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.

For Immediate Release January 03, 2023 - Mertz Taggart, a healthcare mergers & acquisitions firm that focuses exclusively on at-home care and behavioral health, has announced that Michael Lloyd has joined the firm as an M&A Associate. Michael has dedicated his career to the post-acute industry and brings a wealth of knowledge to Mertz Taggart. His career began as a Patient Care Representative for a large national provider, where he learned how home care agencies operated daily. His passion for patient care led him to the vendor side of the industry, where he was the first employee of a start-up of a data company where CMS data was utilized to drive agency growth and improve outcomes. Before joining Mertz Taggart as the lead M&A Associate for at-home care, Michael covered the Southeast U.S. for clinical and financial services to clients at McBee, an industry-leading consulting firm. Cory Mertz, Managing Partner and co-founder of Mertz Taggart said, “Michael’s unique, well-rounded background and experience create value for the firm and the clients that Mertz Taggart serves as we continue to grow our presence in the industry.” “I couldn’t be more excited to begin the next step of my career with Mertz Taggart,” said Lloyd, “I have been familiar with the firm since its inception and have always admired their reputation in the industry. I look forward to bringing my passion and consultative approach to the firm and the clients we represent during the entire exit planning process. It is my hope that through this role I can also continue to bring value to the post-acute industry that I am very passionate about.”

From a recent industry webinar, Managing Partner, Cory Mertz shares insight on maximizing the value of your home health, hospice, or home care agency. Cory discusses both the value drivers and their impacts on the value or your agency. He then dives into the M&A process for selling your home health, hospice, or home care agency, including running a competitive confidential bid process with the best buyers in the industry. Chapters: 0:00 About Mertz Taggart 1:38 About Cory 2:34 Objectives 3:52 Maximizing Value = Building AND Capturing Value 5:20 Valuation Equation and Construct 11:37 Types and Discounts of Financial Consideration 14:54 Six Common Ways to Build Value of Your Agency 22:37 Capturing Value - Find Your Ideal Buyer and Compel Them to Make Their Best Offer - The Process 34:18 Capturing Value - Getting to the Close, Without Re-Negotiating Are you contemplating an eventual sale or purchase of a home health, hospice or behavioral health company? Contact us to arrange a confidential discussion today.

Home care M&A is in the midst of a growth spurt. When it comes to dealmaking, non-medical home care long seemed like the younger sibling compared to its home health and hospice counterparts. That’s changing though, as the home care value proposition is more apparent amid the COVID-19 emergency. The results are clear: for the second straight quarter, non-medical home care led the home-based care pack with the most transactions. The segment saw 10 transactions in the second quarter of 2022, followed by eight for Medicare-certified home health and seven for hospice. Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. Home care leads the pack For the year, home care has seen 23 transactions compared to 17 apiece for both hospice and home health. Home care’s lead this quarter was largely driven by Help at Home Inc., the Chicago-based home- and community-based services company that completed three acquisitions during Q2. Help at home is backed by PE firms Vistria Group and Centerbridge Partners. Help at Home was particularly active in April, purchasing New York-based home care agencies Edison Home Health Care and Preferred Home Care. The acquisitions gave Help at Home an additional 10,500 clients and 12,000 employees. Two months later, Help at Home expanded its southwest Michigan footprint by acquiring Alliance Home Health Care Services and its six Michigan locations. And don’t expect Help at Home to slow down anytime soon. The company will likely remain aggressive for the remainder of the year, acquiring accretive companies with their eyes set on an exit. Last year, rumors swirled that the company was considering going public, but with the softening of the equity markets, including home care stocks, they seem to have delayed IPO plans for now. Other home care-related transactions during Q2 include Personal Touch Home Care’s acquisition of Neighbors Home Care in April. Parentis Health, a California-based senior care company, also bought home care provider Pop-in Care that same month. In June, PE-backed home health and hospice company Excelin Health acquired On My Care. Along with offering personal care, On My Care also provides skilled nursing, physical, occupational and speech therapy, as well as social worker services. The uptick in home care dealmaking is especially notable because, overall, transactions were down year over year from the first half of 2021 to the first half of 2022. The first half of last year saw 69 combined home health, home care and hospice transactions reported compared with just 48 in the first half of 2022. Yet the home care segment’s share of transactions has increased from 42% in the first half of last year to 48% in the first half of this year. Home health still riding high The home health industry was hit hard in June when CMS released its new proposed payment rule with a 4.2% decrease to payment rates. Even though the rule is still in the proposal stage, the cut sent waves of concern across the sector. “The entire home health community is in a bit of a tailspin, given the release of the rule,” Joanne Cunningham, the CEO of the Partnership for Quality Home Healthcare, told Home Health Care News. “We are continuing to peel back the analysis and get a full understanding of all of the components of it, but it certainly has been a real stemwinder of a reaction from urban, rural, big and small home health agencies across the country.” Despite industry backlash to the proposal, demand and valuations for home health agencies remain at an all-time high. Still, the 4.2% proposed cut could impact deals down the road. “It will impact deals and deal volume as some would-be sellers will be in a wait and see mode,” Mertz says. “For deals in the works, it can certainly create a valuation gap between the buyer and seller that will need to be worked through. Any time there is uncertainty — 4.2% is significant but far from certain — in the marketplace, valuation gaps occur.” Home health giant Amedisys Inc. (Nasdaq: AMED) was responsible for some of the more notable deals this quarter. The company closed on both its AssistedCare and Evolution Health deals, building on their presence in North Carolina and Texas. The former was completed for a price tag of $25 million, the latter for $70 million. Another big story this quarter, perhaps the biggest, was Humana Inc. (NYSE: HUM)’s announcement in April that it would sell 60% of its hospice and personal care assets from Kindred at Home to the private equity firm Clayton Dubilier & Rice (CDR). “What is nice about this transaction is that it allows Kindred to free up some cash, while still maintaining a strong connection with the hospice and personal care division,” Mertz says. “This will allow them to wait and see how value-based purchasing evolves over the next few years. If hospice and personal care services become a bigger part of the value-based ecosystem, though I’m not privy to details, I would imagine Humana has an option of some sort in place to acquire CDR’s interest at some point in time.” Hospice M&A demand still strong On its end, hospice remains active. The sector is still seeing high demand, as well as sky-high valuations. In June, Vistria-backed St. Croix Hospice of Minnesota acquired Illinois-based Lexington Hospice Care. Over the last couple of years, the company has been bullish when it comes to its expansion efforts. Hospice of the Chesapeake agreed to buy fellow non-profit Calvert Hospice in April. Other deals included Webster Equity-backed Bristol Hospice’s acquisition of Hospice Select in April, and Ridgemont Equity-owned Agape Care’s purchase of Hospice of the Carolina Foothills in May. Sector-wide, the slow-down in dealmaking activity is largely seller driven. “We have not seen any softening in values across the care-at-home sector,” Mertz Taggart Managing Partner Cory Mertz says. “Private equity loves the industry, especially since COVID. U.S. private equity firms are still sitting on roughly $1 billion in dry powder with a mandate to invest. Interest rates are going up, but in the lower middle market, it hasn’t had a meaningful negative impact on values.”

Total transaction volume across the behavioral health care sector saw a modest decrease in the second quarter of 2022, dipping to 30 deals announced from the 44 that were reported in the first three months of the year. The decline, however, is not necessarily a product of surging interest rates or the equity market, said Mertz Taggart Managing Partner Kevin Taggart. Instead, Taggart said, the volume of behavioral healthcare transactions has been—and continues to be—seller-driven. “There has been a lot of talk about financial markets and their impact on mergers and acquisitions,” Taggart said. “While I agree a few additional points in interest rates can have a huge impact on a large transaction, we’ve been somewhat insulated both in the behavioral health industry and lower middle market.” Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. Private equity and venture capital accounted for 24 of 30 (80%) transactions in the second quarter. Notably, the sector saw several significant venture capital rounds, all of which had some level of technology that provided scalable accessibility to patients. While the appetite for larger M&A transactions outside of behavioral health seems to be slowing this year given some of the current macroeconomic trends, the lower middle market is expected to still be a seller’s market in behavioral health, Taggart said. “Even though transaction volume is down, Mertz Taggart is still very bullish on behavioral health and expects multiples and demand for quality companies to remain strong through the remainder of 2022,” he said. Addiction Treatment M&A The addiction treatment subsector saw its transaction volume continue to decline, with eight deals announced in the second quarter, which was down from 15 in Q1 and 31 in the fourth quarter of 2021. With just eight deals reported, Q2 had the lowest volume of addiction treatment transactions dating back to mid-2018. The quarter did see a pair of provider organizations complete significant venture capital-backed funding rounds. Bicycle Health raised $50 million in series B funding. The funding round was led by InterAlpern Partners and also included Questa Capital, City Light Capital and First Cressey Ventures. Bicycle Health said the funding will be used to expand the organization’s virtual telehealth opioid use disorder treatment services. Meanwhile, Boulder Care, a Portland, Oregon-based startup, announced that it raised $35.73 million through a combination of series B1 and B2 venture funding from Qiming Venture Partners, Goodwater Capital and Laerdal Million Live Fund, as well as investors from previous rounds including Tusk Ventures, Greycroft Partners, First Round Capital and Gaingels. Other deals in the addiction treatment category that were announced in the second quarter include: The Sylvia Brafman Mental Health Center expanded its treatment offerings with its acquisition of Through the Archway, a spiritual immersion addiction treatment program. Thrive Capital Management announced a platform deal for Harmony Recovery Group. Three provider organizations announced private equity-backed strategic deals: Community-based drug and alcohol addiction treatment provider Pinnacle Treatment Centers acquired Stepping Stone of North Carolina, a private, outpatient opioid addiction treatment program. Monument purchased fellow digital alcohol recovery program Tempest. And Bradford Health Services expanded its addiction treatment offerings into Mississippi with its acquisition of The Estate at River Bend. Modern Recovery acquired SpringBoard Recovery, creating a new Arizona-based umbrella organization known as Modern Recovery Network. Mental Health M&A Although down from the record high number of transactions reported in Q1, deal volume in the mental health subsector remained strong in the second quarter, with 17 transactions announced. Venture capital and private equity accounted for all but three deals in the mental health space. Five provider organizations announced venture capital funding rounds in the second quarter: Digital emotional support startup Circles raised $16.5 million in series A funding. The round was led by Zeev Ventures; Lior Ron, head of Uber Freight, NFX and Flint Capital, and Sir Ronald Cohen also participated. Parallel Learning announced plans to expand from the current six states in which it operates to between 18 and 23 by the end of the year after securing a $20 million series A funding round led by Tiger Global Management. Family mental health services provider Handspring Health closed a $6.2 million seed round that was co-led by Newark Ventures and NextView Ventures, along with participation from 25madison Ventures, Arkitekt Ventures, Quantum Angels and several health care operators. Concert Health raised $42 million in series B funding for its collaborative care treatment model. The round was led by Healthy Ventures. Iris Telehealth announced a $40 million series B funding round that will support the company’s plans for national expansion. The round was led by Concord Health Partners and Columbia Pacific Advisors. The following private equity-backed strategic acquisitions were reported: Mindpath Health acquired Acacia Counseling and Wellness, a telehealth and outpatient mental health provider that specializes in treating college students. Spring Health expanded its family mental health service offerings with a deal to acquire the family wellness platform Weldon. CM Counsel acquired Karner Psychological Associates, an outpatient mental health services provider in Albany, New York. Transformations Care Network expanded into Washington state with its acquisition of LightHeart Psychological Associates. Three private equity platform transactions were announced: Havencrest Capital Management invested in Deep Eddy Psychotherapy, a psychology practice with three locations in central Austin, Texas. Ellie Mental Health, an outpatient mental health clinic operator and franchisor, received an investment from Princeton Equity Group. Bay Area Clinical Associates, a mental health services provider for children, entered into a partnership with private investment firm Frontline Healthcare Partners. An additional three deals in the mental health sector were also reported: Irwin Naturals completed its acquisition of KHC Capital Group and its portfolio of five Ketamine Health Centers facilities in Florida. Kelly Services acquired Pediatric Therapeutic Services, a specialty firm that provides state and federally mandated in-school therapy services. Moriah Behavioral Health acquired Ignite Teen Treatment and Eden Center for Eating Disorders in a deal involving three provider organizations based in Nevada. Autism Services and I/DD M&A The autism services and intellectual/developmental disabilities (I/DD) subsector saw seven deals announced in the second quarter, a slight increase from Q1, but still below average for the category. With the exception of Constellations Behavioral Services being sold to its 150 employees and restructuring as an employee stock ownership plan, all other deals announced by autism and I/DD service providers involved private equity firms. Four private equity platform deals were announced: Graham Healthcare Capital made an investment in an undisclosed applied behavior analysis therapy provider. Private equity firm Enhanced Healthcare Partners added autism therapy provider Howard J. Chudler & Associates as a platform investment. Frontline Healthcare Partners announced a recapitalization and growth investment in ABA therapy provider JoyBridge Kids. Health Enterprise Partners made a strategic investment in autism spectrum disorder treatment company Proven Behavior Solutions. Meanwhile, Stepping Stones Group made a private equity-backed acquisition of therapeutic and behavioral company HM Therapy, and private investment firm Atar Capital announced a sixth acquisition through its portfolio company Pathways Health and Community Support, closing a deal for Psychological Assessment & Intervention Services.

The Home Health Value-Based Purchasing (HHVBP) Model is set to roll out nationwide on Jan. 1, 2023. While its demonstration pilot had been live in nine states beginning in 2016, that pilot ended abruptly before 2021 due to COVID-19. Under HHVBP, home health agencies will be subject to a 0-5% upward or downward reimbursement adjustment based on various performance measures. While 2023 is the first performance (measurement) year subject to these changes, reimbursement won’t be affected until 2025. Under the model, agencies will be grouped with their cohorts based on size – but not geography. In contrast, in the demonstration, agencies were judged against only other agencies in their respective states. After the nationwide rollout, competition will be determined based on agency size. Specifically, agencies with fewer than 60 unique survey-eligible beneficiaries in the calendar year before the performance year will be assigned to smaller-volume cohorts, while agencies with 60 or more will form part of the large-volume cohorts. The Total Performance Score (TPS) an agency receives under HHVBP will be based on their performance in multiple areas. These performance markers include: Five based on OASIS Two based on claims Five based on HHCAHPS survey quality measures An agency’s TPS will then be weighed against the TPS of other agencies in an organization’s respective cohort, and then the corresponding payment adjustment percentage will be computed. Impact on agency value Once HHVBP is implemented, it will change the reimbursement landscape to some extent. While there’s not any more money coming in from Medicare, per se, worse-performing agencies will in essence pay for better-performing agencies’ adjustments. “What some owners don’t realize is that a 5% change in revenue will have a significant impact on cashflow, or EBITDA,” said Mertz Taggart Managing Partner, Cory Mertz, “Those dollars flow straight to the bottom line, in the absence of changes to the agency’s cost structure.” Valuation impact illustration To display HHVBP’s potential impact on a given agency, consider the following assumptions: The model agency will be 100% Medicare revenue Visit volume and cost of sales will not change from performance year to payment year General and administrative (G&A) expenses will stay fixed from year to year Using the industry standard “multiple of EBITDA” methodology to determine value, performance year valuation may be follows: 1 – For illustration purposes only. Multiples are a function of, among other things, agency risk and marketplace. Without the HHVBP impact, the agency’s enterprise value is $11.2 million. Let’s look at the same agency, in the first Payment Year, with a 5% upward adjustment: Note that, in addition to the improved EBITDA, the multiple has changed slightly, as agencies with better quality scores tend to sell at higher multiples. The benefit to the agency goes beyond a $500,000 increase in revenue. In this case, the enterprise value increased by just over $4 million, or 36%. If an agency performed poorly enough warrant a 5% decrease, the change in valuation may look something like the following: Here, the agency's enterprise value dropped by $3.77 million in comparison to its pre-HHVBP implementation numbers. The swing in value is fully illustrated when comparing the best performing agency ($15.23M enterprise value) with the worst performing agency ($7.43M enterprise value). What agencies can do to prepare for HHVBP As explained above, an agency’s TPS, which will determine its rate adjustment, is based on relative performance on OASIS-based, claims-based and HHCAHPS Survey-based quality outcomes. Therefore, that’s what agencies should home in on in order to get the best result and the best possible change to enterprise value. “The agency should review and correct — if needed — internal processes and protocols to boost performance,” Mertz says. “Additionally, the agency should consider investing in the right tools and software to track outcomes data, and understand which outcomes are having the largest impact on the TPS.” Given that the first performance year is not until 2025, many agencies are comforted by the thought that HHVBP impact is still far away. That is not the case when it comes to valuation, as we expect home health acquirers will begin to price in the potential adjustments to their target acquisitions much sooner, perhaps as early as late-2023.

After the final three months of 2021 saw a surge in merger and acquisition activity across all sectors that was fueled by a wave of sellers eager to exit the market, deal volume in general for the first quarter of 2022 returned to more modest levels, with at least 41 behavioral health transactions closed. However, there is one notable exception. The mental health sector remains hot, with 26 transactions announced in Q1, shattering the previous record of 16 set in the fourth quarter of 2021. Note: Total industry transactions does not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. The success of LifeStance and Refresh Mental Health in recent years has piqued buyers’ interest in the mental health sector, said Mertz Taggart Managing Partner Kevin Taggart, CM&AP. “Both of those companies have been wildly successful with multiple sales over the last couple of years, including LifeStance going public in 2021,” Taggart commented. “Private equity started seeing the success of both of those groups in 2020 and 2021. There is a lag between the time they decide to get into the market and when they start making acquisitions, which I believe was reflected in the Q1 numbers.”. Refresh itself was one of Q1’s most notable acquisition targets. In March, the company was acquired by Optum, the UnitedHealth Group subsidiary that provides pharmacy benefit management and healthcare services. While not necessarily reflected across all of behavioral health in Q1, demand for provider organizations remains robust. Bankers and buyers are now rebuilding their pipelines, and Taggart said he expects to see a strong back half of 2022, barring any unforeseen developments on the macroeconomic level. “There is a strong demand for mental health companies,” he observed. “The rest of behavioral healthcare will also be attractive, although perhaps not quite to the same level.” Addiction Treatment A total of 14 addiction treatment deals were announced in Q1—a figure in line with most quarters dating back to late 2019, but down from the 31 deals announced in the fourth quarter of 2021. Both financial institutions and potential buyers appear to be rebuilding their pipelines to start 2022 with one notable exception. BayMark Health Services, backed by the private equity firm Webster Capital, has remained active, completing three deals: In January, BayMark acquired the online addiction treatment platform Kaden Health. A month later, the company expanded into Indiana and grew its AppleGate Recovery brand with a deal for Lucina Treatment Centers, a group of five office-based opioid treatment programs. In March, BayMark added Pathfinders Recovery Centers, which operates programs in Scottsdale, Arizona, and Aurora, Colorado, as well as Emerald Isle Health and Recovery in Surprise, Arizona. Webster Capital also announced a new partnership in February with Oceans Healthcare, a behavioral healthcare company with 33 locations, including 23 inpatient hospital campuses, across the Southeast. Meanwhile, after completing three transactions in nearly six years previously, Acadia announced two addiction treatment/mental health deals in Q1, acquiring Centerpointe Behavioral Health Kansas City and Orlando Health. Other deals in the addiction treatment space announced in the first quarter include: Amulet Capital Partners, a middle-market private equity firm, announced it has recapitalized Lighthouse Behavioral Health in Columbus, Ohio. Burrell Behavioral Health and Preferred Family Healthcare announced a partnership to create a newly named not-for-profit behavioral health and addiction treatment provider known as Brightli. Royal Life Centers, an addiction treatment provider with 8 locations, has been added to the portfolio of CMJ Health Services. Heritage CARES, a virtual behavioral health, substance misuse, and suicide prevention company, merged with YouTurn, a platform for therapist-led video content for stress, behavioral health, and substance misuse. Retro Capital Group announced a platform deal for Resurgence Behavioral Health. Summit BHC acquired seven psychiatric hospitals in six states from Strategic Behavioral Health. Mental Health As noted above, while activity in other subcategories slowed in the first quarter, mental health transactions surged, with a record 26 deals announced, surpassing the previous high of 16 in the fourth quarter of 2021. In the most notable deal of the first quarter, UnitedHealth Group subsidiary Optum acquired Refresh Mental Health from the private equity group Kelso & Co., according to media reports. While terms of the deal were not disclosed, Kelso acquired Refresh at a valuation of about $700 million in December 2020. “Optum and Refresh Mental Health are excited to expand effective behavioral care to patients through a more coordinated health system,” an Optum spokesperson told Axios. “Together, we will be able to drive deeper integration between medical and behavioral health care and advance personalized care to patients through value-based care.” Private equity drove most of the transaction volume in mental health, accounting for 16 of the 26 deals announced. This includes two acquisitions by Health Connect America, a behavioral health platform backed by Palladium Equity Partners. Health Connect America acquired Pinnacle Family Services in North Carolina and Healing Educational Alternatives for Deserving Students (HEADS), a Florida-based, trauma-focused provider. Among the other transactions in the mental health space that were announced in the first quarter: Digital provider Brightside Health raised $50 million in a Series B funding round led by ACME Capital and Mousse Partners. Mental wellness app Calm acquired health tech company Ripple Health Group, which provides services for older adults and their caregivers. Centene Corp. completed its acquisition of Magellan Health, increasing its members' access to behavioral health services. CloudMD Software & Services closed its acquisition of MindBeacon Health, a provider of digital healthcare services. CM Counsel announced a deal with James Levine & Associates. Discovery Behavioral Health, which operates a network of mental health, substance use, and eating disorder treatment centers, acquired Dan Med TMS Neuro Institute, a provider of transcranial magnetic stimulation (TMS) therapy for depression. Foresight Mental Health acquired Psychiatric Addictive Curative Therapies (PACT), which operates 14 mental health clinics in the Atlanta area. Digital mental health platform Headspace Health acquired Sayana, an AI-driven mental health and wellness company. Brightline, a youth telehealth-based behavioral health company, completed a $105 million Series C funding round led by investment firm KKR. Lightfully Behavioral Health announced a private equity-backed strategic acquisition of Resilience Treatment Center in Los Angeles. MindPath Care Centers made a private-equity backed strategic acquisition of Psychiatric Centers at San Diego. New Directions Behavioral Health acquired Tridiuum, a digital behavioral health company. Novamind, a mental health company that specializes in psychedelic medicine, closed its acquisition of Foundations for Change, an Arizona-based provider of ketamine-assisted psychotherapy. Pacific Clinics and Uplift Family Services announced a merger and plans to operate under the Pacific Clinics name. Comprehensive Behavioral Health and Psych Associates announced a merger to form Bloom Health Centers, a mental health treatment provider organization. The Recovery Ways Family of Programs expanded into Texas with its acquisition of Stuart J. Nathan, PhD, and Associates. Revitalist announced in January that it had executed a purchase agreement to acquire a ketamine clinic in Jacksonville, Florida. Digital eating disorder treatment company Equip Health closed a $58 million Series B funding round led by The Chernin Group, with Tiger Global Management and General Catalyst joining as new investors. Transformations Care Network has partnered with Columbia Associates in Psychiatry and New Directions Counseling Services. Legion Health closed a $150 million Series C investment round that included institutional investors UpHonest Capital and Soma Capital. Autism Services and Intellectual/Developmental Disabilities As with addiction treatment, transactions in the autism services and intellectual/developmental disabilities (I/DD) space were down, with six deals announced in the first quarter compared to eight in the final quarter of 2021. The six deals—all of which were backed by private equity firms—were the fewest in a quarter since the second quarter of 2020, which coincided with the start of the COVID-19 pandemic. The deals announced in the quarter included: Caregiver, a privately held, long-term care services and support provider for those with I/DD, acquired AbleLight, which operates two programs in Indiana, and Compass Residential & Consulting. Hopebridge announced a partnership with Autism in Motion (AIM) Clinics to increase access to pediatric autism services. Florida-based KNR Therapy, backed by Shields Capital, announced a merger with Autism Learning Center in Georgia. Ally Pediatric Therapy received an investment from Spanos Barber Jesse & Co. The Stepping Stones Group, a national provider of therapeutic, behavioral, autism, nursing and educational services, acquired the Southcoast Autism Center, based in Massachusetts. In March, the Chicago-based private equity firm Vistria Group began the process of acquiring I/DD services and housing provider Beacon Specialized Living.

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