Behavioral Healthcare Stocks up 0.5% in February The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was up 0.5% for the month of February. The S&P 500, by comparison, was up 2.9% during the same period. February was a fairly quiet month across the board. American Addiction Centers – AAC ( ↑4.5% ) was up slightly for the month of February.  No significant news to report. Acadia Healthcare – ACHC ( ↓5.3% ) was down likely due to investor anticipation of the company missing Q4 and full-year 2018 earnings expectations.  ACHC released its fourth quarter and year‑end 2018 earnings on February 28, 2019, after the close of the market. Universal Health Services – UHS ( ↑2.4% ) was up after positive Q4 and year-end 2018 results, which were delivered on February 27th.   EPS for Q4 came in at $2.37 while expectations were $2.34.  Revenue came in at $2.75 billion compared to estimates of $2.74 billion.  For the Behavioral Health segment, on the same facility basis, adjusted admissions rose 4.5% while adjusted patient days dipped 1.2%, both on a year-over-year basis. Net revenues were up 2% in Q4 due to higher admissions. For the last twelve months (LTM), the BHC is well behind the S&P 500 at a 27.5% loss relative to the S&P’s gain of 2.6%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS.  The valuations provide a relative barometer for what smaller companies can expect.  Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 2/28/19 AAC $2.55 ACHC $26.29 UHS $138.83 Enterprise Value/EBITDA Company 2/28/17 2/28/18 2/28/19 AAC 13.26x 10.98x 11.75x ACHC 12.35x 11.27x 9.61x UHS 9.61x 8.56x 9.86x Enterprise Value/Revenue Company 2/28/17 2/28/18 2/28/19 AAC 1.52x 1.51x 1.16x ACHC 2.55x 2.31x 1.82x UHS 1.67x 1.42x 1.54x M&A News March 1, 2019 – Perimeter Healthcare, a network of mental and behavioral health treatment centers backed by Ridgemont Equity Partners, announced the acquisition of Lake Pines Hospital, a 36-bed behavioral healthcare facility, and the St. Theresa Hospital building that houses the program in Kenner, La.  Perimeter plans to add 40 to 45 beds to the inpatient facility over the next eight months as part of a renovation project. The facility will be renamed Perimeter Behavioral Hospital of New Orleans. February 22, 2019 – Family Counseling Services of Cortland County and Family & Children’s Society announced the merger between the two services.  The renamed Family & Children’s Counseling Services will serve as a joint urban-rural agency focused on essential behavioral healthcare services throughout the Oneida, NY region. February 19, 2019 – Ryan Chapman, who grew and sold a nationwide service company, Premier Parking, before age 35, purchased Integrative Life Center (ILC), a provider of residential and outpatient treatment for substance abuse, eating disorders, and mental health disorders.  The company was founded in 2010 and has two facilities in the Nashville, TN area.  Ryan Chapman is now the majority shareholder and CEO. February 6, 2019 – Ideal Option, a provider of Medication-Assisted Treatment (MAT) and behavioral counseling services for individuals suffering from Opioid Use Disorder (OUD), announced today a strategic minority investment by BlueCross BlueShield Venture Partners (BCBSVP). BCBSVP invests on behalf of 33 BlueCross BlueShield entities in healthcare companies of strategic relevance to BlueCross BlueShield Plans. January 24, 2019 – Pharos Capital Group-backed Beacon Specialized Living Services acquired Owakihi, Inc., which provides home and community-based support services to individuals with intellectual and developmental disabilities.  Headquartered in Saint Paul, MN, Owakihi serves over 200 individuals across 14 sites in the seven counties surrounding Minneapolis and Saint Paul.

Behavioral Healthcare Stocks Up 4.3% in July The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was up 4.3% for the month of July. The S&P 500, by comparison, was up 3.3%. “It was another volatile month for the behavioral stocks, as these companies continue to grow in the face of ever-changing payor dynamics and the complexities of an expanding international presence”, said Cory Mertz, Managing Partner with Mertz Taggart. July was earnings month… Acadia Healthcare – ACHC ( ↓4.4% ) was down on news of lowered 2018 revenue projections. In its Q2’18 earnings release after the market closed on July 30th, the company lowered its previous 2018 revenue guidance from approximately $3.06Bn to $3.04Bn. Acadia also lowered its earnings per diluted share projections from a range of $2.60 to $2.54. In its earnings call Acadia Chairman and CEO Joey Jacobs blamed higher interest rates and a lower exchange rate between British pounds and the dollar for the lower guidance. They continue to add beds, mostly to existing facilities, adding 276 new beds through Q2, with plans to add a total of 800 new beds in 2018. When asked what they plan to do with their growing cash stockpile, Jacobs commented, “The pipeline is very active, and we would just continue to hold the cash. I expect that by the time we talk to you again at the end of October, that we would have spent some of this cash on an acquisition.” American Addiction Centers – AAC ( ­↑7.3% ) stock began a run-up from July 25th to July 30th. We suspect this was due to expectations of a strong earnings release for Q2’18. However, AAC missed its Q2 EPS by 50%, coming in at $0.09 per share versus consensus estimates of $0.18 per share. We will provide more detail on the earnings in the August newsletter. Universal Health Services – UHS ( ↑10.0% ) was up on strong earnings. On July 25th, UHS announced that its net income was $226.1MM, or $2.39 per diluted share, during the Q2’18 as compared to $185.4MM, or $1.91 per diluted share, during the comparable quarter of 2017. Net revenues increased 2.6% to $2.68Bn during Q2’18 as compared to $2.61Bn during Q2’17. In addition, on July 31st, UHS announced the acquisition of The Danshell Group (“Danshell”) through its UK subsidiary Cygnet Health Care. Danshell owns and operates 25 facilities with a total of 288 beds in the UK. The Danshell facilities support and care for adults living with learning disabilities, who may also have a diagnosis of autism, in specialist supported living, residential services, and hospitals. Through this acquisition, the company expands into new service lines and new geographical areas, complementary to the existing UK portfolio. For the last twelve months (LTM), the BHC was behind the S&P 500 at a 0.2% gain relative to the S&P’s gain of 14.0%. Valuation – Public Comps Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies. Stock Prices Company 7/31/18 AAC $10.39 ACHC $39.48 UHS $122.10 Enterprise Value/EBITDA Company 7/31/16 7/31/17 7/31/18 AAC 21.65x 12.10x 12.61x ACHC 17.20x 13.69x 11.21x UHS 9.55x 8.67x 9.12x Enterprise Value/Revenue Company 7/31/16 7/31/17 7/31/18 AAC 3.09x 1.25x 1.89x ACHC 3.65x 2.78x 2.26x UHS 1.72x 1.47x 1.47x M&A News July 9, 2018 – Pennsylvania-based Pyramid Healthcare announced today it has entered into an agreement to purchase WaldenSierra, a system of substance abuse and behavioral health treatment programs serving southern Maryland since 1973. Pyramid Healthcare currently operates around 80 behavioral health facilities and six autism schools in Pennsylvania, New Jersey, and North Carolina. This will be Pyramid’s first expansion into Maryland. July 10, 2018 – Northstar Academy, a series of leading adolescent treatment centers specializing in mental health, trauma, eating disorders, and substance abuse, acquired all the assets of NorthStar Academy Adolescent Treatment Center, which will formally become a part of Newport Academy’s growing network across the country—including locations in California, Connecticut, and Pennsylvania. July 11, 2018 – Rosecrance, a Midwest behavioral health organization, announced that it has agreed to a merger with Iowa-based Jackson Recovery Centers that are expected to be finalized in mid-2019. Combined revenue would be over $100MM. The planned merger with Jackson Recovery Centers would result in an organization with nearly 60 locations across the Midwest. July 11, 2018 – Taft, Tennessee-based Magnolia Ranch Recovery, which offers inpatient rehabilitation, announced the merger with Murfreesboro, Tennessee-based Tulip Hill Recovery, which provides intensive outpatient and aftercare services with case management. July 18, 2018 – Delphi Behavioral Health Group, a nationwide provider of addiction and detox treatment programs, announced today the acquisition of Family Recovery Specialists (FRS), located in Miami, Florida. Family Recovery Specialists is an outpatient program that provides comprehensive evaluations and treatment for adults and adolescents suffering from substance use and mental health disorders. July 18, 2018 – Refresh Mental Health acquires Memphis, Tennessee-based Fairhaven Treatment Center. Fairhaven offers a full continuum of care for adult and adolescent women with eating disorders. Refresh’s portfolio includes practices across the U.S., which provide services that include: individual, couples, and group therapy; substance abuse and addiction services; psychiatry and medication management; eating disorder treatment; and outpatient, intensive outpatient, in-home, and residential care. July 31, 2018 – Century Park Capital Partners acquires Dominion Youth Services (“DYS”). Headquartered in Richmond, Virginia, DYS is a leading provider of behavioral health services to children and young adults across Virginia. RGA Private Debt & Equity provided the debt financing for the transaction. July 31, 2018 (mentioned earlier) – UHS announced the acquisition of The Danshell Group (“Danshell”) through its UK subsidiary Cygnet Health Care. Danshell owns and operates 25 facilities with a total of 288 beds in the UK. The Danshell facilities support and care for adults living with learning disabilities, who may also have a diagnosis of autism, in specialist supported living, residential services, and hospitals. Through this acquisition, the company expands into new service lines and new geographical areas, complementary to the existing UK portfolio. Also Read Behavioral Health Composite – October 2018

As a business owner… Some of these statistics might surprise you! Don't Be Another Statistic With so much uncertainty in today’s market, being prepared for what the future may hold is imperative. Fill out the form below to get your confidential valuation. Know where you stand in the marketplace today to better prepare your business for tomorrow. The average business owner has approximately 80% of their net worth tied up in their business; 75% of business sellers regret the deal they’ve made; Only 2 out of every 10 businesses that go to market actually sell; Most business owners do not know what their business is worth. Get a Valuation! Our team of healthcare M&A professionals has almost 75 years of healthcare and M&A experience. As business owners who have been through the sales process ourselves, we have a first-person perspective on this process. With almost over 100 completed healthcare transactions, we can walk you through the selling process with your particular needs in mind. Contact Us and One of Our M&A Professionals will Contact You!

Introduction The Veterans Administration (VA) has long been considered a ‘payer of last resort’ for home care providers, offering below-market rates and slow pay for services to our veteran community that deserves better. As a result, this business line has often been viewed as important, but not desirable for home care operators, resulting in low M&A interest from industry consolidators. That changed in 2018 with the passage of the VA Mission Act of 2018 . This federal law aimed to enhance veterans' access to healthcare services within the VA system and through community care providers. Of particular interest to home-based care providers, the act replaced the Veterans Choice Program with the new Community Care Program . Community Care Program The new Community Care Program expanded the eligibility criteria for veterans, provided more stable funding, improved the program’s long-term sustainability, and standardized and streamlined access requirements to receive care. Additionally, the Act established the Community Care Network (CCN), which serves as the contract vehicle for the VA to “purchase” community care from community healthcare providers for veterans. The CCN established agreements with two third-party administrators (TPA), Optum Public Sector Solutions, Inc. (Optum), part of UnitedHealth Group, Inc. and TriWest Health Care Alliance (TriWest) and divided the country into five different regions: The TPAs are responsible for developing and administering the CCN within their assigned geography. Their scope of work includes the following: Provider Network Management: Establish and maintain networks of community healthcare providers, such as home care or home health providers. Appointment Scheduling: Help coordinate appointment scheduling for veterans. Claims Processing: Handle claims processing and payment from community healthcare providers. Authorization and Coordination : Assist in obtaining authorizations for medical services that veterans need from community providers and ensure necessary documentation is in place. Quality Assurance : Monitor the quality of care. Communication : Facilitate communication between the VA, veterans, and community healthcare providers. In order for a home-based care provider to provide services to veterans and get reimbursed for it, it needs to: Establish a contract with a TPA : This involves executing an agreement and going through certain credentialing. Build relationships with local VA representatives: This should be in the form of high-quality and timely care. Billing: Submit proper billing through established protocols and online portals Receive payment or follow up on unpaid claims: As with any payer, providers will need to follow up with TPAs on unpaid claims, but the majority of the time this will be due to minor and easy-to-fix issues Attractive Reimbursement In addition to the improved and more efficient Community Care Program, the VA also has attractive reimbursement rates for home-based care services: Personal Care Services: The rates for personal care services depend on the state/city/market serviced, but the majority will be in the low $30’s/hr. Home Health and Hospice Services: VA will reimburse at Medicare rates. Investor Interest Investors have caught wind of the improvements in the VA healthcare ecosystem and have developed a strong interest in home-based care providers that service veterans. Below are some of the reasons for the renewed investor interest: Payor Diversification : Increasing the number of payors reduces the risk that a certain payor will lower rates, stop reimbursement, change material terms in agreements, etc. High Reimbursement Rates: Current reimbursement rates are on the high end for home-based services. Uncertainty Other Payors: Private Pay: Concerns with the state of the economy could inhibit clients’ ability to pay high rates Medicaid: CMS’s proposed Medicaid Access Rule requiring providers to pass 80% of reimbursement to direct care workers jeopardizes the feasibility of the different state programs. Medicare: Looming proposed rate cuts increase risk Value-based Care Opportunities: An additional payor means an opportunity to care for more individuals, have more leverage when negotiating contracts, and capture higher-margin health services. “We are hearing more from strategic buyers interested in adding VA to their existing Medicaid home and community-based services business,” Mertz Taggart Managing Partner Cory Mertz said. “It’s a perfect complement to that business line. The models are very similar, payer diversity reduces risk, especially in light of the proposed 80/20 rule, and the current reimbursement rates are strong.” M&A Market For Home-Based Care Providers Servicing Veterans The strong investor interest in home-based care providers that service veterans and receive reimbursement through TPAs has increased the demand and value of these assets. Resources: VA Community Care Network VA Mission Act of 2018 VA Community Care Eligibility VA Community Care General Info VA Disability Calculator VA Disability Appeals Additional Veteran Resources As part of our commitment to supporting veterans and their families, we are pleased to share some valuable resources provided by Hill & Ponton , a law firm dedicated to advocating for veterans who have been denied benefits by the VA. These resources are designed to assist veterans in navigating the challenges they face, particularly in relation to mental and physical health issues. PTSD Guide :  A comprehensive resource tailored to assist veterans coping with post-traumatic stress disorder. 2024 Disability Calculator :  An up-to-date practical tool for evaluating disability compensation eligibility. Toxic Exposure Map :  A helpful tool designed to help veterans navigate potential exposure risks. Blue Water Navy Map :  An interactive Vietnam map for navigating exposure to Agent Orange. We believe these resources will be highly beneficial to our readers, offering practical tools and information to better manage the challenges that veterans often face.

While everybody’s dollar amount differs, reaching financial freedom is a universally held goal. To have a good chance of reaching this goal, it is not enough to merely calculate the target number you need at exit . Most owners have three distinct needs they must meet to attain and maintain a financially happy life at exit and beyond. Fail to address any of these needs, and you may not be able to exit happily. Or, you might exit only to realize somewhere down the road that you regret the decision. Here are the three needs you must address to reach and maintain your financial goals: 1. Replace Earned Income After you exit, you will need to replace the income previously earned from your business with investment income sufficient to support your personal lifestyle. This need may seem straightforward, but owners are often surprised by the challenges involved. It is not unusual for your business to generate a higher level of annual income than a prudently invested portfolio can produce. Assume you enjoy an annual income of $X amount from the company, but your financial planning and forecasts indicate that, after you exit, your investment portfolio will only generate an annual income of less than $X. That is not exciting to contemplate. Taxes often worsen the picture. If you sell your company at the exit, you likely have to pay a significant amount of unrealized taxes at that time. This tax bill erodes how much you have to invest after exit, further reducing the income stream. Furthermore, most owners enjoy a portion of their lifestyle subsidized by their business. The business pays for some (or all) of the following: vehicles, cell phones, computers, meals, travel, insurance, taxes, etc. These company-paid expenses shift to personal expenses at the exit, thus increasing the amount of personal income required after exit to maintain the desired standard of living. Ultimately, if you cannot replace the income you receive from your business with a reliable stream of income from your investments post-exit, you may find yourself trapped in the company and unable to afford to exit. 2. Transition from Running a Company to Running a Portfolio The second need is less obvious but no less important for your exit happiness — you will need to make the transition from running a business to running a portfolio. There are certain skills and tactics that made you a successful business owner, and these may not be the same skills and tactics needed for investment portfolio management. Being a successful business owner does not necessarily translate into being a successful investor. For example, successful investing often involves patience, taking a disciplined approach, and not reacting too quickly when investment markets fluctuate in short-term movements. However, being a successful business owner and entrepreneur often demands that you be willing to react quickly to market opportunities as they present themselves. You will not feel financially secure as long as you are uncomfortable or unprepared with the steps and tactics required to manage your post-exit portfolio most effectively, regardless of how large it may be. 3. Manage Pre-Exit Risks The third need is to manage ownership risk before your actual exit. Many owners do not consider their company to be a risky asset because they lead it and largely control its activities. But if you are like most owners, then prior to exit, 50%-90% of your net worth is tied up in your company. It is undeniable that having the majority of one’s net worth tied up in any asset creates risk. If something happens to you or your company prior to your exit, your future financial freedom is at risk. For example, imagine you own three assets: A piece of real estate worth $5 million Cash account with $5 million A company worth $5 million All three assets are equally worth $5 million, yet the risks associated with owning the company are different and higher. If you became seriously ill or died prematurely, the real estate and cash likely maintain their value, but your company’s value may suffer a severe reduction without you. The same risk exists if something happens to your company rather than you. If a large customer leaves your company, the cash and real estate will still be worth the same amount, but the company value may depreciate. Therefore, to reach financial freedom at the exit, you must take the proper steps to address the inherent risks that come with owning a company. After all, you only have one shot at exit success. Reaching Financial Freedom These three needs will help you understand the to-do list as you migrate from current business owner to investor. You are beginning a major life transition. Up to this point, your primary source of income has been your business, and as the owner, you have been in a position to call the shots. But you only have one shot at exit success, so you need to get it right. As the saying goes, “You can get rich by investing in one company, but you can’t stay rich that way.” What to Do Next The most important next step is to sit down with experienced advisors, clearly define your financial and other exit goals, and develop the plan that will achieve those goals. To learn more about the steps necessary for a successful exit, contact Mertz Taggart for a free consultation .

For an agency owner, exiting their business can feel like abandoning a child. It is a very emotional but critical decision that should be conducted with great planning and sophistication to obtain the best outcome. There are many things to consider before an exit, but after 130+ successful healthcare services M&A transactions, we've narrowed the list down to the top five we recommend every agency owner should consider before their exit. Here they are: 1. Outline the goals and objectives of the exit strategy Determine what's most important to you and organize it in order of importance. Here are some questions to consider: How much money will I get after taxes? Will the legacy of the business be maintained? Will employees have a job, and will company culture remain? Do I want to stay with the business for a period that extends past a 'transitionary period'? 2. Distance yourself from the agency's day-to-day operations “Care-at-Home investors are highly sensitive to transition risk. In other words, risk that the business will deteriorate after a closing,” according to Cory Mertz, Managing Partner, “ And after the owner has received a substantial payout.” Delegating responsibilities can be extremely challenging. However, separating yourself from the agency's operations will add flexibility to your options upon exit and could add value to your agency. 3. Define your ideal buyer/investor profile Choosing the right buyer or investor with whom to partner — instead of simply selecting the highest offer — can provide many benefits throughout and after the transaction. A buyer who has experience with home care, home health, or hospice transactions, plenty of cash on hand, and a healthy credit line will have a higher certainty of closing the deal. The right buyer will strive to maintain or improve the service quality while caring for your employees. 4. Engage a professional, industry-experienced, and well-educated M&A advisory firm with a proven track record An M&A advisory firm that specializes in home care, home health, and hospice will guide and prepare you for a sale that maximizes value and fulfills your goals and objectives. Finding the right buyer and compelling them to make their highest offer can only be done through a well-run, competitive M&A process. Preparing the marketing materials, financial model, and information for due diligence is exceptionally time-consuming and taxing. An M&A advisory firm can provide the additional bandwidth necessary to prepare all the M&A materials while you keep growing your agency. We have listed some of the benefits of engaging a specialized M&A advisory firm here . 5. Ensure easy access to critical, common, diligence information such as accurate financials, operational metrics, licenses, etc. If you engage with an M&A firm to lead the process, most of the heavy lifting will be off your shoulders. However, you will need to provide the requested information for the M&A advisory firm to create all the necessary materials for a successful process and transaction. Therefore, assuring the data is clean, accurate, and accessible will put you ahead. Considering the five items listed above will better prepare every agency owner to plan and execute a successful exit strategy.

Mergers and acquisitions within the behavioral healthcare sector plummeted in the first quarter of 2023, with a confluence of factors driving activity down to a level not seen since the beginning of the COVID-19 pandemic. The 27 total deals announced in the first three months of 2023 were the fewest since the second quarter of 2020 — the start of the pandemic—however, it is a figure in line with pre-COVID quarterly numbers. The slowdown can be attributed to the following three factors: Reversion to the mean . Experiencing burnout and/or having concerns about the looming potential of an increase in the capital gains tax from 20% to as much as 40%, many within the field have been particularly motivated to sell over the past two years. “The tax issue is not in the forefront currently, but it could spring up again,” Mertz Taggart managing partner Kevin Taggart said. “This has been on the Biden administration’s agenda since before the election, and we wouldn’t be surprised if this gets worked into a bill before all is said and done.” Banking crisis . As previously noted in the Mertz Taggart report for the fourth quarter of 2022, venture capital firms have flocked to behavioral healthcare, taking a particular interest in mental health, and were responsible for much of the activity at the close of 2022. However, the recent collapse of Silicon Valley Bank — the biggest banker to venture capital firms — has slowed VC-backed deals significantly. Three of the four largest bank failures in US history have occurred over the last several months, so the lending environment is more difficult for buyers. This has caused delays and cancelations of transactions. While still attractive to buyers, mental health transactions have slowed . The COVID-19 pandemic enabled many mental healthcare providers to scale their operations with an increased demand for services and the emergence of telehealth. Although demand for such services remains, it is possible that utilization has waned somewhat from pandemic-era levels. Another way M&A trends are reverting to the mean of pre-pandemic levels is the amount of activity — or lack thereof — from private equity firms. Just 10 platform transactions and 10 private equity-backed strategic add-on deals were announced in the first quarter of 2023. Combined, this was the fewest PE-involved transactions announced since the third quarter of 2020. “Although mergers and acquisitions have slowed over the last quarter, activity is still at very high levels. Deals are just taking longer to get completed,” Taggart said. “The remainder of the year will be stronger than Q1.” Addiction Treatment M&A Just four deals in the addiction treatment subsector were announced in the first quarter. That figure is one-third of the 12 reported in the prior three months and the lowest of any quarter on record since 2019. “There are fewer buyers and less demand in addiction treatment,” Taggart said. “The buyer landscape has shifted. Many traditional buyers have paused for various reasons, and those who are buying are being very disciplined in their acquisitions.” The following transactions were completed in Q1: Private equity firm Avesi Partners invested in Muir Wood , a provider of integrated, adolescent-focused services in a platform deal. Ascension Recovery Services acquired Wise Path Recovery Centers in West Virginia in a private equity-backed strategic deal. SimpleTherapy , a digital musculoskeletal pain recovery solution for employers and health plans, announced its acquisition of Halcyon Behaviora l, a behavioral health and wellness company. Lifepoint Health , a diversified healthcare delivery network, acquired Cornerstone Behavioral Health El Dorado in Arizona in a private equity-backed strategic deal. Lifepoint also acquired a majority ownership interest in national behavioral healthcare services provider Springstone . Mental Health M&A Although down from the prior quarter, deals involving providers of mental health services remained above average in Q1, with 23 transactions announced. Other deals involving mental healthcare organizations included the following: Backed by the private equity firm Thurston Group , ARC Health announced they acquired Wellington Counseling Group , the Colorado Center for Clinical Excellence and Lilac Center . Recovery Centers of America acquired mental health and addiction treatment provider Adolescent & Young Adult Advocates in Bryn Mawr, Pennsylvania. Middle market investment firm Patriot Capital partnered with Turnwell Mental Health Network in a private equity platform deal. Also announced in the first quarter: Scottsdale Mental Health & Wellness Institute joined the Turnwell Network. Behavioral health services platform Health Connect America completed its acquisition of North Star Counseling of Central Florida in a deal backed by Palladium Equity Partners . Irwin Naturals completed an acquisition of Serenity Health , a ketamine clinic based in Louisville, Kentucky. Mental Health Partnership raised $5 million in a deal reported by Open Minds . An investor was not identified. Meanwhile, Denver, Colorado-based provider The Collective Integrated Behavioral Health raised $11 million in its second funding round in as many years, according to Behavioral Health Business . GV , previously known as Google Ventures, invested $28 million in mental health-focused startup Firsthand , according to BH Business . NOCD , a Chicago-based behavioral healthcare technology firm, raised $34 million in a funding round led by Cigna Ventures . The Stepping Stones Group acquired Catalyst Speech Language Pathology in a private equity-backed strategic deal. Array Behavioral Care , formerly known as Insight Telepsychiatry, announced a $25 million funding round led by CVS Health . After seven years of managing Northside Behavioral Health Center in Tampa, Florida, BayCare Health System announced in January that it has acquired the not-for-profit community mental health center. Acadia Healthcare announced that it has acquired CenterPointe Behavioral Health System , a large provider based in St. Charles, Missouri. Cornerstone Montgomery acquired Southern Maryland Community Network in a deal between behavioral healthcare providers in Maryland. Autism Services and I/DD M&A Deals involving providers of autism and intellectual/developmental disabilities (I/DD) services remained slow, with four deals announced in Q1. Many of the consolidators who historically have been active within the subsector “have shifted toward more of a de novo strategy rather than paying a premium for an acquisition,” Taggart said. The following deals involving autism and I/DD treatment organizations were announced: Digital autism provider AnswersNow completed an $11 million Series A funding round led by Left Lane Capital , along with participation from American Family Institute for Social Impact , Blue Heron Capital , Difference Partners and former CEO Lani Fritts. Apara Autism Center , a portfolio company of private equity firm Havencrest Capital Management , completed its acquisitions of Autism Learning Collaborative , as well as the Missouri operations of Early Autism Services . Private equity firm MBF Partners acquired ABA Connect in a platform deal. In a deal between a pair of not-for-profit providers, Port Health became an affiliate of Easterseals UPC .

After a solid Q4 2023, home-based care transactions dropped significantly in Q1 2024.    Home health, home care and hospice saw just 13 total deals in the first quarter, representing a low point not seen in years. The breakdown was split evenly across the three service lines, with six home health care deals, seven home care deals and four hospice deals. (Note: While this appears to be 17 transactions, some transactions include more than one service line.)    The low deal volume can be attributed to many factors, including:   A reversion to the mean after a historically strong period of deals from late 2020 through 2022   Regulatory uncertainty  The current debt market  No service line (except perhaps private pay home care) has been immune to regulatory pressure. Home health’s proposed rule, due in June, almost always creates a level of uncertainty. Today it includes the looming ~$3.5 billion recoupment from CMS’ perceived overpayments in the early years of PDGM, which coincided with the COVID outbreak. Medicaid HCBS has had the proposed 80-20 rule (which was finalized on April 22) to deal with, and hospice’s enhanced oversight has made buyers and their lenders more cautious than ever about post-closing audit and review activity and resulting clawback risk.  Then there’s the Fed and interest rates. With inflation numbers remaining stubbornly high, optimism around a mid-year rate cut has dwindled.  “Deal volume is the lowest we’ve seen in years,” says Mertz. “But the reality is, and I’ve been doing home-based care M&A for 17 years, valuations remain strong. We’re not quite at the 2020-2022 levels, but I don’t think we’ll see those numbers again any time soon.” Health care services deals have historically traded between 5-7x EBITDA, however many home-based care companies continue to sell for higher than that, buoyed by the public companies, who are still trading at multiples in the mid-teens and higher. Home Health M&A The underlying motivation to invest remains strong. Private equity and the public market institutional investors understand the value home health provides to the healthcare system as a whole. In today’s value-based care movement, many believe skilled home health remains key to reducing overall costs.  But there are fewer sellers out there. And fewer that buyers are interested in. “There’s just a lack of quality agencies going to market,” says Mertz. Plus, home health providers and others are still waiting for the market to recover. While soon-to-be sellers are unlikely to match the multiples sellers received in 2020 - 2022, many are waiting for a rebound. “Deals are harder to close these days, and buyers have gotten more disciplined,” says Mertz. “Fewer buyers are willing and able to pay a premium right now, and if they do, it has to be the right deal for them and their strategy, with little transition risk.” But buyers – again – are still eager to find those deals worth pursuing . In the quarter, some of the noteworthy home health deals included:     The Dallas-based and Cimmaron Healthcare Capital-backed Frontpoint Health’s acquisition of High Plains Senior Care Hospice , a home health and hospice provider based in Texas. Nautic Partners ’ acquisition of Angels of Care Pediatric Home Health from Varsity Healthcare Partners . Lorient Capital-backed PurposeCare’s acquisition of Michiana Home Care . The Pennant Group (Nasdaq: PNTG) also entered into a joint venture with John Muir Health .    Two things to note for home health care and for the other service lines: more first-quarter deals will likely be reported in the coming weeks; and deal activity generally picks up toward year end. Home Care M&A While home care dealmaking has likely been slowed by the looming Medicaid Access rule, Q1 brought a big deal in the private-pay franchise world, with Waud Capital acquiring Senior Helpers from Advocate Health.   “We are very excited for our franchisee partners, teammates, caregivers and clients,” Peter Ross, CEO and co-founder of Senior Helpers, said in a statement. “The need for high-quality, in-home senior care has never been greater. We see opportunities to enhance our suite of senior services as part of the next phase of the company’s growth. Waud Capital brings deep expertise in supporting and successfully growing healthcare companies, a set of similar core values, and a shared vision for the future.”   Senior Helpers is just the latest large home care franchise to be acquired. Toward the end of last year, The Halifax Group also acquired Comfort Keepers from Sodexo. Other notable deals from the home care world in the first quarter included:   Capital Alignment Partners ’ formation of Avenues Home Care . PurposeCare ’s acquisition of Illinois-based A-Abiding Care . Pillar Health Group ’s acquisition of Grace Unlimited . Hospice M&A Hospice dealmaking has slowed considerably of late, primarily due to increased regulatory scrutiny. “Generally speaking, investors still love hospice. But increased regulatory oversight has made it harder for them to find the right deal to sink their teeth into,” Mertz said. “Fear of audits and resulting clawbacks have caused more hospice deals to fail diligence over the past 12 months than any period I can remember. Owners thinking about a sale should consider performing a billing audit, which can be done relatively inexpensively and may save them from having to suspend a sale process. ” This increased scrutiny, and investors’ preference for strong cash flow have dampened deal activity. Many hospices that sold over the past few years likely wouldn’t command those same premiums today, simply because the cash flow isn’t there.  To be clear, investors still love hospice. Buyer demand remains high. Regulators have taken a ‘if it ain’t broke’ position with the industry over the years, in terms of reimbursement, which is rare in healthcare services. And a mostly favorable proposed rule, with a 2.6% overall increase in 2025, along with the elimination of VBID has only helped reaffirm that interest. Transaction volume is driven primarily by a scarcity of quality opportunities. Of the notable deals in the quarter:    Kaltroco-backed New Day Healthcare ’s acquisition of Compassion Hospice . Another PurposeCare deal, this time for Queen City Skilled Care , based in Cincinnati. Legacy Care Partners acquired Superior Hospice & Home Health . On the overall deal market, “It’s hard to predict what transaction volume will look like over the next few quarters,” added Mertz. “ Buyers remain hungry for quality deals ,   but the standards around quality have changed, driven by regulatory pressures and the current debt environment.” If you are interested, you can also download the Q1 2024 Home-Based Care M&A Report via the following link:

Mertz Taggart follows the publicly traded home-based care companies and reports on their earnings calls each quarter. As a group, public company performance and share price serve as a proxy for industry performance and investor sentiment, respectively. Historically seen as the “ultimate consolidators”, the publicly traded home-based care trading multiples have a downstream effect on lower middle market home-based care M&A. Addus Homecare (Nasdaq: ADUS) Highlights Addus reiterated its position towards CMS's Proposed Medicaid Access Rule and expects a final rule to be published around late Q1 2024 and early Q2 2024. There is still uncertainty as to whether the 2,000+ comments that CMS received will cause a material change between the proposed and final rule. Addus grew significantly during Q3 2023 – revenue ($270.7M) and EBITDA ($27.6M) increased 12.6% and 21.1%%, respectively, over Q3 2022. The labor market continues to show signs of improvement. As a result, Addus increased hires per business day from 81 in Q2 2023 to 84 in Q3 2023. Although the company has had strong growth in its fundamentals in 2023, its stock price hasn't followed (-12.10%). This is because ~75% of Addus' revenue comes from the personal care segment, which is compromised by CMS's Proposed Medicaid Access Rule. If the final rule is materially different than the proposed rule, in a beneficial way, we should see the stock price rise in short order. Key Financial Figures M&A Activity Over the last two quarters Addus slowed down its acquisition activity due to uncertainty around the Home Health Proposed Rule for 2024 and the Proposed Medicaid Access Rule. Home health acquisitions might pick up after the final home health rule, published in 11/1/2023, was not a negative surprise .​ “Over the past few months, we have continued to see limited strategic opportunities in both personal care and home health due to the reimbursement uncertainty that exists in each of these segments. As we have more clarity around these particular issues, we believe that we will start to see increasing acquisition opportunities in these segments that will meet our strategic objectives.”​ - Dirk Allison, Chairman and Chief Executive Officer​ Guidance Addus expects continued growth across all operating segments for Q4 2023:​ “Looking ahead to the fourth quarter, we still expect our growth rate in personal care to most likely be above that 3% to 5% range” and “in the clinical services, we've talked about we've seen some sequential improvement from Q2 into Q3. I think we would expect and anticipate to see continued positive momentum there” ​- Brian Poff, CFO​ Aveanna Healthcare (Nasdaq: AVAH) Highlights Aveanna continued its positive growth trend during Q3 2023 – revenue increased 7.9%, gross profit 9.4%, and adjusted EBITDA 46.2% over the prior year period. This was mainly due to “the improved payer rate environment as well as cost reduction efforts” said Jeff Shaner, CEO.​ Strong demand for the company’s services remains, but the primary challenge in meeting that demand is still the labor market. However, Aveanna begins to see “early signs of improvement in the caregiver labor market”, said Shaner. We could see accelerated top-line growth over the next few quarters if the labor market continues to improve.​ YTD 2023, the company has successfully achieved reimbursement rate increases in 19 states of its private duty services (PDS) segment (eight of which have seen double-digit increases). Altogether, this represents 55% of the segment’s revenue or 44% of the company’s revenue for Q3 2023.​ In addition to rate increases, Aveanna has been successful at shifting care volumes towards preferred payers in its PDS and home health segments. YTD 2023 PDS preferred payer volumes increased from 10% to 17% and home health episodic payer mix increased from 63% to 75%.​ Overall, Aveanna has had a successful 2023 year, in which the company has also set strong foundational bases to continue to grow in 2024:​ “We are encouraged by our 2023 rate increases and subsequent recruiting results, and our business is beginning to demonstrate signs of recovery”​ - Jeff Shaner, CEO​ Key Financial Figures M&A Activity There are still no signs of a growth-through-acquisition strategy. This is likely due to the company’s high leverage ratio and the uncertainty around CMS’s proposed rules.​ Guidance Aveanna is increasing 2023’s initial guidance:​ “As it relates to our refreshed outlook for the year, based on the strength of our first 9 months results and the continued rate improvement, we are comfortably raising our full year revenue guidance to a range of $1.87 billion to $1.88 billion and an adjusted EBITDA guidance range of $134 million to $137 million”​ - Jeff Shaner, CEO​ The Pennant Group, Inc. (Nasdaq: PNTG) Highlights Pennant reported strong operational results for Q3 2023 – revenue increased $21.8 million or 18.5%, adjusted EBITDA increased $3.0 million or 37.8%, and adjusted earnings per share grew $0.06 or 42.9% all over Q2 2022.​ The company also experienced short-term growth over the previous quarter as each of the three operating segments increased revenue – hospice +10.3%, home health +5.4%, and senior living services +3.8%.​ The company attributes the growth to their “continued commitment to the five key focus areas (clinical excellence, enhanced employee experience, acquisitions and organic growth, and margin improvement) and their investment in leadership”, Brent Guerisoli, CEO.​ Key Financial Figures M&A Activity Pennant expects to remain highly acquisitive in the near future:​ “With momentum in our results and a 1.3x net debt to adjusted EBITDA leverage ratio, we are poised to pursue our disciplined acquisition strategy” – Brent Guerisoli, CEO & Director In addition, the company has seen an increase in acquisition targets: “Today, we are seeing more potential acquisitions that are consistent with our valuation expectations”, said Guerisoli.​ The company completed three acquisitions since the previous earnings call:​ Valor Hospice Care – locations in Sierra Vista and Green Valley (adds two new AZ geographies).​ Guardian Hospice – expands Pennant’s footprint in Northern Texas and Souther Oklahoma.​ Hospice license in Concord, California – will allow one the company’s most successful hospice agencies to expand its service area.​ Guidance Pennant expects to remain highly acquisitive in the near future:​ “Given our solid performance in both business segments, we are increasing our full year 2023 guidance to revenue of $526 million to $531 million, adjusted EBITDA of $394 million to $42.6 million, and adjusted EPS of $0.69 to $0.75.​" – Brent Guerisoli, CEO & Director Enhabit Home Health & Hospice (Nasdaq: EHAB) Highlights Over a year has passed since Enhabit Home Health & Hospice became a standalone company, but investors remain skeptical of the company’s ability to fulfill financial expectations. This is weighing in the stock price, down 57.4% since its public debut, and has set in motion a strategic review process. This said, if the strategic review process ends up in an investor favorably-viewed outcome, such as a sale to a larger strategic, the stock price could jolt upwards. ​ Along with the operating challenges from becoming a standalone company, Enhabit has suffered from the uncertainty and threat of CMS’s Home Health rule. Unlike the other public companies covered in this report, the home health segment makes up 81.6% of the company’s total revenue, which makes it more vulnerable to impacts from CMS’s rules.​ Operational performance continued to dwindle during Q3 2023 – revenue was down $7.4 million or 2.8% and adjusted EBITDA was down $8.5 million or 26.7% over Q3 2022. The majority of the decrease was caused by a shift in the company’s home health payor mix:​ “We estimate the continued shift to more non-episodic payors in home health, decreased revenue and adjusted EBITDA, approximately $8 million year-over-year.”​ - Crissy Carlisle, CFO ​ Enhabit has been actively working to amend their credit agreement, which includes a 5.25x leverage ratio covenant (the company’s current leverage ratio is 5.14 and growing). The company successfully obtained a waiver out of an abundance of caution for the Q3 2023 period and continue to work with their lenders to obtain additional cushion to the financial covenants for the future. Key Financial Figures M&A Activity There will likely be no acquisitions in the short-term as the strategic review process is underway and the outcome has not been determined. Guidance Enhabit revised their initial adjusted EBITDA guidance for 2023 of $125 - $140 million down to $93 -$98 million.​ The company expects volume growth for 2024: “In regards to volumes, we expect the success we've had with our payor innovation team and our recruitment and retention of clinical staff to drive volume growth in 2024”​ - Crissy Carlisle, CFO ​ To download the .pdf version of this report, click below.

Mertz Taggart follows the publicly traded home-based care companies and reports on their earnings calls each quarter. As a group, public company performance and share price serve as a proxy for industry performance and investor sentiment, respectively. Historically seen as the “ultimate consolidators”, the publicly traded home-based care trading multiples have a downstream effect on lower middle market home-based care M&A. Addus Homecare (Nasdaq: ADUS) Highlights Through Q4 2023, ADUS continued to showcase a strong performance regarding its fundamentals. In Q4 2023, revenue increased 11.9% compared to Q4 2022. This increase resulted from growth in the three service lines: home health, hospice, and personal care. During the same period, adj. EBITDA was $34.3M, which increased 21.3% over Q4 2022, and adj. EBITDA margin was 12.4%, compared to 8.5% in Q4 2022. Increased adj. EBITDA margins resulted from increased gross profit margins due to a lower implicit price concession requirement in Q4 2023. This is expected to revert in Q1 2024, normalizing gross profit margin to ~31.5%. Medicaid Access Proposed Rule: the final rule was sent to the Office of Management and Budget on Jan. 26. The final rule is expected to be published this month (Apr. 24’), and it is unknown whether the rule will contain the 80% requirement, a different percentage requirement, or ultimately be implemented. Key Financial Figures M&A Activity While discussing their cash availability, comprised of their current cash balance of $65M and $335M from their credit facility, Dirk Allison, Chairman and CEO, mentioned: “It remains our primary focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home-based care in our personal care markets” Per Allison, this will include opportunities within current states and new states: “We are currently looking for opportunities which would give us a larger presence in several of our current states. We are also looking for opportunities where we can enter new states in a material way” Brian Poff, CFO, provided additional context relating to their acquisition appetite and underwriting. “We will continue to selectively pursue strategic acquisitions in 2024 dependent on market conditions. At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand." Guidance During Q1 2024, ADUS began to use their new “value-based care management system”, which the company expects will increase their value-based programs' scale and efficiency. Aveanna Healthcare (Nasdaq: AVAH) Highlights During Q4 2023, AVAH had a relatively flat quarter compared to Q3 2023. However, when compared to Q4 2022, revenue and adj. EBITDA in Q4 2023 increased 6% and 7.6%, respectively. Gross profit margin for Q4 2023 was 27%, an 8.8% increase over Q4 2022 despite the tight labor market and wage inflation. Higher reimbursement rates from new preferred payor agreements mostly drove this. AVAH achieved its goal of doubling its PDS preferred payors from 7 to 14 during 2023. The company finalized this during the last quarter of 2023 with the addition of two new preferred payor agreements. Increasing the number of preferred payors will continue to be a focal point of AVAH’s efforts during 2024, prioritizing programs in California and Texas. Regarding home health, AVAH accomplished their 2023 objective of improving their episodic payor mix from approximately 60% to 70%. This was done through eight new episodic agreements in 2023, which took the episodic payor mix to 74% in Q4 2023. Key Financial Figures M&A Activity The company made no comments on potential acquisitions. This is likely due to their high focus on organic growth, internal strategic initiatives, and their current balance sheet state. Guidance 2024 is year two of AVAH’s proposed strategic transformation and the company will remain “focused on the initiatives that created positive momentum in 2023”, Jeff Shaner, CEO. There are: 1) Enhancing partnerships with government and preferred payors to create additional caregiver capacity. 2) Identifying cost efficiencies and synergies that allow AVAH to leverage their growth. 3) Managing the capital structure and cash collections while producing free cash flow. 4) Engaging the company’s leaders and employees in delivering the Aveanna mission. 2024 full-year projections: Revenue: $1.96 - $1.98B Adj. EBITDA: $146 - $150M, or 7.36 - 7.65% adj. EBITDA margin depending on revenue. 20% of the full year adj. EBITDA will be recognized in 2024, which means adj. EBITDA is expected to ramp up throughout 2024 as reimbursement rate and caregiver hires increase. The Pennant Group, Inc. (Nasdaq: PNTG) Highlights PNTG increased revenue by 17.1% in Q4 2023 when compared to Q4 2022. However, EBITDA only increased by 1.1% due to a slight gross profit and EBITDA margin erosion. Overall, PNTG had a successful 2023 , which was a result of executing its five key areas: leadership development, clinical excellence, employee experience, margin improvement, and growth. Hospice ADC and admissions, increased by 17.9% and 13.1%, respectively, over Q4 2022. Total home health admissions increased 12.8%, and Medicare home health admissions rose 5.6% over Q4 2022. In addition, higher negotiated reimbursement rates for managed care enabled an 11.3% increase in visits, resulting in a 13.4% increase in revenue. The senior living segment reached a post-pandemic high of 79%, and average monthly revenue per occupied room rose to $4,093 in Q4 2023, an increase of $423 over Q4 2022. Key Financial Figures M&A Activity John Gochnour, CEO, provided context around PNTG’s continued acquisition strategy: “We remain focused on our disciplined strategy of acquiring operations at attractive valuations in locations where we have strong peer operating clusters and talented leaders ready to drive results.” PNTG doesn’t shy away from underperforming assets, as it often acquires underperforming operations to turn them around and provide long-term growth. During Q4 2023, PNTG acquired Southwestern Palliative Care and Hospice, based in Yuma AZ. This acquisition continues the company’s strategy to serve residents of rural communities in the states where it operates. On Jan. 1, 2024, the company established a new home health joint venture with John Muir Health, a leading integrated health system in Northern California, where a local tenant-affiliated operating subsidiary will manage and have majority ownership of a new home health agency that will serve the East Bay area. Guidance 2024 full year projections: Revenue: $596.8 - $633.7M Adjusted Earnings Per Share: $0.82 - $0.91 Guidance is based on “compelling momentum in both operating segments, the readiness of local leaders to drive organic and inorganic growth, and the latent potential that remains in our existing operations. Enhabit Home Health & Hospice (Nasdaq: EHAB) Highlights Revenue and gross profit were $260.6 and $127.1 in Q4 2023; this represents a slight decrease of 1% and 2%, respectively, when compared to Q4 2022. Operating expenses increased ~$10M, a 9.6% increase, over Q4 2022. This led to a decrease in operating income and EBITDA of 71% and 50% compared to Q4 2022. Barb Jacobsmeyer, CEO, highlighted the company’s 30-day hospital readmission rate, which is 20.5% better than the national average and provides negotiating leverage with value-based payers. After a rough year, which was mainly caused by a steeper than expected and than the industry average decline in Traditional Medicare revenue, EHAB expects 2024’s decline to be at a rate consistent with the industry average. To combat the shifting home health payor mix, EHAB’s payor innovation team negotiated an additional 11 new agreements with Medicare Advantage payors during Q4 2023. Eight of the 11 new agreements are under an episodic reimbursement model. The new agreements in Q4 2023 bring the total to 59 since the inception of the payor innovation team in summer 2022. Approximately 25% of non-episodic visits in Q4 2023 were visits under new payer innovation contracts. With regards to hospice, EHAB reallocated hospice resources to form centralized admission departments that will increase efficiency in the referral-to-admission process with the ultimate goal of responding faster to referral sources. Relating to the strategic assessment underway, EHAB commented that it is in the later stages. However, no developments will be disclosed unless and until they determine further disclosure is appropriate and necessary. Key Financial Figures M&A Activity EHAB did not comment on any acquisitions, this is likely to continue until the board’s strategic assessment is finalized. Guidance 2024 full year projections: Revenue: $1.076 - $1.102B Adjusted EBITDA: $98 - $110M BrightSpring Health Services, Inc. (NASDAQ: BTSG) Highlights Q4 2023 marked the first earnings call for the newest public company in the space. BTSG is centered on servicing complex patients, which constitute 5% of the population, but 50% of the spending in U.S. healthcare. The company’s care model, which services approximately 400K patients daily, includes three key pillars: pharmacy services, provider services, and home-based primary care. BrightSpring’s strategy includes three areas: 1) Drive organic growth in the core service lines 2) Further coordinate services and care management capabilities to drive integrated care and value-based care. 3) Continue to execute accretive acquisitions to fill in geographies and drive market density and share. For Q4 2023, BTSG reported revenue growth of 19% and adj. EBITDA growth of 13% when compared to Q4 2022. Key Financial Figures M&A Activity BrightSpring’s strategy, as mentioned in point #3 in the Highlights section, includes acquisitions. This was highlighted by Jim Mattingly, CFO who said: “ ...while we continue to execute on our growth strategy including funding attractive and tuck-in acquisitions.” With regards to BTSG’s acquisition pipeline, Jon Rousseau, CEO mentioned: “Our acquisitions pipeline has been as large as ever, as attractive as ever… Our pipeline has 100 potential deals in it at any point in time. We’re very measured and deliberate about the deals we do.” Rousseau also commented on historical acquisitions: “Our average pro forma multiple on acquisitions is 4x EBITDA." About upcoming M&A activity, Rousseau said: “We have several deals that we would expect to close in the March, April timeframe. Two in particular are going to be bread and butter, just small tuck in deals and geographies, actually it’s sub 3x EBITDA.” Guidance 2024 full year projections (excluding acquisitions): Revenue: $9.35 - $9.5B Adjusted EBITDA: $550 - $564M Option Care Health, Inc. (NASDAQ: OPCH) Highlights In 2023, OPCH reported revenue of $4.3B and adj. EBITDA of $425M, represents a 9.1% and a 24% increase over 2022, respectively. Additionally, Option Care expanded its network to 164 infusion suites and +660 chairs nationwide. As a result of a healthy balance sheet, including a strong liquidity position, S&P and Moody’s upgraded the company’s credit profile to their highest ratings yet. For 2023, the company generated ~$370M of cash flow, which includes ~$85M from the Amedisys transaction termination fee net of related expenses. For Q4 2023, OPCH had revenue of $1.124B and EBITDA of $100.3M; this is an increase of 9.5% and 19.5% over Q4 2022, respectively. With regards to any potential changing behaviors from payors that own infusion companies (such as CVS, Aetna, United, etc.) OPCH relies on its ability to provide a valuable and high-quality service nationwide. Key Financial Figures M&A Activity With regards to potential acquisitions, John Rademacher, President & CEO, highlighted their approach: “We are continuing to do a lot of work to understand those (M&A) market dynamics and what’s in the pipeline for consideration as we move forward… I think one of the biggest things is being very disciplined in the approach we take.” With regards to capital allocation, Rademacher said: “We exhausted the $250M of the original share repurchase authorization. We have an additional authorization of $250M. We will continue to balance that priority of making certain that we’re doing everything we can to maximize shareholder value and whether that’s through deployment for M&A or whether it’s through continued share repurchase as well as from our investments into our business as part of our normal flow of CapEx." Guidance 2024 full year projections: Revenue: $4.6 – 4.8B Adjusted EBITDA: $425 - $450M Cash flow from operations: $300M Revenue mix for 2024: Acute category growth in the low single digits Chronic therapies growth in the low double digits. Option Care forecasts continued yearly revenue growth of high-single-digits. With regards to broader market growth, OPCH sees the infusion therapy industry growing 5-7% per year. To download the .pdf version of this report, click below.

Mergers and acquisitions got off to a record-low start in the first quarter of 2023, with only 14 home health, hospice and home care deals reported. There were many factors contributing to the M&A slowdown, one that shouldn’t continue for much longer. “There are fewer quality targets on the market,” says Mertz Taggart Managing Partner Cory Mertz. “If you ask the buyer universe, they’ll tell you they are seeing a lot of opportunities, but most of them are not quality — whether financially, clinically or both.” As debt becomes more expensive, providers and PE firms are being more disciplined with their M&A strategies. That has led to a misconception that valuations will be down as well. Yet for high-quality providers, that is not necessarily the case. “Many owners feel, incorrectly, that they missed the top of the market,” says Mertz. “We are not seeing that on the ground.” In fact, given that buyers are looking for quality opportunities — and not “fixer-uppers” — strong home-based care sellers remain in high demand. That’s especially the case in the lower-end of the market, which would be considered any seller below $50 million in enterprise value. But because of the M&A rush in 2021, there’s been less of those sellers out there this year. That’s why, in addition to economic headwinds, 2022 and 2023 transaction numbers have been lower. The $5.4 billion UnitedHealth Group (NYSE: UNH)-LHC Group deal did close in the first quarter, marking one of the biggest home-based care transactions in modern history. UnitedHealth Group’s health care services arm, Optum, is rapidly growing. And it will likely be easier for the company to grow acquisitively through Optum moving forward than it will be to grow on the insurance side. That’s why the LHC Group deal made sense. UnitedHealth Group has committed to reducing spend and improving outcomes through home-based care capabilities. But it also has cash to burn, meaning provider acquisitions will likely be part of its strategy for years to come. “The significance of a payor — paid on a PMPM basis — seeing strategic, financial and clinical upside in taking care into the home cannot be ignored,” says Mertz. “When one of the biggest health care companies — and biggest companies in general — in the country is investing in this space, it’s worth paying attention to.” United paid approximately 33x EBITDA. Home Health M&A Home health dealmaking was the biggest reason for the lowest transaction numbers on record. There were only three home health deals completed in the quarter. Among them: The aforementioned LHC Group deal Amedisys’ deal for Capital Health Home Care’s West Virginia location. Mertz Taggart provided exclusive M&A advisory services in this transaction, representing the seller. Stillwater Hospice’s deal for Kosciusko Home Care & Hospice Inc. As one of the only subsectors that can actually contribute to global savings for the health care system at large, home health care M&A is unlikely to remain quiet for long. It is still a fragmented industry, and its value is becoming more pronounced by the day. “It’s all about quality opportunities,” says Mertz. “But also, the rate environment has made investors of all kinds more careful of late.” Indeed, the anticipated payment rate cuts for 2023 from CMS put a short-term damper on the market. Likewise, the proposed payment rule for 2024 — which will be released this summer — will also likely have an effect. But it shouldn’t keep investors away for good, so long as more buttoned-up sellers come to market. Hospice M&A Many of the home health M&A considerations apply to hospice, which also had a low transaction total for the quarter, at four. Quality hospices remain in demand, but there are fewer available. “To command the premium multiples, they really need to check the boxes from a clinical, compliance and cash flow perspective,” says Mertz. “Buyers are getting more disciplined.” For example, Enhabit Inc. (NYSE: EHAB) has mentioned publicly — and repeatedly — that it is taking a more disciplined approach to home health and hospice deals. Strategic buyers are no longer just buying up smaller agencies to grow market share or expand their footprint. The deal has to make sense from every perspective. Other providers have echoed that sentiment. “There’s less of those [quality] assets out there today, but more so on the hospice side,” Traditions Health CEO David Klementz recently told Home Health Care News. “It’s a very fragmented space. And it’s a bit of a challenge. … But we don’t want another fixer-upper.” Home Care M&A Personal home care was responsible for the bulk of Q1 transactions with 10 total. Among them: The Lorient Capital-backed PurposeCare acquired the St. Joseph Michigan-based Home Sweet Home In-Home Care. Mertz Taggart provided exclusive sell-side M&A services for this transaction, representing the seller. More details for this transaction can be found here . Amedisys offloaded its personal care division to the InTandem Capital-backed Houseworks , which has cemented itself as one of the biggest home care providers in the Northeast. Amedisys won’t necessarily lose the care coordination benefit of its personal care unit, as it will still work closely with HouseWorks. For Amedisys, the deal allows the company to focus more on high-acuity care in the home. For Houseworks, the deal significantly furthers density in existing markets. HouseWorks CEO Mike Trigilio used to lead Amedisys’ personal care division. The Vistria Group-backed Help at Home continued its steady activity, acquiring both the Atlanta-based Prosper Home Care and the Pennsylvania-based Open Systems Healthcare , with the latter adding 1,500 patients to its census. A Medicaid-focused provider, Help at Home now has more than 180 branch locations across 12 states. Private-pay home care providers are grappling with rising billing rates and how to best mitigate the effects of that as their client base deals with the effects of a volatile public equities market, which can impact their retirement accounts and their ability to maintain care hours. Help at Home and similarly placed providers, however, are dealing with a much more rosy Medicaid landscape compared to previous years, especially pre-pandemic. That is attracting investors, too. “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.”

Although mergers and acquisitions are up across the behavioral healthcare sector, relatively tight debt markets and a regulatory environment that is less than ideal for healthcare investment are creating headwinds. A total of 42 deals were reported in the first three months of 2024, the most since the fourth quarter of 2022. This included 24 traditional “control position” M&A deals, and 18 "growth equity” deals in which investors (often venture capital firms) purchase what is usually a minority ownership stake in companies that show great potential for scalability.  Private equity was a large driver of M&A activity, accounting for 18 of 24 M&A transactions reported in Q1, including eight platform deals. U.S.-based private equity firms continue to sit on a significant amount of “dry powder” – nearly $1 trillion in funds that need to be spent or returned to investors – and healthcare services, particularly behavioral healthcare, remain very attractive, Mertz Taggart Managing Partner Kevin Taggart said. While private equity firms have an impetus to invest in behavioral health, their activity is drawing scrutiny from federal and state regulators. Several states have enacted legislation to more tightly regulate private equity involvement in healthcare, and officials from the Federal Trade Commission and Senate Finance Committee have expressed concern that private equity acquisitions could harm patients and payers by reducing options for care and driving up costs. Taggart, however, expressed a differing outlook on PE’s impact on healthcare. "In our experience, the private equity groups who ‘get it’ don’t come in and start finding ways to cut costs and play in the gray area. It’s quite the opposite,” he said. “Smart PE firms tend to understand that those companies that can save the health system money and provide quality patient outcomes will be most attractive. To do that, they need to continue to invest, scale and standardize. This is an incredibly underserved market which needs investment to grow.” How the Federal Reserve handles interest rates will be a key factor that shapes M&A activity within the coming months. Broadly, behavioral healthcare has been somewhat insulated from the effects of interest rate increases. The Fed has hinted at upcoming rate cuts later this year, but if rates aren’t lowered, the more highly leveraged behavioral health platforms will begin to feel the impact, as banks become more diligent, debt financing becomes harder for buyers to obtain, and covenants with financial institutions become stricter. Venture capital firms, meanwhile, have continued investing in behavioral health in Q1 2024, with 18 deals that accounted for more than $350 million. The success of mental health companies such as Talkspace, LifeStance Health, and Refresh Mental Health becoming publicly traded has motivated VC firms to look for “the next big thing” – fast-rising startups that could become big players in the industry in the coming years, Taggart said. Such investments are high risk/high reward propositions for venture capital firms. “To use a baseball metaphor, while private equity hits singles and doubles more consistently by either acquiring a majority interest in established behavioral health companies or buying them outright, venture capital firms are swinging for the fences with these types of growth investments in startups,” Taggart said. “That approach yields a lot more strikeouts, but also the occasional grand slam.” Addiction Treatment M&A A total of 11 transactions involving addiction treatment providers were announced in Q1, on par with the 12 reported in the prior three months. Most notably, Acadia Healthcare made two acquisitions, the company’s first deals since January 2023. In February, Acadia closed on an acquisition of Turning Point Centers , a 76-bed specialty substance use disorder and primary mental healthcare treatment program in Utah . A month later, Acadia acquired three North Carolina-based comprehensive treatment centers (CTCs) from Sellati & Co. , a Mertz Taggart client. The acquisition of the Sellati & Co. CTCs was part of a strategy to expand Acadia’s presence in North Carolina, a state with an “immense need and progressive approach to behavioral healthcare treatment programs,” CEO Chris Hunter said during Acadia’s most recent quarterly earnings call. The organization now operates 10 CTCs in the state and 160 locations in 32 states overall. Other transactions involving addiction treatment provider organizations included the following: Avesi Partners invested in First Steps Recovery , a Fresno, California-based provider of adult-focused SUD treatment services. Mertz Taggart served as the exclusive M&A advisor to this transaction, representing First Steps. Principles Recovery Center  was acquired by  Miramar Equity Partners . Eleanor Health  raised $22.23 million from an undisclosed investor, bringing the company’s total raise to about $104 million. Pyramid Healthcare  acquired Mountaineer Behavioral Health  in a private equity-backed strategic deal. Retreat Behavioral Health , a multi-state operator of addiction treatment and mental health services, was acquired by private equity firm Stonehenge Capital . Tennessee-based  Summit BHC expanded its network into New England with its acquisition of Sobriety Centers of New Hampshire in a private equity-backed transaction. QuickMD , a national provider of telehealth-based addiction treatment, acquired Project Recovery , an addiction treatment clinic in South Dakota. Blended Health , a private equity-backed, Texas-based outpatient services provider, acquired Connections Primary Care . Mental Health M&A In the first quarter, 28 transactions involving mental healthcare providers were announced, up slightly from the 26 reported in each of the final three quarters of 2023. Venture capital firms showed a particular interest in mental healthcare companies in Q1, with 14 providers in the subsector announcing funding rounds. Chief among them was Accompany Health , a Bethesda, Maryland-based startup that raised $56 million in a Series A funding round led by venture capital firm  Venrock , along with participation from  ARCH Venture Partners , IVP , Granite Capital Management , and Evidenced . Accompany Health is using the funds to build out an integrated behavioral, physical, and social care platform. Other mental healthcare provider organizations that announced funding rounds in Q1 included: Vita Health , a provider of suicide prevention services, closed on a $22 million Series A funding round led by CVS Health Ventures , along with participation from: LFE Capital , Athryium Capital Management , Flair Capital Partners , CU Healthcare Innovation Fund , Connecticut Innovations , and HopeLab . Headlight , a startup formerly known as Sokya Health, raised $18 million in new funding that was led by Matrix and Epic Ventures . Blackbird Health , a provider of youth mental health services, announced it raised $17 million in a round led by Define Ventures . LifeGuides , an employee wellness company, completed a $16.5 million funding round. Participating investors were not announced. Virtual mental health company Tava Health  raised $16 million in January, according to SEC filings. In March, the company announced that it raised an additional $4 million in a Series B funding round led by Catalyst Ventures . Virtual eating disorder treatment provider Arise raised $6.5 million in a funding round led by BBG Ventures . Being Health , a mental health organization based in New York that offers in-person and virtual services, secured $5.4 million in funding from 18 Park  and  HDS Capital . FamilyWell Health  announced that it has secured $4.3 million in seed financing in a round led by .406 Ventures , with participation from  GreyMatter Capital  and  Mother Ventures . InSite Health , a New Jersey-based psychiatric care provider, raised $2.9 million. Investors were not disclosed. The following deals involving mental healthcare providers were also announced: Senior Care Therapy , a provider of psychology and mental health services for the geriatric population, received an investment from lower middle market private equity firm Madison River Capital . Virtual reality platform XRHealth  raised $6 million in a funding round let by Asabys Partners . HCAP Partners , a California-based private equity firm, announced the acquisitions of Behavioral Medicine Associates , Workers Compensation Psychological Network , and Reservoir Health , which are being merged under the name PAX Health . Acentra Health , a provider of clinical services and technology solutions for government healthcare agencies, acquired EAP Consultants . Beacon Behavioral Partners , a provider of support services for behavioral health practices, announced the acquisition of three organizations: The Neuropsychiatry & TMS Grou p (Mertz Taggart, provided exclusive sell side representation), an outpatient mental healthcare provider based in Tampa, Florida, Genesis Behavioral Health Care Services , and Precise Clinical Neuroscience Specialists . Outpatient mental health platform  Hightop Health acquired  Roots Behavioral Health . ReviveHealth  announced an expansion of its integrated whole-person care offerings with its acquisition of  BHS , a provider of employer and student mental health solutions. Spring Health  acquired exclusive rights to Bloom’s suite of self-guided therapy tools and digital content. Digital mental health provider  UpLift  acquired TAO Connect , an online platform with mental health tools and resources for college students. Parallel Learning received an investment from VC firm Rethink Impact . Uwill , a rapidly expanding on-campus mental health services provider, acquired Christie Campus Health , which offers counseling and mental health and wellness support for students at more than 100 colleges. Ketamine Wellness Clinic of Orange County  has acquired Mind Space Ketamine Infusion Clinic . Autism and Intellectual/Developmental Disabilities M&A Five transactions involving autism and intellectual/developmental disabilities service providers were announced in Q1, with the most notable being a $55 million funding round for Forta , a San Francisco, California-based organization that helps parents become registered behavior technicians and pays them from payer reimbursements for services delivered to their child. The following deals were also announced: The EdTheory Group , a provider of K-12 special education and related services, announced a collaboration with A.G.E.S. Learning Solutions  and Proficio Speech Therapy Group  to form Proficio Therapy Services . California-based Autism Spectrum Interventions  was acquired by private equity firm Fletch Equity . Behavioral Framework , a provider of applied behavior analysis therapy, received an investment from  Renovus Capital Partners . Not-for-profit Children’s Autism Center announced an expansion of its services with its acquisition of Child’s Play Plus  in Northeast Indiana. If you are interested, you can also download the Q1 2024 Behavioral Health M&A Report via the following link: