There has been talk lately about M&A activity in the home health industry, prompting questions from many practitioners about the process of valuing and selling a home health agency. The purpose of our “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 home health agency, 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 home health agency, 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 agencies in the past? • What is your plan to integrate my company into yours? • How does my company fit into your strategic 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 agency 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 home health agency 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 agency 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 business falls off during the transaction, the buyer could come back and attempt to negotiate for a lower valuation, which would not be in your 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? • Audit Risk? • 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 may 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 agency. Make sure you walk away with more than just a big payday.

With demand for addiction treatment and mental health services continuing to surge, a busy fourth quarter capped off a record-setting year for mergers and acquisitions in the behavioral healthcare sector. A record 49 transactions in behavioral healthcare overall closed in the final three months of 2021, bringing the total number of deals for the year to 149, over a 34% year-over-year increase over the previous record high of 111 recorded in 2020. The subsector of addiction treatment saw a record number of deals completed in the quarter, and activity in mental health was near record highs, as well. “The data reflects what we are seeing with our clients,” said Mertz Taggart Managing Partner Kevin Taggart. “Demand for quality mental health and addiction treatment services remains sky-high, with the pandemic adding fuel to a marketplace that already was strong. This has resulted in record valuations for these providers.” Private equity accounted for 40 of the quarter’s 49 transactions, a figure that includes nine platform deals. The surge in M&A activity to close out 2021 is indicative of the number of sellers looking for an exit from the industry, a trend that Taggart said has been driven by two factors: pandemic-induced burnout and the lingering threat of an increase in the capital gains tax rate, which has been looming for more than a year, but still has yet to come to fruition. Looking ahead to the start of the new year, Taggart said many transactions targeted for year-end in 2021 will end up closing in the first quarter of 2022. Beyond those first three months of the year, however, deal volume is difficult to predict. “Demand will remain strong,” Taggart said, “but valuations could be tempered by rising interest rates, which the Federal Reserve has recently signaled may begin as early as the second quarter.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. Addiction Treatment A total of 30 deals in addiction treatment closed in the fourth quarter, eclipsing the previous high of 20 set in the second quarter of 2019. BayMark Health Services and Behavioral Health Group (BHG) alone combined to account for more than a third of the activity within the sector, completing nine deals: In November, BayMark’s AppleGate Recovery acquired East West Family Care, an office-based opioid treatment (OBOT) program in Nashville, Tennessee. BayMark then completed three deals in December. First, it announced the acquisition of Polaris Renewal Services, which operates two opioid treatment programs (OTPs) for adults in western Pennsylvania. The company then added Granite Recovery Centers, which has a pair of residential facilities and sober living homes in southern New Hampshire. Finally, BayMark completed an acquisition of Riverwood Group, a medication-assisted treatment provider, which added four new states to the company’s OTP portfolio. In October, BHG expanded its footprint in Rhode Island with its acquisition of the four OTPs owned by The Journey to Hope, Health & Healing, and entered Maryland with the acquisition of Phoenix Health Center. BHG then expanded its presence in Virginia with a deal to acquire Staunton Treatment Center. Finally, BHG closed out the year when they acquired an eight-state OTP, Center for Behavioral Health. Outpatient addiction treatment provider BrightView Health added five centers in Virginia to its network of 46 locations across four states with its acquisition of Right Path Treatment Centers in December. Tennessee-based outpatient treatment provider Cedar Recovery added Occupational Health Services East Knoxville, an OBOT facility previously owned and operated by Dr. James “Jake” Harrison. Community Medical Centers (CMS), the Arizona-based OTP operator with more than 40 clinics in nine states, acquired Medpro Treatment Centers. Mertz Taggart represented Medpro as its exclusive merger and acquisition advisory firm in the transaction. Private equity firm FFL Partners and Two Sigma Impact, the impact investing business of Two Sigma, meanwhile, acquired a majority ownership stake in CMS. Cobb County Community Services Board and Haralson Behavioral Health Services consolidated and integrated in December. The combined agency is now conducting business as Highland Rivers Health. Odyssey Behavioral Healthcare expanded its addiction and dual diagnosis treatment capabilities and added detoxification services with its acquisition of CIVIQ Health, the parent company of the Silver Pines and Steps to Recovery programs in Pennsylvania. Pyramid Healthcare completed a pair of transactions, acquiring The Bluff in Augusta, Georgia, and Atlanta Addiction Recovery Centers. Florida-based Regard Recovery announced its acquisition of fellow mental health and addiction treatment services provider JourneyPure, expanding Regard’s presence into Tennessee and Kentucky. Promises Behavioral Health announced in November it had completed a full recapitalization with New York-based investment management firm Assured Healthcare Partners, a platform deal that will allow Promises to resume its expansion plans. MindBeacon Holdings, a provider of digital therapy, closed an acquisition of all issued and outstanding shares of Harmony Healthcare, which provides mental health and addiction treatment for children, adolescents and adults in Nevada. Mindpath Health, a provider of outpatient treatment services, expanded into Ohio with a deal for four Vertava Health offices in Cleveland and Columbus. Mental Health Merger and acquisition activity in the mental health subsector remained strong in the fourth quarter, with 16 transactions announced. It was the category’s most active quarter of 2021 and a record-high, eclipsing the previous high of 15 transactions announced in the final quarter of 2020. Among the mental health-related transactions reported in the fourth quarter: New Perspectives Center for Counseling & Therapy was acquired by Refresh Mental Health. Mertz Taggart served as the exclusive M&A advisor for New Perspectives in the transaction. | READ: New Perspectives Center Director Tim Markwell reflects on working with Mertz Taggart Apax Partners and Oak HC/FT joined forces to acquire Eating Recovery Center and its portfolio of 30 centers across seven states from CCMP Capital for a reported $1.4 billion. Delic Holdings Corp. acquired Ketamine Wellness Centers Arizona, creating the largest chain of wellness centers providing ketamine treatments in the United States. Discovery Behavioral Health, which operates a network of mental health, substance use and eating disorder treatment centers, acquired Awakenings KC Clinical Neuroscience Institute, an outpatient mental health services provider in Prairie Village, Kansas. Florida-based Elite DNA Therapy Services widen its reach across the panhandle and northern parts of the state with its acquisition of Impact Behavioral Health. Two months after first announcing a merger, Headspace and Ginger closed the deal, creating a $3 billion mental health company. Lifestance Health, a publicly traded behavioral healthcare company, acquired Washington state-based Acuity Counseling. In addition to its aforementioned deal for four Vertava Health properties in Ohio, Mindpath Health expanded into Arizona with a deal for Metropolitan Neuro Behavioral Institute, which serves the greater Chandler, Arizona, area. Autism Services and Intellectual/Developmental Disabilities Just seven deals were announced in the autism and I/DD space, the fewest transactions in a quarter for the category since Q2 of 2020. The most notable deal among them was a $219 million Series B funding campaign for Elemy, the digital healthcare company formerly known as Sprout Therapy. The funding reflects a pre-deal valuation for the company of $931 million. Other deals announced in the autism and I/DD space in the fourth quarter include: OCI Holdings, which conducts business as Care Options for Kids and is backed by Ancor Capital Partners, acquired The Missing Peace Autism Therapy Center. CareSource, a not-for-profit, multistate managed care company, acquired The Columbus Organization, a provider of services for individuals with I/DD and behavioral health challenges in 13 states. The Center for Social Dynamics, a portfolio company of NMS Capital, partnered with South Sound Behavior Therapy in Washington state. H2 Health, a portfolio company of the healthcare-focused private equity firm Grant Avenue Capital, expanded its pediatric therapy service offerings with its acquisition of Great Strides Rehabilitation, adding applied behavior analysis therapy to H2 Health’s continuum of care. The Stepping Stones Group, a national provider of therapeutic, behavioral, autism, nursing and educational services for children, acquired Behavioral Learning Center, a therapeutic and behavioral health company based in California.

With both the height of the COVID-19 pandemic and the start of the Patient-Driven Groupings Model (PDGM) now in the rearview mirror, in-home care buyers and motivated sellers are finding it easier to come together on deals. There were 44 total home health, hospice and home care transactions completed in the third quarter of 2021, up from the 41 deals that took place in the previous quarter. Over the past three years, the only quarter with more transactions was 2020 Q4. “All three sub-industries remain strong, but the increased activity has little to do with increased demand,” Mertz Taggart Managing Partner Cory Mertz says. “Demand has been strong for several quarters and continues. This is a supply-driven market.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. There are a few main factors helping drive supply in the back half of 2021. For starters, there’s the likely increase in the capital gains tax rate. When put in effect, it will diminish a prospective seller’s return or force them to place a bigger price tag on their business, in turn limiting buyer interest. What remains unknown is when this hike will go into effect, and its severity. “The Biden administration came out of the gate with some pretty draconian targets,” Mertz says. “The current “Build Back Better” reconciliation package is still in negotiations, but it appears to be much less severe than the original targets.” However, he adds, it’s quite possible that the effective date is already in the rearview mirror, with the current package delayed in congress. In addition to a capital-gains tax increase, the COVID-19 pandemic is nearly entering its second year, bringing sustained operational difficulties. “We’ve heard from many owners who are feeling a sense of burnout,” Mertz says. “Maybe they were already thinking about a sale in the next couple of years, but then the ongoing pandemic just accelerated their timelines.” Looking ahead, home health supply may be bolstered even further by the proposed Home Health Value-Based Purchasing (HHVBP) Model expansion as well. Franchise deals headline home care M&A activity There were at least 18 home care-related transactions in Q3 2021, according to Mertz Taggart data. That was on par with the previous quarter, which registered 19 home care deals. One of the splashiest home care transactions in the third quarter was Honor’s acquisition of Home Instead Senior Care. Combined, the Honor-Home Instead enterprise represents more than $2.1 billion in home care services revenue, according to the companies. Private equity group Searchlight Capital Partners also acquired a majority stake in Care Advantage in the third quarter. Care Advantage offers a variety of in-home care services to patients across Virginia, Maryland, Washington, D.C., and Delaware. ModivCare Inc. (NYSE: MODV) closed on a $340 million purchase of CareFinders Total Care early on in Q3, advancing the publicly traded company’s plan to become one of the largest personal care services providers in the country. ModivCare purchased Simplura Health Group in September 2020. A key theme to the home care M&A landscape throughout this year has been lots of activity around franchisors. “The third quarter saw another franchisor acquired in Home Instead” Mertz says. “That brings the total number of franchisors who have sold in 2021 to three, compared to just three in the previous five years. Franchisors give financial buyers both immediate scale, which can be leveraged, and the ability to quickly grow EBITDA via acquisition of both existing franchisees and independents. This is a model that has been proven by other PE groups.” Home health transactions up The home health sub-sector saw a noticeable spike in dealmaking. Mertz Taggart tracked at least 16 home health-related deals in Q3 2021, on par with Q2. Home health M&A activity is likely to remain robust moving into 2022, especially if the U.S. Centers for Medicare & Medicaid Services (CMS) finalizes its plan to expand HHVBP to all 50 states. “As part of its basic framework, the HHVBP proposal exposes home health agencies to a 5% upward or downward payment adjustment,” Mertz says. “Agencies that perform well can take any bonus payments and reinvest in the business or in M&A. Those who don't perform well effectively pay a penalty to those who do." LHC Group Inc. (Nasdaq: LHCG) made a flurry of deals in August, including the purchase of Alexandria, Virginia-based Cavalier Healthcare Services. Strategically, the acquisition opens up a new service area for LHC Group, allowing it to better leverage its operations in the Washington, D.C., and Maryland markets. Mertz Taggart provided exclusive transaction advisory services in this transaction, representing the seller. In July, the Visiting Nurse Association (VNA) — a nonprofit provider in Omaha, Nebraska, and Council Bluffs, Iowa — sold its home health and hospice operations to Amedisys Inc. (Nasdaq; AMED). Under the terms of the transaction, VNA’s home health and hospice services rebranded to “Amedisys Home Health” and “AseraCare Hospice, an Amedisys Company,” respectively. Mertz Taggart provided buyside advisory services to Amedisys in this transaction. The biggest home health-related deal in Q3 2021 also came from LHC Group. In September, the company announced it was acquiring 23 home health locations, 11 hospice agencies and 13 therapy businesses from Brookdale Senior Living Inc. (NYSE: BKD) and HCA Healthcare (NYSE: HCA). The transaction represented annualized revenue of about $146 million, according to the company. Hospice dealmaking takes another leap There were at least 23 hospice-related deals in Q3 2021, up from 17 transactions in Q2. Since the start of 2018, no quarter has seen more hospice M&A activity apart from the fourth quarter of last year, which tallied 29 hospice-related transactions. The pure-play hospice transactions in Q3 included Agape Care’s purchase of Integrity Hospice-Dubin, in addition to Charter Healthcare Group’s acquisition of Generations Hospice Care. “Humana Inc. (NYSE: HUM) additionally completed its $8.1 billion acquisition of Kindred at Home in this previous quarter,” Mertz says. “That’s a deal to keep an eye on from a hospice perspective, as Humana has discussed plans to separate Kindred’s hospice operations.” Entering the final stretch Of the 44 home health, hospice and home care transactions in Q3 2021, private equity buyers and their portfolio companies led the way with 25 deals. Public companies like LHC Group, Amedisys and others took part in at least 16 transactions. “We predicted a very strong finish to an already-strong year,” Mertz says. “The third quarter did not disappoint.”

An influx of capital into the addiction treatment space, investors’ renewed confidence in the behavioral healthcare sector, and a potential scaling back of the capital gains tax rate increase proposed earlier this year have merger and acquisition activity remaining on a record-setting pace. Overall, the third quarter saw moderately strong activity with 25 total transactions announced, down from 33 in the second quarter. With 93 deals announced thus far, 2021 remains on track to eclipse the record 116 transactions reported in 2020. Of note, a record 10 private equity platform transactions, including three in mental health, three in addiction treatment, and three in the autism services and intellectual/developmental disabilities space, were reported in the third quarter. “Initially, I believe this was driven by the potential for a capital gains tax increase,” said Mertz Taggart Managing Partner Kevin Taggart. “But I also think behavioral health has become more attractive to many investors because it has held up very well during the pandemic, especially compared to other potential investment options.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. The Biden-Harris administration previously introduced legislation that would move the tax rate on long-term capital gains from 23.8% (including the 3.8% Medicare tax) to 43.4%. If passed, the changes were expected to take effect on Jan. 1, 2022. The bill, however, has met resistance in the Senate in recent weeks, and its passage is now far less certain. “It appears that any increase to the capital gains tax rate will be more modest if it even gets done this year,” Taggart said. “I think concern among investors on this front has certainly lessened since the beginning of the year, and I also believe that momentum for M&A activity will continue into at least the first half of 2022.” In the meantime, Taggart said that bandwidth for third-party advisors, especially attorneys and accounting firms that perform quality of earnings assessments, will remain the most likely potential roadblock to deals closing in the final three months of 2021. Addiction Treatment Nearly $3 billion in capital poured into the addiction treatment sector in the third quarter, including a pair of deals each valued at more than $1 billion. Although down slightly from the 17 deals in addiction treatment that were announced in the second quarter, the 13 deals announced in the third quarter are a signal that investors believe future growth opportunities in the behavioral health sector remain vast. Activity in the addiction treatment space was highlighted by Patient Square Capital acquiring Summit BHC from FFL Partners and Lee Equity Partners for $1.3 billion. The selling firms were each poised to reap four times their invested capital, according to a report by PE Hub. Private equity firm Onex Partners completed its acquisition of Newport Healthcare in a $1.3 billion deal, outpacing the expected $1 billion-plus valuation that had been expected, per PE Hub. Wayspring, formerly known as axialHealthcare, announced in September that along with changing its name, the company received a $75 million investment led by Valtruis, along with Centene Corp., CareSource, HLM Venture Partners, and other existing investors. In July, BayMark Health Services acquired Mt. Sinai Wellness Center, a residential treatment center in Dahlonega, Georgia. Mertz Taggart provided exclusive M&A advisory services in this transaction, representing the seller. Bradford Health Services acquired Cornerstone of Recovery, which operates two Knoxville, Tennessee-area inpatient facilities, growing Bradford’s network to 25 facilities across four states in the Southeast. BRC Healthcare expanded its portfolio with deal for four substance use treatment programs in Nashville, Tennessee: Nashville Recovery Center, NRC Clinical, Nashville Detox Center, and Tennessee Recovery Clinic. Broadstep Behavioral Health announced a deal for Coastal Southeastern United Care, which provides behavioral health and substance use disorder treatment for adults, adolescents, and children in 10 North Carolina counties, as well as Dillon County, South Carolina. Memorial Hermann Health System sold Houston-based Memorial Hermann Prevention & Recovery Center and its network of outpatient programs to Discovery Behavioral Health, expanding Discovery’s network of more than 100 programs nationwide. Kolmac Outpatient Recovery Centers in Maryland announced in July that it had completed a merger Concerted Care Group, which operates three locations in the state. Recovery Ways continued its multistate expansion in early August with a deal for Idaho Behavioral Health, which operates four programs in Idaho. Greenbrook TMS acquired Achieve TMS in an $8 million deal. Windrose Recovery expanded its portfolio of privately owned addiction treatment programs in the Midwest with its acquisition of Positive Sobriety Institute, which offers addiction treatment for professionals and individuals in Chicago. Mental Health Just 7 deals involving mental health treatment providers were announced in the second quarter, down from 15 in Q2, but the list of third-quarter deals includes three significant platform transactions. NorthEast Health Services, InterCare Psychiatric Services, GR&W Health and My Transformation announced a merger to create Transformations Care Network, a multistate, outpatient behavioral health platform that is backed by Shore Capital. The Thurston Group, a private equity firm that focuses on investments in healthcare services companies, acquired ARC Health. Connections Health Solutions received $30 million in funding from the Heritage Group in the crisis stabilization company’s first-ever round of growth funding. Other deals in the mental health sector announced in the third quarter include: Two Sigma Impact acquired Circle of Care, a home- and clinic-based pediatric therapy provider in Texas. Ginger and Headspace announced a merger to create a digital mental health platform to be known as Headspace Health. Monte Nido & Affiliates completed its acquisition of Walden Behavioral Care, which becomes eating disorder treatment provider’s fifth affiliate. Atar Capital, a global private investment firm, announced that its portfolio company Pathways Health and Community Support acquired Renew Consulting in northwest Oregon. Delic Holdings Corp., a psychedelic wellness platform, announced it is acquiring Ketamine Wellness Centers, creating the largest psychedelic wellness chain in the United States. Puget Technologies announced it is moving forward with its acquisition of Behavioral Centers of South Florida. Autism Services and Intellectual/Developmental Disabilities Eight deals were announced in the autism and I/DD space in the third quarter, continuing the pace set in Q2, which saw 7 deals. Activity in this space was highlighted by a pair of significant platform deals. Cerebus Capital acquired Lighthouse Autism from Abry Partners in a deal reportedly worth $400 million, according to PE Hub. Ontario Teachers’ Pension Plan Board, an institutional fund manager serving working and retired teachers in the Canadian province of Ontario, acquired Acorn Health, an applied behavior therapy provider. Sevita, the Centerbridge Partners-backed provider of community-based care that was previously known as The Mentor Network, was an active buyer in the third quarter. The organization acquired three companies: Good Neighbor Homes, New Directions, and Aspire Human Services. Autism Cares Partners announced two acquisitions that will expand the company’s presence in the Northeast—Massachusetts-based autism treatment organization Puddingstone Place and Autism Bridges, a multistate autism treatment organization based in New Hampshire.

An active second quarter and a series of indicators that portend more deals to come have 2021 on track to be a record-setting year for merger and acquisition activity in the behavioral healthcare space. In the second quarter, 26 deals were announced, bringing the total to 57 for the year at its midpoint. That puts 2021 on pace to top the previous high watermark of 107 set in 2020. “We expect transaction volume will likely accelerate over the second half of the year as sellers, burned out from the pandemic, are looking to get something closed in 2021 due to the anticipated increase in the capital gains tax rate,” said Mertz Taggart Managing Partner Kevin Taggart. Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. The Biden-Harris administration has introduced a new tax bill that will have significant implications on transactions. The bill proposes moving the tax rate on long-term capital gains from 23.8% (including the 3.8% Medicare tax) to 43.4%, and if passed, would be expected to go into effect on Jan. 1, 2022. Under the current 23.8% rate structure, a $10 million transaction would result in $7.62 million of after-tax proceeds. To net the same $7.62 million after taxes under the new proposed rate, a deal would require $13.46M million in cash proceeds. In the meantime, private equity groups have remained active in behavioral healthcare, accounting for 20 of the second quarter’s 26 transactions, including 18 completed by private equity-backed strategic firms. This includes four transactions by Chicago Pacific Founders’ Recovery Ways and two by Brightview, which is backed by Shore Capital. Deals involving addiction treatment and mental health provider organizations remained in line with activity in the first quarter of 2021. Mergers and acquisitions involving autism services and intellectual/development disabilities service providers, however, dipped from 11 deals completed in the first quarter of the year to just six in Q2. “Many private equity groups that have a platform company have decided to go the de novo route rather than to acquire a small provider for what have been high multiples,” Taggart said. “They can do it more cost effectively and have a waiting list shortly after they open.” Looking ahead to the remainder of 2021, Taggart said availability of M&A advisors—from attorneys and accountants to those in the clinical realm—could pose the biggest roadblock to deals getting done before the end of the year. “Many won’t have the bandwidth to handle the volume for those that aren’t already progressing down the path,” Taggart said. “We’ve talked to a number of accounting firms, buyers and legal firms that are concerned they won’t be able to handle the demand for those that aren’t already engaged in the process.” Addiction Treatment Demand for addiction treatment services continues to surge, as the latest CDC data shows more than 92,000 Americans died by overdose in the 12 months ending in November 2020, a record for a 12-month period and a 30% increase over a year prior. M&A activity in the addiction treatment sector saw a slight uptick in the second quarter, with 14 deals announced, up from 12 in Q1. Avenues Recovery expanded its national network of substance use disorder treatment centers with its acquisition of Valley Forge Medical Center and Hospital in Montgomery County, Pennsylvania. BayMark Health Services was active once again, announcing deals for two operators of residential and office-based opioid treatment companies: Hope for Tomorrow in West Virginia and New Day Recovery in Louisiana. The aforementioned deals for Brightview were for Aspire in Chesapeake, Virginia, and Life Spring Recovery in Columbus, Ohio. Virtual peer support services provider MAP Health Management acquired CARMAhealth, which offers primary care and behavioral health management services. Indiana-based Meridian Health Services expanded its addiction treatment services in the state by entering into a partnership with Home with Hope in Lafayette, a deal that included the addition of a maternal treatment program. CPF Recovery Ways announced four deals in the second quarter. The company added addiction treatment providers Alpine Recovery Services and Colonial Clinic, as well as Omega Recovery and Breakthrough Recovery Group, which provide both addiction treatment and mental health services. Jacksonville Beach, Florida-based Refresh Mental Health added Carolina Behavioral Care’s network of programs in central North Carolina to its portfolio. Vertava Health (formerly known as Addiction Campuses of America) expanded its presence in the Mid-South region of the U.S., as well as its MAT, IOP and primary care offerings in outpatient settings, with a deal for Memphis-based IAC Associates. Autism Services & Intellectual/Developmental Disabilities The volume of deals for autism and I/DD services, which has ebbed and flowed on a quarterly basis since mid-2019, once again dipped in the second quarter of 2021. Just six deals in this space were completed in the quarter, down from 11 in Q1 of 2021. Among the deals in the autism and I/DD space announced: Acorn Health Associates expanded its presence in Tennessee by acquiring substantially all of the assets of LEAP Behavior Analysis. In May, Caravel Autism Health added the Center for Autism Treatment, building upon Caravel’s network of six autism therapy centers in the Milwaukee metro area. The Center for Social Dynamics expanded its footprint into Washington and Idaho by partnering with JF Autism Services, which provides ABA services in home-based settings. KNR Therapy, backed by Shields Capital, merged with Forbes Behavioral Services, combining two Florida-based providers of ABA therapy. Mental Health Deals for mental health service providers remained roughly in line with the first quarter of 2021, with 10 deals completed in Q2 compared to 11 in Q1. Demand for services in the sector is expected to remain high in the coming months as the nation starts to enter a post-pandemic phase. Transactions involving mental healthcare organizations in the second quarter included: Community Psychiatry more than doubled its facility count and began a national expansion outside of its headquarters state of California with a deal for North Carolina-based MindPath Care Centers, bringing Community Psychiatry’s total number of facilities over 70. Oaks Integrated Care announced a merger with a fellow not-for-profit provider in New Jersey, Cope Center in Montclair. In June, LifeStance Health Group, a Scottsdale, Arizona-based outpatient provider, announced an IPO of 40 million shares at a public offering of $18 per share. The Mentor Network expanded into North Texas with a deal for Sage Care Therapy Services, with new service offerings including home-based pediatric therapies for children. Vizion Health purchased Brookhaven NeuroNetwork, which includes the operations of Brookhaven Hospital, a behavioral health facility located in Tulsa, Oklahoma.

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.