth of information is invaluable to an agency owner seeking to learn about market dynamics such as: What makes an agency an attractive target? Who are the most acquisitive buyers in today's market? Which geographies are attractive to which buyers? What are "market terms" for negotiated areas of the purchase agreement? Industry Knowledge: An M&A advisor that specializes in home care, home health, and hospice has a vast body of knowledge on the industry and can provide insights on: Operating margins, including gross profit and adj. EBITDA margins Industry innovative ideas Standard solutions to problems you are facing Introductions to other industry advisors who could assist you The above is a brief summary of some of the benefits an agency owner could get from engaging with a specialized and professional M&A advisory firm, regardless of their exit timeline.

Home health, home care and hospice agency owners are inundated today with “offers'' to buy their agency. We frequently hear from owners that multiple buyers have approached them trying to engage in substantive talks about an acquisition. Oftentimes, they even say that the buyer has talked about a price with them. A buyer who approaches you with an immediate offer doesn’t really know anything about your business. If they tell you they are paying a “multiple of X '' or paid “Y” for an agency “just like yours,” you should be skeptical. Unfortunately, what agency owners don’t know is that unsolicited offers are really just an attempt to get a foot in the door. How could they know any significant details about your agency upon which to base an offer? How are they comparing your agency to others? You may find yourself curious about the offer and value of your company itself. You may even be considering selling your home care agency or hospice or taking investment into your business and growing it. These unsolicited offers can be valuable—as long as you know how to respond. You would sell if the right offer came along: Simply put, the right offer is not going to come along out of the blue. Buyers who say they want to buy your agency are usually looking for a deal (or maybe even a steal). They know you’re not talking with multiple buyers and that you haven’t put together a comprehensive analysis of the M&A marketplace, including the value of your agency. They know you’re not represented by anyone who understands the market or the sale process. Waiting for the perfect opportunity to come along is not an exit strategy we advise. Knowing what your agency’s value is, what is happening in the marketplace, and preparing for a sale are key in preparing yourself and your agency for the right opportunity, and it’s never too early to start planning your exit strategy. If you are considering a sale - now or in future: 1. Prepare It’s important to carefully consider your next step, and this often means taking time to collect all necessary information. Before responding: Review their LinkedIn profile and/or company website. If it is in fact a buyer that has reached out to you, and not a broker or M&A firm, research whether the company has made previous home care, hospice or home health acquisitions. If the buyer’s identity is intentionally vague, be cautious in proceeding. A legitimate broker or banker who claims to have a buyer interested in your agency will be happy to share the buyer’s name in the first communication, and that the buyer is paying their fee. It’s not unusual for less-than-savory brokers to initially claim to have a buyer, only to then sell themselves as sell-side representatives. Evaluate how much bandwidth you have for the next 3-6 months to support transaction activity. Consider enlisting/incentivizing a key employee, confidentially, to help you with the transaction. This is not something you will need to do immediately, but identifying this individual may help you further down the road. When you do respond: Get some preliminary information on the buyer or investor, including: How do they plan to finance the transaction? Do they have cash in the bank, a credit line, or an established fund? If so, how much? A professional buyer or investor will not hesitate to share this information with you. Why is your company interesting to them? How does it fit into their acquisition or investment strategy? Tell them you will want to engage an advisor and will get back to them. A credible buyer or investor will not be deterred by the concept of having an advisor helping you in the process. In fact, most of them appreciate having a professional intermediary who can set the proper expectations with sellers. 2. Do as the pros do Private equity groups make their money buying and selling companies. They will buy a “platform”, then add several “add-on” acquisitions with the intent of selling the entire entity at a much, much higher price than they invested in the companies along the way. In other words, they are professionals at selling companies for the maximum amount, and under the best possible terms. They leave nothing to chance when it comes to selling their portfolio companies. Rarely will a private equity group engage with just one buyer when it comes time for them to sell. They will most likely hire an investment bank or M&A firm to run a competitive process with a pre-defined group of qualified buyers and investors. Private equity believes this is the only way they can ensure their investors that they were able to negotiate the most favorable transaction with their ideal buyer…the buyer that wanted the company the most. Similarly, it’s in your best interest to bring multiple buyers to the table. It’s easy to want to negotiate the first offer, especially if it appears compelling. But, as with any deal, the more buyer/investor competition there is for your agency, the better the conditions are for your ideal transaction. That is, maximum value, under the best terms, without renegotiating. When potential buyers are aware there is competition to acquire your agency, they are far more likely to come to you with their best (or near-best) offer, and much less likely to drag out negotiations and run the risk of losing the deal to another buyer. Multiple offers from competitive buyers is the best leverage for the seller in every aspect. There are many factors to consider: Who to include in your potential buyer or investor universe. Who are your “A-list” buyers, and how do you reach out to them confidentially? Knowing how to show your business in the most positive, but credible light to those A-list buyers. How you will compare and negotiate multiple offers. Knowing what is considered “market” (vs. “fair”) for both value and terms. Keeping the process confidential. Having an employee, referral source or competitor find out you are considering a sale can certainly disrupt your business…and the sale itself. 3. Consider enlisting the services of a healthcare M&A advisory firm This process can be overwhelming without a team of experts by your side. One of the main benefits of using the services of a healthcare mergers & acquisition firm is that they allow you to focus on what you do best — running your home care business, while your representatives use their know-how to maximize your value and get to the closing table…with few surprises. When you engage a professional M&A firm, they consider the bigger picture while handling all the small details you may not have considered, including: Curating a proper “A-list” buyer and investor list. A-list buyers meet three criteria: They have plenty of financial resources to complete your transaction, including sufficient cash; They know the care-at-home industry. Strategic buyers won’t be an issue here, but if you’re considering engaging with a financial buyer/investor, make sure they are well-educated on the industry before engaging as you don’t want to educate them as they work through the acquisition process. They have sufficient transaction experience. In this case, the financial buyers won’t usually be a concern, but some of the strategic buyers may lack resources to complete a transaction in a timely manner. Most A-list strategic buyers have development teams dedicated to M&A. Taking the time-intensive tasks off your hands such as preparing and updating the financial data book and Confidential Information Memorandum (CIM). Maximizing the value of your agency by running a competitive bid process Ensuring deal certainty by addressing all potential roadblocks early in the process. Handling multiple stakeholders in the process, from lawyers to investment bankers and accountants. Receiving an email from a buyer interested in purchasing your agency can be both flattering and overwhelming. At Mertz Taggart, we pride ourselves on being present for, and guiding our clients through, the entire M&A sale process. 80-95% of most owners’ net worth is tied up in their businesses. Handling the sale like “the pros do it” is paramount to ensuring your ideal transaction. The best way to ensure that is by hiring an accomplished, respected, healthcare mergers and acquisitions firm. It’s never too early to start planning your exit. And the best way to start is by understanding the value of your home health, home care or hospice. If you are interested in a confidential, complimentary valuation, please contact us.

While perhaps not as active as the M&A community anticipated, a strong final quarter of 2021 led to another record year of dealmaking for home health, hospice and home care operators. The landmark year was driven primarily by two factors: private equity’s insatiable appetite for home-based care, and more sellers heading for an exit. “PE buyers continue to see long-term opportunity in the home health, hospice and home care sub-sectors — and they continue to have vast stockpiles of cash they’re looking to deploy,” Mertz Taggart Managing Partner Cory Mertz says. “Meanwhile, across those sub-sectors, we’re seeing more sellers due to pandemic-induced burnout and the threat of capital gains tax rates going up.” Overall, there were at least 166 home health, hospice and home care transactions in 2021, up from 153 in 2020. The fourth quarter of last year saw 49 transactions, a bit higher than the average of the past five quarters, according to Mertz Taggart data. “It wasn’t a huge quarter for transactions completed, as we thought it might be,” Mertz adds. “However, I think that likely bodes well for a strong Q1, as many year-end transactions haven’t been announced and other deals will carry into early 2022 as we get more clarity on potential tax increases.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. Strong momentum for home care transactions For years, non-medical home care was an afterthought in the care continuum. That has changed, with health systems and payers increasingly viewing home care as a key tool for preventing costly hospital admissions and supporting patients’ activities of daily living (ADLs). In turn, home care M&A activity skyrocketed in the end of 2020 and hasn’t stopped. In Q4 2021 alone, there were at least 19 home care-related transactions, according to Mertz Taggart data. That completed a year in which home care transactions nearly kept pace with hospice and surpassed home health, rather than trailing both in 2020 and 2019. “Of the three sub-sectors, home care has gained the most steam over the past 12 months, with a record 70 transactions announced, which doesn’t include individual franchisee transactions,” Mertz says. “That’s an 84% increase compared to 38 transactions in 2020.” One of the most notable home care transactions was PE firm Wellspring Capital Management’s purchase of Caring Brands International, the parent company of Interim HealthCare in the U.S., Bluebird Care in the U.K. and Just Better Care in Australia. PE Hub reported the deal’s price tag at about $500 million. Another significant transaction from Q4 was Aveanna Healthcare Holding Inc.’s (Nasdaq: AVAH) acquisition of Accredited Home Care, a Medicaid home care agency, for $180 million. "We are excited to add Accredited’s growing and well-respected business to Aveanna’s offerings in California,” Rod Windley, executive chairman of Aveanna, said in a press release. “Accredited’s strong unskilled home care business has provided thousands of patients the ability to reduce their need for institutional care and reduce their overall health care expenditures.” As Mertz Taggart has previously written, dealmaking activity around home care franchisors was the real story of 2021. Expect a home health M&A rebound There were 15 home health-related transactions in the final quarter of 2021, down from the 19 deals observed in Q3. There were at least 62 home health transactions in 2021 as a whole. “The demand remains strong, even though it didn’t materialize in a large number of transactions in Q4,” Mertz says. “I expect we’ll see a strong Q1 for home health.” In October, Addus HomeCare Corporation (Nasdaq: ADUS) announced the purchase of Summit Home Health in Illinois. Summit has annualized revenues of approximately $7 million, according to the Frisco, Texas-based Addus. In November, LHC Group Inc. (Nasdaq: LHCG) finalized its acquisition of 47 Brookdale Health Care Services agencies from the joint venture between Brookdale Senior Living Inc. (NYSE: BKD) and HCA Healthcare Inc. (NYSE: HCA). The deal included 23 home health locations, 11 hospice locations and 13 therapy agencies across 22 states. Early 2022 may see a home health rebound, again, due to pandemic-induced burnout. Operators had steadily recovered from the worst of COVID-19 throughout 2021, but the emergence of the Omicron variant has once again strained agencies. Additionally, home health agencies have a year to prepare for the Home Health Value-Based Purchasing (HHVBP) Model and its first performance year, 2023. Some current owners may ultimately decide to bypass yet another payment change by seeking an exit while demand remains robust. Hospice remains strong There were 23 hospice-related transactions in Q4 2021, repeating the total from the previous quarter. The hospice sub-sector experienced at least 74 transactions all of last year. As has been the case in previous quarters, PE buyers accounted for the bulk of the transactions – 18 of the 23, to be exact. Aveanna also accounted for the largest home health and hospice transaction in Q4, acquiring Comfort Care, a leading home health and hospice company with operations in Alabama and Tennessee, for $345 million, representing $290 million in enterprise value and $55 million in tax benefits. Comfort Care generated approximately $100 million in annual revenue, with approximately 53% of its revenue derived from hospice services and approximately 47% of its revenue from home health. Webster Equity-backed Bristol Hospice, and Dorilton Capital-backed Traditions both remain among the most active hospice buyers, each having completed three hospice transactions in Q4. On the lookout Beyond Q1, it’s hard to forecast what’s in store for the home health, hospice and home care markets. With inflation growing at a faster rate than originally feared, the Federal Reserve is starting to signal interest-rate increases starting in Q1, through the end of 2022. “This can certainly put a damper on values, which can, in turn, slow deal volume,” Mertz says. “It will also be interesting to watch what CMS does with its proposed rule for 2023 for both home health and hospice. The threat of a significant reimbursement change, such as, for example, a behavioral adjustment in home health, can change momentum pretty quickly. I’ll also be curious to see how much weight buyers will place on agency-level metrics in advance of HHVBP (Home Health Value-Based Purchasing Model) expansion.”

The departure of 2022 marked the arrival of a new trend in behavioral healthcare merger and acquisition activity: Venture capital firms have flocked to the space, taking a particular interest in mental health. Behavioral healthcare remained hot, as 49 total deals were announced in the final three months of 2022. That figure is on par with the 50 reported in the prior quarter. Just as mental health saw the most M&A activity of any behavioral healthcare subsector in Q3, such was the case again in Q4, with 33 transactions announced. However, venture capital firms accounted for 16 behavioral healthcare transactions—all in mental health—in the fourth quarter, a sign of investor enthusiasm for various forms of mental health treatment services in the wake of the COVID-19 pandemic. The emergence of venture capital is a significant shift in the M&A landscape in behavioral health. Whereas traditional private equity firms—which have accounted for much of the M&A activity across behavioral healthcare in recent years—tend to invest in established (and sometimes struggling) companies and buy a majority ownership, venture capital firms spread their investment dollars across several startups and up-and-coming organizations through. Each deal offers a potential higher upside but also a higher failure rate than traditional private equity investment. “A combination of an already red-hot mental health sector, technology, and the ability to scale quickly make venture capital firms’ interest in mental health somewhat unique,” Mertz Taggart managing partner Kevin Taggart said. “I don’t see this phenomenon spreading to other areas of behavioral health because those don’t lend themselves to technology quite as easily, which is what VC typically invests in. While venture capital firms arrived in mental health en masse to close out 2022, don’t expect them to stick around", Taggart said. “It is most definitely a short-term phenomenon,” Taggart said. “How short-term is yet to be decided, but the current pace is unsustainable, and we’re already seeing a number of these high fliers scale back, close, or struggle with public perception because of some of their business practices.” Mertz Taggart completed four behavioral healthcare deals announced in the fourth quarter: Private equity firm Eads Bridge Holding acquired Connecticut-based Stokes Counseling Center in a platform deal. Acadia Healthcare acquired four comprehensive addiction treatment centers in Georgia from Brand New Start. Beachwood, Ohio-based ARC Health, a Thurston Group portfolio company, acquired Lotus Consulting, a comprehensive mental health therapy practice in Michigan. A multi-state SUD treatment facility with over 300 beds. The buyer and seller requested that this transaction remain anonymous. Looking ahead, M&A activity in the first half of 2023 could largely hinge on the debt markets, both of which “are a little shaky,” Taggart said. “We’ve had several debt providers and private equity groups say they are starting to see some ‘green shoots’—signs of recovery—in recent weeks regarding the debt market,” Taggart noted. Addiction Treatment M&A Addiction Treatment M&A remained steady, as 12 deals were announced in the fourth quarter, down slightly from a busy third quarter, with 14 transactions announced. Dating back to the start of 2019, an average of 14.75 transactions involving addiction treatment providers have been reported. Four private equity-backed strategic acquisitions of addiction treatment programs were announced in the fourth quarter: Integrative Life Network expanded its portfolio of facilities by acquiring Shadow Mountain Recovery in New Mexico. Pinnacle Treatment Centers added MBA Wellness Services. Baymark Health Services announced deals for two operators of office-based opioid treatment (OBOT) programs: Tennessee-based Nashville Recovery and Fritz Clinic, a group of six centers in Alabama. Other deals involving addiction treatment programs in Q4 included the following: The Apen Group invested in Recreate Behavioral Health Network in a private equity platform deal. Aurora Health acquired Cornerstone Treatment Facilities Network, an inpatient addiction care company. According to a media report, Ark Behavioral Health raised at least $11 million of a $20 million funding round, securing an investment from an undisclosed party. Lee Equity Partners, a middle-market private equity firm, acquired a majority ownership interest in Bradford Health Services from Centre Partners. Centre retained an ongoing equity stake. Arizona-based T&R/Sabino Recovery announced that CEO Thomas Isbell and board chairman Roy M. Serpa acquired Cypress Lake Lodge in Woodville, Texas. AtlantiCare finalized an agreement to acquire John Brooks Recovery Center in New Jersey. Spero Health, a Tennessee-based outpatient addiction treatment provider, acquired My Turning Point, a Kentucky-based program with four locations. Mental Health M&A Thirty-three transactions involving mental health organizations were announced, down from the 37 reported in Q3, but still the second-highest quarter on record dating back to the start of 2019. The following transactions involved venture capital firms: London-based digital pediatric behavioral health company Healios received a $16 million investment led by AlbionVC to expand in the U.S. Vanna Health, a severe mental illness startup, raised $29 million ahead of its launch. Forge Health, formerly Strive, announced in December that it had secured $10 million in new funding as part of a $21.5 million funding effort. BehaVR and OxfordVR, a pair of behavioral health-focused virtual reality companies, merged in a deal supported by a $13 million series B funding round led by Optum Ventures and Oxford Science Enterprises. HelloHero, which previously operated as Enable My Child, disclosed in November that it had raised $4.3 million of a $5 million round. Wellin5 announced that it closed a $2 million seed funding round. Outpatient mental health provider Resilience Lab closed a $15 million series A funding round led by investment firms Viewside Capital Partners and Morningside. Options MD, a telehealth startup that provides care for treatment-resistant depression, announced $2.35 million in pre-seed funding led by Bread & Butter Ventures. Hazel Health closed a $51.5 million series C1 funding round led by Bain Capital Venture Partners. Mindful Care announced a $7 million funding round led by Sopris Capital. According to a media report, Valera Health, a New York-based virtual psychiatric care provider, raised $44.5 million in a previously unannounced funding round with participation from 12 investors. Folx Health, an LGBTQIA+ digital health startup, announced plans to add mental and behavioral health services following a $30 million series B funding round led by 7wire Ventures. Brave Health secured $40 million in a series C funding round led by Town Hall Ventures. InStride Health launched with $26 million to expand its virtual pediatric services in a funding round led by .406 Ventures. Sensorium raised $30 million in a funding round led by Sante Ventures. The following deals involving mental health organizations were also reported in the fourth quarter: Irwin Naturals announced four acquisitions in the fourth quarter: Clare Clinic (an operator of 3 clinics in Florida doing business as Florida Mind Health Center), Dura Medical, Tri-Cities Infusion and Wellness Clinic, and Ketamine Infusions of Idaho. Consonance Capital Partners acquired a majority stake in Embark Behavioral Health in a sale valued at approximately $400 million with a multiple range of 12 to 15 times EBITDA. Newport Healthcare, a national network of programs for teens and young adults, acquired Minnesota-based Prairie Care. Inflow, a cognitive behavioral therapy-based self-help app, acquired telehealth clinic Lina Health. Turnwell Mental Health made a private equity-backed strategic deal for Montana Psychiatry & Brain Health Center. Sondermind Provider Network announced in November that it acquired integrated neuroscience company, Total Brain. Reverie Mind acquired Arizona Ketamine Treatment and Research Institute for an undisclosed sum. Color Health acquired Mood Lifters in a private equity-backed strategic deal. In addition to its deal to acquire Lotus Consulting, ARC Health announced acquisitions of three other mental health provider organizations: Focus Forward, The Relationship Therapy Center, and The Ross Center of Northern Virginia. Northern Wyoming Mental Health Center announced a merger with Volunteers of America Northern Rockies. California-based Precise Behavioral acquired Rose Health, a mental health startup based in Washington, D.C. Autism Services and Intellectual/Developmental Disabilities M&A Five transactions involving providers of autism and intellectual/developmental disabilities treatment services were announced in Q4, matching the number of such deals in the prior three months. Private equity was involved in each of the deals: JoyBridge Kids acquired Independence Behavioral Services in a private equity-backed strategic transaction. Stepping Stones Group announced a deal to acquire Building Blocks Behavior Consultants in a private equity-backed transaction. Soar Autism Center secured $16 million in equity funding, according to a media report. Acorn Health acquired seven centers—six in Florida and one in Virginia—from Breakthrough Behavior.

When it comes to non-medical home care, the U.S. continues to put its money, and its legislation, where its mouth is. And investors are taking notice. In March, the Senate Special Committee on Aging introduced the HCBS Access Act, co-sponsored by 17 U.S. Senators. The act is a complementary bill to the Better Care Better Jobs Act, and establishes “a permanent funding stream to keep (home-based care) infrastructure strong,” the bill’s lead sponsor Sen. Bob Casey said. “(The bill will) make sure we’re able to continue to pay direct care professionals at a rate that ensures qualified, reliable services and a qualified, reliable workforce into the future,” he added. That increased government spending is one of five reasons investors are ramping up their positions in home and community based care services (HCBS). Here is a closer look at all five. 1. Increased Government Spending Today’s healthcare investors know that HCBS delivers essential outcomes for patients — provided, of course, that there are enough people to deliver those care services. As Sen. Casey noted, that’s too often not the case. Among the numbers that tell the tale of the industry’s staffing crisis: 63% of home care providers have discontinued services or programs 83% of service providers reported turning away families 92% of service providers struggle to meet quality standards Thus as part of its efforts to provide access to long-term care services and support for individuals with disabilities, as well as for older adults who wish to remain in their homes and communities rather than in institutional settings, the U.S. government is spending a significant amount on Medicaid HCBS. Just how significant? In FY 2020, according to data from Kaiser Family Foundation, the federal government and individual states combined for $116 billion on HCBS. “We are seeing much stronger interest in home and community based services today than at any time pre-pandemic,” says Mertz Taggart Managing Partner Cory Mertz. “It’s coming from private equity groups seeking platform opportunities and strategic buyers executing on their care continuum strategies.” The Medicaid HCBS program provides a range of services and supports, such as personal care assistance, skilled nursing care, respite care, and home modifications to help individuals live independently in their homes and communities. By investing in these services, the government aims to improve the quality of life while reducing the overall cost of health care by preventing unnecessary hospitalizations and nursing home placements. Furthermore, Medicaid HCBS programs align with the principles of the Americans with Disabilities Act (ADA) and the Olmstead decision, which uphold the right of individuals with disabilities to live in the most integrated setting possible. HCBS programs boost quality of life by providing an alternative to institutional care, thus allowing individuals to live in their communities and participate in daily life activities. Overall, the investment in Medicaid HCBS is aimed at improving the health and well-being of individuals with disabilities and older adults while also promoting cost-effective care delivery models. 2. Potential for Innovation The HCBS market presents opportunities for innovation and the development of new care delivery models and technologies. This is leading to interest from investors in companies that are at the forefront of these developments. Of note recently is CareBridge, a value-based solutions platform for HCBS, receiving $140 million in VC and PE financing to expand its HCBS model to Medicaid and dual-eligible patients. “CareBridge is revolutionizing care for individuals on Medicaid receiving home and community-based services,” Brad Smith, the former director of the Center for Medicare and Medicaid Innovation (CMMI) and executive chairman of CareBridge, said in a press release. “By helping coordinate care and provide 24/7 access to a clinician, CareBridge is helping individuals live healthier, more independent lives while remaining at home.” Texas-based New Day Healthcare has developed its own proprietary software that integrates and examines data from all major home health EMR’s and EVV systems, then aggregates that data into a common working file. Using a complex system of people, process and technology, New Day Continuum teams are able to process thousands of potential incidents per month and identify specific patients with specific indicators, that are “about to have an incident”. Continuum teams, specially trained in identification, make patient contact and coordinate clinical interventions with local care teams. 3. Evolving Payor Landscape Value-based care is all the buzz nowadays. At scale, HCBS providers are well-positioned to take on risk with the payors in the evolving healthcare payor landscape. Here’s why: They have established relationships and trust with their clients, their families, and other community partners and stakeholders. As a result, they can coordinate care across the continuum and leverage existing resources and networks to address the social determinants of health that affect their clients’ well-being. They can access rich data and insights from their clients’ daily lives and interactions. They can use this data to monitor their clients’ health status, identify risks and opportunities for improvement, and measure the impact of their interventions on quality and cost. As a result, they can develop a deep understanding of the needs and preferences of their clients/patients, who often have complex medical and social conditions. They can then tailor their services to meet each client’s goals and outcomes while reducing unnecessary hospitalizations and emergency visits. According to a report by the AARP Public Policy Institute, the average annual cost of HCBS per person was $43,539 in 2018, while the average annual cost of nursing home care was $102,200. By investing in HCBS, investors can help reduce the overall spending on Medicaid, which is one of the largest budget items for states and the federal government. For Managed Care Organizations paid on a per member, per month (PMPM) basis, these numbers can be compelling. Payors are taking notice. 4. Aging Population Of course, the interest of CVS Health and other investors is fueled by the baby boomer generation, whose dominance in the U.S. population has led to an increased demand for long-term care services, including Medicaid HCBS. As a result, the market for these services is growing rapidly, making it an attractive investment opportunity for companies looking to expand their presence in the healthcare sector. "Chronically ill seniors with multiple medical problems drives ~75% of the total Medicare spend. In our view, this is THE healthcare crisis in America, posing significant financial and clinical delivery burdens on the healthcare system," New Day President/CEO Scott Herman shared with us recently. "HCBS programs that provide low acuity activities of daily living, designed to deliver "bridge care" or a "little help" for patients so they can remain at home, rather than in an institution, is a critical element of Medicare program solvency and positive clinical outcomes" Lorient Capital-backed PurposeCare shares a similar strategy. "PurposeCare was founded on the idea that a personal caregiver's presence in the client’s home and the relationship they have with their client give them a unique perspective and understanding of the client’s well being," PurposeCare CEO Rich Keller said. "That information when shared with others on the care team can help to avoid unnecessary hospitalizations, visits to the ER or worse. HCBS is the largest funder of these services and as such it's a key component to our strategy" Private equity firms are also attracted to the relatively stable and predictable revenue streams generated by Medicaid HCBS providers. 5. Market Fragmentation The Medicaid HCBS market is highly fragmented, with many small providers serving local communities. This fragmentation can make it difficult for providers to achieve economies of scale and can limit their ability to invest in new technologies and care delivery models. Further consolidation will allow large organizations to collect meaningful data to give them a seat at the table with the payors, who seek narrower networks to manage. HCBS is a program that benefits several stakeholders: the beneficiaries and their families, CMS, and investors. It is a smart and sustainable way to address the long-term care needs of millions of Americans who want to live independently and with dignity in their own homes and communities. “We are bullish on home and community based services at the moment,” Mertz added. “We are getting more calls than ever from private equity groups looking for these opportunities. It’s driven by a combination of positive reimbursement tailwinds, access to the elderly and disabled patient population, the ability to collect meaningful data, and to run point on clinical interventions, when necessary.”

Home-based care M&A transaction volume remained flat in Q4, finishing off a slow year for transaction volume. The quarter yielded at least 24 completed transactions, nearly equaling Q3’s 25 deals reported, but down from previous years. So how much has volume slowed? That is a matter of perspective. “We ended the year with a little over 100 M&A transactions in the Care-at-Home sector,” Managing Partner Cory Mertz commented, “Volume is down about 40% and 30% from 2021 and 2020, respectively, which brings us back in line with pre-Covid (2020-2021) levels of 100-120 transactions per year. 2020 and 2021 were outlier years, driven by significantly more quality opportunities in the marketplace." Note: Total industry transactions do not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. The exodus of sellers was driven by two factors: 1) COVID burn-out, and 2) owners seeking an exit before an unfavorable change to the capital gains tax rate, which has not materialized. “Demand for quality providers remains very high. As a result, the lower M&A transaction volume, at least in the sub-$100 million range, has been primarily seller-driven,” Mertz added, “Generally speaking, buyers have become more disciplined, however, as their cost of capital has gone up.” While rising interest rates did not impact demand in the lower-middle market, it has impacted valuations at the higher end of the market, delaying multiple previously-targeted private equity platform exits. “Multiple private equity groups have shared with us that they’ve pushed off their exits for now while they wait for the credit markets to ease up a bit, and with the hope that trading multiples of some of the public companies normalize at a higher level,” Mertz said, “In the meantime, most have chosen to double-down on acquisitions.” Home Health M&A Q4 saw the completion of at least 11 Medicare-certified home health transactions, up slightly from previous quarters. While the final rule, published in late October, turned out much more favorable than anticipated and likely served as a short-term catalyst for home health M&A transactions, buyers remain cautiously optimistic as they evaluate quality providers that are well-positioned for 2024 and the HHVBP Performance Years, starting in 2023. Mertz Taggart completed two Medicare-certified home health transactions in Q4: In November, Newsome Home Health sold to Lorient Capital-backed PurposeCare. Mertz Taggart provided exclusive sell-side M&A advisory services to the transaction, representing Newsome. The deal marked PurposeCare’s fifth add-on acquisition since being acquired by Lorient in December 2021. Transaction details and client testimonials can be found here. In December, Enhabit Home Health and Hospice acquired Southwest Florida Home Care’s Fort Myers location, filling a care need in the southern half of Florida’s District 8, spanning Sarasota to Naples. As with the Newsome transaction, Mertz Taggart provided exclusive M&A advisory services to the transaction, representing the seller. Transaction details and client testimonials can be found here. Elsewhere, Addus acquired Apple Home Healthcare, based in Chicago. The acquisition allows Addus to leverage its substantial personal care presence in the Chicago MSA to provide skilled care when necessary. “We are pleased to announce the addition of Apple to our expanding operations in the greater Chicago area, one of our largest markets,” Addus CEO Dirk Allison commented. “This acquisition is commensurate with our growth strategy to leverage our strong personal care presence and add clinical services.” Additionally, The Pennant Group acquired the assets of the Wisconsin-based not-for-profit Kenosha Visiting Nurse Association. The 95-year-old KVNA provides skilled home health and non-medical personal care services in the Kenosha area. This acquisition allows Pennant to further its continuum of services in southern Wisconsin, where it currently has a senior living presence. Hospice M&A Of the three sectors we cover in home-based Care, hospice shares the lead for the most significant volume decline in 2022, down 50% from its 2020 and 2021 highs. The quarter yielded nine transactions, in line with previous quarters. Beyond the broader-industry downturn from 2021, other factors are at play in the hospice sector. “We are seeing more buyers fine-tuning their valuation methodology, preferring to give more weight to current adjusted EBITDA as the basis for enterprise value vs. what they could achieve in 12 or 24 months after an acquisition. The latter can also be referred to as the ‘ADC-based’ valuation method,” Mertz said, “I’m not suggesting buyers have gotten away from the ADC-based methodology altogether. We’re just seeing less of it.” Enhabit remained active, purchasing Caring Hearts Hospice in Texas and Scottsdale-based Unity Hospice. According to Enhabit’s Form 10-Q, it paid an aggregate total purchase price of approximately $18 million for the two transactions. No deal-specific terms were released. St. Croix Hospice continued its Midwest expansion by acquiring Adaptive Hospice, with 3 locations in Indiana. Adaptive was acquired by Help at Home in late 2020 as part of a larger acquisition, which included a substantial personal care division. The divestiture was a strategic move by Help at Home by divesting its non-core hospice assets. Home Care M&A Home Care finished the year on a down note, with nine transactions completed. Overall, there were 49 transactions reported in 2022, down approximately 50% from 2021’s peak. However, as with the broader industry, a little perspective is needed. “Demand for non-medical home care, including both traditional Medicaid and home- and community-based services providers, is at an all-time high,” Mertz commented, “If you look historically, 2021 was the outlier for personal care. However, 2022 is stronger than the previous years. The bullishness is buoyed by the evolving healthcare eco-system focused more closely than ever on value-based care for our growing elderly population.” In a unique, 3-way transaction, TheKey and AccordCare jointly announced the acquisition of Connecticut-based Companions and Homemakers. Under the terms of the transaction, TheKey will continue to operate Companions and Homemakers’ private pay division while AccordCare acquires its Medicaid assets. Searchlight Capital’s Care Advantage was active again, completing two transactions in the quarter, both in Virginia. First, they acquired Lighthouse Healthcare, a private-pay personal care company based in Reston. Then, a week later, they closed on Care Perfections Health Services, which provides personal care services to the Warrenton area. Vistria- and Centerbridge-backed Help at Home has remained acquisitive, as it doubled down its acquisition strategy while it backburnered its anticipated IPO. In December, it announced its acquisition of Open Systems Healthcare’s Pennsylvania and Delaware operations, which provides personal care services to 70 counties. Meanwhile, Charter Oak Equity’s Boca Home Care completed its 3rd south Florida add-on acquisition of 2022, acquiring nurse registry Florida First Senior Home Care in November.