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:

Despite economic headwinds observed in the form of inflation, climbing interest rates, and the equity market, overall transaction volume in the behavioral healthcare sector remained strong in the third quarter of 2022. A total of 48 deals were announced in the 3-month period ending September 30, a 50% increase over the prior quarter. Activity was paced by a record 36 transactions completed within the mental health subsector, including 13 platform transactions. “This is significant, as each platform transaction tends to portend several add-on transactions over the ensuing 3 to 7 years. This is the typical private equity model,” Mertz Taggart Managing Partner Kevin Taggart said. “The demand for mental health services merger and acquisition opportunities is unprecedented, at least in my experience. There is not a more sought-after industry in healthcare services than mental health.” Mertz Taggart completed 3 transactions in the quarter, representing the seller in each of the following deals: Global Behavioral Education Alliance , a network of licensed professionals specializing in the treatment of autism spectrum disorders through telehealth and direct services, sold to the private equity firm Evolve Capital . Anew Era TMS & Psychiatry , operator of 6 transcranial magnetic stimulation centers in Texas and another 6 in California, was sold to Discovery Behavioral Health , which is backed by Webster Equity. The Hello Foundation , a network of in-person and online speech-language pathologists and assistants, school psychologists, and occupational therapists, was sold to Solace Pediatric Home Healthcare . Transaction volume should remain high to close out 2022 and carry into the start of the new year, Taggart said. “We are expecting a strong finish to 2022 and good start to 2023 based on our current deal pipeline and client activity,” he said. “We are still very bullish on the lower middle market for behavioral health, with outpatient mental health leading the way.” Addiction Treatment After a modest second quarter, merger and acquisition activity in the addiction treatment space rebounded in Q3. A total of 14 deals involving addiction treatment providers were announced. That was an increase from the 9 deals reported in Q2—the lowest volume of addiction treatment transactions in a quarter dating back to mid-2018—and was in line with the average of 15 addiction treatment transactions announced per quarter since the beginning of 2020. Private equity played a large role in the addiction treatment subsector’s M&A activity in the quarter: Enso Recovery was acquired in a private equity-backed strategic deal. In addition to its deal for Anew Era TMS & Psychiatry, Discovery Behavioral Health acquired Prevention and Recovery Center and Brookdale Recovery in private equity-backed strategic deals. MBX Capital completed a deal to acquire Journey Collab in a private equity platform transaction. In July, Baymark Health Services acquired San Antonio Recovery Center in a PE-backed strategic sale. Private equity firm The Vistria Group acquired Sandstone Care in a deal valued at $200 million, according to media reports . In August, Lifepoint Health acquired a majority stake in Springstone Health Opco’s management group US Behavioral Partners in a private equity-backed strategic deal valued at $250 million. BrightView completed a PE-backed strategic acquisition of Column Health , which operates 12 treatment facilities in 2 states. Among the other transactions involving addiction treatment provider organizations in the third quarter, Pathway Healthcare expanded with a strategic acquisition of Dallas, Texas-based Innovation360 . United Recovery Project announced in August it had completed an acquisition of The Genesis House . In July, Acadia Healthcare teamed up with Tufts Medicine to build a 144-bed behavioral health hospital in Massachusetts in a $65 million joint venture. Cayuga Centers announced in September that Miami-Dade County child and family services provider Institute for Child & Family Health is joining its family of services in Florida. Mental Health The 36 transactions announced in the mental healthcare subsector in the third quarter were double the number reported in the previous 3 months, as demand for mental health services continues to swell. These deals included 13 private equity platform transactions: Grow Therapy secured $50 million in equity financing led by TCV and Transformation Capital , along with participation from SignalFire and SVB . Rippl , a mental health startup led by a former Starbucks executive, launched with $32 million in seed funding led by ARCH Venture Partners and General Catalyst . Venture capital firms Greycroft and Inspired Capital co-led a seed funding round in which digital youth mental health startup Hopscotch secured $8 million. Behavioral health integration tech firm NeuroFlow secured a $25 million growth investment led by SEMCAP Health . Avesi Partners completed a platform deal with Point Quest Education Inc . HC9 and Frist Cressey Ventures Fund II LP led a $16 million funding round for mental health education startup Psych Hub . Digital behavioral health company Alma raised $130 million in a Series D funding led by Thoma Bravo . Summer Health raised $7.5 million to launch a telehealth pediatric messaging platform for parents. The seed funding round was led by Sequoia Capital . Eating disorder startup Arise launched with $4 million in funding led by Greycroft, BBG Ventures, Wireframe Ventures , and individual investors. Bay Area Clinical Associates entered into a partnership with private investment firm Frontline Healthcare Partners . Revelstoke Capital Partners acquired national eating disorder treatment provider Monte Nido & Affiliates for reportedly almost $800m. New Enterprise Associates led a $164 million funding round for Everside Health . Cowles Company completed a platform deal with TMS Solutions . ARC Health completed a private equity-based strategic acquisition of Sasco River Center . SOC Telemed expanded its behavioral health offerings with its acquisition of Forefront Telecare . MindCare Solutions Group acquired Psych360 , a telehealth and on-site mental healthcare services provider. Irwin Naturals , a publicly traded operator of ketamine treatment facilities, added New England to its footprint with its acquisition of Preventive Medicine in Vermont and New England Ketamine PLLC . Irwin also acquired 2 ketamine clinics in Georgia, and announced in September that it reached an agreement to purchase Ketamine Media , a growth platform for clinics offering ketamine-assisted therapy. Numinus Wellness completed a $20 million acquisition of Novamind , a Toronto-based mental health company that specializes in psychedelic medicine and operates clinics in Utah and Arizona. Sheppard Pratt , a private, not-for-profit provider of mental health and substance use disorder services, acquired Omni House , a mental health services provider in Maryland. Greenbrook TMS announced a strategic acquisition of Success TMS , along with a $75 million credit facility with Madryn Asset Management. Acute Behavioral Health acquired Hallmark Youthcare , an 82-bed short-term residential facility in Virginia. Verdugo Mental Health completed an acquisition of Teen Line , operator of a mental health support line for young people. Axis Health System completed an acquisition of Midwestern Colorado Mental Health Center . The McCall Foundation acquired Central Naugatuck Valley Help Inc . Autism Services and Intellectual/Developmental Disabilities Transaction volume in the autism services and intellectual/developmental disabilities cooled in the third quarter, but demand remains strong. One deal of note saw Charlesbank Capital Partners acquire applied behavior analysis therapy provider Action Behavior Centers in an auction at a valuation of $840 million. The Austin, Texas-based provider has $60 million in projected annual adjusted earnings. Among the remaining deals in the subsector announced in Q3: The Stepping Stones Group completed a PE-backed strategic acquisition of the Center for Behavioral, Educational, and Social Therapies . DotCom Therapy acquired Wolf+Friends , a community for parents to connect with other families raising children with special needs.

After experiencing a record-setting two years in Care-at-Home M&A, 2022 remains sluggish. A few key facts illuminate this decline. One, fewer companies are going to market in 2022, compared with 2020 to 2021. “Transaction volume from late 2020 through 2021, relative to historical periods, was up almost 40%. This was driven by sellers trying to get their transactions closed before the then-pending capital gains tax rate increase. This never came to fruition, but the threat has loomed since the current administration took office, only subsiding in early 2022.” Mertz Taggart Managing Partner Cory Mertz commented. Two, CMS’ proposed rule for home health activated a temporary slowdown in Medicare transactions, as providers tried to predict what reimbursement will look like in 2023. Now that the rule for 2023 is set, we should see an uptick in Q4. Note: Total industry transactions do not necessarily equal the sum of the sub-industries, as many transactions include more than one sub-industry. Despite the overall downturn, the lower middle market — companies with enterprise values between $3 million and $100 million — hasn’t taken a significant hit. Private equity and strategic buyers continue to pursue quality home health, hospice and home care opportunities. However, we are seeing the lower values in the public equity markets play out in several ways. First, at the higher end of the market, meaning values over $100 million. Larger home health and hospice companies that would command mid-to high-teens multiples of EBITDA in 2020 and 2021 are not drawing that level of interest so far in 2022. (The exception, of course, is LHC Group’s pending sale to United/Optum, which is a highly-strategic acquisition of a publicly-traded company). Second, there is now less demand for private-duty companies. “The usual consolidators are seeing demand for private-duty home care services softening across their networks, as individuals paying for these services are feeling the pinch in their financial portfolios, causing them to cut back on their hours,” Mertz says, “However, we are seeing this play out differently, depending on the geographic service area, with the more affluent areas less affected.” Home Health M&A Slows The third quarter saw the completion of 12 home health-related deals. One of these deals was LHC Group Inc . (Nasdaq: LHCG) and the University of Maryland Medical System’s (UMMS) joint venture agreement in September. The collaboration will offer in-home healthcare services in parts of Maryland. Additionally, LHC Group bought Eastman, Georgia-based Three Rivers Home Health . The deal is expected to create a $12 million revenue boost for the company. Another notable deal was Searchlight Capital-backed Care Advantage’s purchase of National Home Healthcare in August. This was Care Advantage’s 16th acquisition since 2018. The company is mostly a personal care provider, but has been bullish about entering the home health space over the last few years. “We’ll finish 2022 down about 10% from historical periods as a result, but with a stronger Q4, now that the Home Health final rule has been set,” Mertz said. Hospice M&A Leaps Ahead As for hospice, 11 deals were completed in Q3. In August, H.I.G. Capital’s St. Croix Hospice acquired Corpore Sano Hospice in Plymouth, Michigan, the company’s second location in that state. St. Croix has been growth-focused over the past couple of years. And in September, Ridgemont Equity-backed Agape Care Group bought GHC Hospice (GHC). “Our team is excited to welcome the 135 new teammates from GHC Hospice joining Agape Care Group,” Troy Yarborough, CEO of Agape Care Group said in a press statement. “GHC’s track record of strong clinical quality, patient-centered focus, and reach into more rural communities enables us to connect with more patients and families with high-quality end-of-life care services in underserved geographies. This further expansion in Georgia and South Carolina strengthens our team and solidifies our position as a leading hospice and palliative care provider across the Southeast.” Personal Care M&A Takes a Hit Non-medical home care M&A saw 12 deals during the quarter, the third consecutive quarterly decline. Earlier this month, Trive Capital’s Choice Health at Home acquired Instant Care of Arizona Inc., while in September, Avera@Home established a joint venture with personal care provider Kore Cares . “This is an essential part of the care continuum, especially as these patients are some of our most vulnerable,” Sandy Dieleman, CEO of Avera@Home said in a statement to the press. “These services are vital in helping patients maintain their independence, especially as more and more of our population wants to age in place.” In August, IL2M International Corp . closed its merger with Aamani Healthcare Group .

Relative to the rest of the world of mergers and acquisitions, behavioral healthcare transactions continued apace in the third quarter. For the 3-month period ending September 30, a total of 33 behavioral healthcare deals were announced—a figure in line with the 33 deals reported in Q1 and the 35 deals announced in Q2. Although many behavioral healthcare organizations are beginning to shift their focus toward de novo growth, certain operators remain active buyers. Chief among them is ARC Health , the Beachwood, Ohio-based Thurston Group portfolio company, which acquired 3 more providers in the third quarter and has now made 19 acquisitions in 2023. Two of ARCs Q3 deals involved Mertz Taggart clients: In August, the company announced its acquisition of mental healthcare provider Grow Counseling . In September, the company announced that it completed a deal to acquire Manhattan Psychology Group, PC , a provider of mental health, autism, and tutoring services in New York. Private equity played a role in 13 transactions. Still, executives from behavioral healthcare organizations say investors are becoming more conservative in their approach. During the recent INVEST conference in Chicago, Discovery Behavioral Health CEO John Peloquin said investors are targeting operators with a solid clinical foundation for growth, according to the industry publication BH Business . Continuing a theme observed throughout 2023, the mental health subsector continued to represent the bulk of behavioral healthcare M&A activity, accounting for 24 of the 33 deals reported overall in Q3. “Despite the current interest rate environment, quality, cash-flow positive mental health providers continue to drive premium multiples, albeit not quite the premium that companies were commanding 12 months ago” Mertz Taggart Managing Partner Kevin Taggart said. Taggart also said, “there are providers that are still commanding multiples we were seeing a year ago, but those are the exception, not the rule”. Taggart added that interest rates— currently at their highest level in 22 years —will continue to be a key factor for M&A activity throughout the behavioral healthcare sector heading into 2024. Addiction Treatment Six transactions involving addiction treatment providers were announced in Q3, roughly on par with the 4 deals announced in Q1 and 7 reported in Q2. Among the deals announced in the addiction treatment subsector, Acadia Healthcare announced in July that it had acquired Turning Point Centers from InTandem Capital Partners , a specialty provider of substance use disorder (SUD) and primary mental health treatment services in Salt Lake City, Utah, as part of a larger growth strategy for Acadia in 2023. As a side note, Mertz Taggart sold Turning Point Centers to InTandem in early 2018. Other transactions involving addiction treatment providers include: H.E.R. Management acquired BeWell Network in July. Addiction and mental health treatment services provider Haven Health Management completed its acquisition of Recovering Champions , a Massachusetts-based drug and alcohol rehabilitation program. Florida-based Praesum Healthcare expanded the number of states it serves to six with its acquisition of Beacon Point Recovery Center in Philadelphia, Pennsylvania. Lower middle-market PE firm Renovus Capital Partners acquired Meridian Behavioral Health in a platform deal. Mental Health The 24 transactions involving mental healthcare provider organizations in Q3 matched the total from Q2 and brings the year-to-date figure to 75. While M&A activity in mental health for 2023 remains down from the record-setting 2022, it is still outpacing year-to-date volume for 2020 and 2021 through 3 quarters. In addition to its acquisitions of Manhattan Psychology Group and Grow Counseling, ARC Health completed its acquisition of Dayspring Behavioral Health in August. Dayspring is a mental health practice with 4 locations in the Seattle metroplex. Other private equity-backed strategic investments in mental healthcare provider organizations made during Q3 included the following: FullBloom , an educational services platform for students backed by American Securities , acquired EmpowerU , a provider of programs that improve student motivation, behaviors, and mental health. Health Connect America , a Palladium Equity Partners portfolio organization, acquired Specialized Youth Services of Virginia . The deal was HCA’s sixth add-on acquisition in less than two years. Hightop Health announced in July that it completed its acquisition of Atlanta Psych . Audax Group -backed New Story completed its acquisition of Thrive Alliance Group —one of 2 acquisitions for New Story in Q3, along with its deal for the Virginia locations of the Center for Autism & Related Disorders . Sterling Partners -backed Stella Center acquired ARK Integrative Medicine and Therapeutics from TAP Health Care Management . Other Q3 mental health transactions include: Youme Healthcare acquired Hurdle Health and rebranded as Backpack Healthcare . Bethany for Children & Families merged with Bridgeview Community Mental Health Center in a deal between providers serving the Quad Cities region between Iowa and Illinois. Sun Life Financial (NYSE: SLF) entered into an agreement to acquire Dialogue Technologies , a virtual healthcare platform. Pyx Health received a majority growth investment from TT Capital Partners for an undisclosed amount as it looks to expand its operations Penuma Behavioral Health expanded in North Carolina with its acquisition of adolescent outpatient mental health treatment provider Bright Path Behavioral Health . Southeast Kansas Mental Health Center announced a partnership with Ashley Clinic . In August, the state of Washington purchased the recently closed Cascade Behavioral Health Hospital a reported cost of $29.95 million. Cascade was shuttered by Acadia Healthcare in July. Sacramento, California-based Sutter Health added Sansum Clinic to its integrated healthcare system in a deal between not-for-profit organizations. Washington state-based not-for-profit organizations Childhaven and Washington Association for Infant Mental Health announced a merger in July. As has become the norm of late, several mental health VC transactions were reported. Though technically not M&A, these transactions are notable investments in the industry: Heading Health , a tech-enabled mental healthcare organization, raised $4.5 million in a Series A extension round led by VC firm Gron Ventures . Lux Capital was the lead investor on a Series B funding round completed by Daybreak Health as the virtual pediatric mental healthcare organization looks to expand into new states and add programs. Youth mental health startup Cartwheel Care completed a $20 million Series A funding round led by Menlo Ventures , with participation from Reach Capital, General Catalyst, BoxGroup , and Able Partners . Virtual behavioral health provider Better Life Partners raised $26.5 million in equity and options funding. Investors were not disclosed. Guidelight Health , a startup offering partial hospitalization and intensive outpatient programs for adolescents and adults, raised $16.5 million in funding led by Triple Aim Partners . Autism Services and Intellectual/Developmental Disabilities Another 5 deals involving autism services and intellectual/developmental disabilities (I/DD) therapy provider organizations were announced in Q3, matching the number of transactions within the subsector announced in the prior quarter. In addition to previously announced transactions, BrightPath Health Holdings , a provider of applied behavior analysis therapy that does business under the name ABA Connect , acquired Bright Behavior . ABA Connect is backed by MBF Healthcare Partners II . Meanwhile, in July, Dungarvin , a Minnesota-based IDD services provider, announced its acquisition of Bridges MN, Bridges WI , and Rumi . This transaction, effective September 1, added 103 locations to the Dungarvin portfolio.

The hospice mergers and acquisitions environment has never been more robust, with valuations reaching record levels and buyers hungry for assets of all sizes. Unlike the Patient-Driven Groupings Model (PDGM) uncertainty that the home health industry currently faces, the hospice business landscape has been overwhelmingly favorable. That means buyer interest in hospice agencies will likely remain high over the next several months, — and that there may be no better time for owners and operators to start planning their exits. Whether you’re looking for an immediate exit or one five years from now, here are seven key ways to maximize the value of your hospice. Grow Broadly, enterprise value is determined by income and a given multiple — a function of both risk and growth. Because growth rate impacts both parts of the valuation equation, that makes it an extremely important point for prospective sellers to consider and promote. “An agency that generates $10 million in revenue typically generates more income than one that generates $2 million,” says Cory Mertz, managing partner for M&A advisory firm Mertz Taggart. “On the multiple sides, which company is riskier: one that is generating $1 million in EBITDA (which we use as a proxy for cash flow) and growing 15% per year — or one that is generating $1 million in EBITDA, but did $1.5 million in EBITDA last year?” The bottom line: hospice buyers want to see that an agency hasn’t already peaked in terms of its growth potential. Sell at the right time Closely related to growth is timing, as it’s always best to sell your agency when it’s clearly on its way up. Doing so gives buyers comfort that the company still has some upward momentum they can capitalize on — and that it’s a well-run business. On the flip side, if your census has dropped noticeably quarter after quarter, that will likely give a buyer pause. Consider industry timing as well. Currently, hospices are commanding all-time high valuations with little apparent risk of a downturn. At least in part, this is because the industry has not been subject to significant reductions in payment, or to significant regulatory oversight (when compared to, say, home health). However, things can change with very little notice. We call it “stroke of the pen” risk, which could come at any time in the form of a CMS proposed rule or an Office of Inspector General (OIG) announcement — either of which could dampen the current enthusiasm for hospice. Equally uncertain is the impact of CMS’s hospice carve-in for Medicare Advantage plans, which will be tested starting in 2021. The big takeaway: It’s always better to sell too soon than too late. As American business magnate and philanthropist Warren Buffett once said: “If you wait for the robins, spring will be over.” Diversify your referral base While it’s always nice to have sure-fire, go-to referral sources, individuals looking to sell their hospice businesses need to cover all their bases and take a diversified approach. Why? Well, for one, having diverse referral sources helps mitigate risk, so a disturbance in one referral stream doesn’t impact the entire operation. “If you really want to maximize value, you need to diversify as much as possible to capture the highest multiple,” Mertz says. “While that skilled nursing facility that refers you 25% of your business will certainly boost your income, it is seen as a risk in the buyer’s eyes. If that referral source stops referring after the sale, then it’s a big risk.” If you want to maximize the value of your hospice business, you’ll likely need professional help. Generally speaking, buyers value businesses based on accrual numbers — and if you don’t provide accrual statements, they will provide or create their own. Accrual statements recognize revenue when it is earned, ideally the day of the visit. Meanwhile, cash-based statements, which most organizations use and pay taxes on, recognize revenue when it comes in the door. But the problem is that the two don’t always correlate. “There are a number of things that can slow down payments,” Mertz says. “ADRs and other billing issues can have an impact, and it’s common for owners to bill a little slower at the end of the year.” The problem: If reported on a cash basis, a company is likely to understate income and could be leaving money on the table. Create a self-operational management team Ask most private equity buyers, and they’ll tell you that they don’t want to start from scratch in terms of creating an entirely new management team. Strategic buyers will have the corporate overhead and associated synergies in place but likely will not have local management to run the day-to-day operation. Creating a layer of management that can operate the business in the owner’s absence can be a major appeal in any deal. In many ways, the brains, relationships, and culture of an operation are what buyers are ultimately investing in. Put differently, if the glue of an organization walks out the door along with their referral relationships and management team after a sale, that’s a huge risk for a prospective buyer. Time and time again, providers are reminded just how valuable a second set of eyes is when it comes to ensuring coding and billing accuracy. That’s true for audits, too, and hospice agencies looking to sell should make sure to do a third-party billing audit. Recent oversight actions were taken by the U.S. Department of Health and Human Services OIG make this especially relevant. “If you pass your billing audit with flying colors, great,” Mertz says. “If not, it imposes too much risk in a buyer’s eyes, and they may walk away from the deal.” Furthermore, it’s important to note that passing a survey is not an indicator of spotless billing. A state survey or accreditation and a billing audit are two very different things. Coordinate a competitive bid process After you’ve conducted a third-party billing audit, created a layered management team, diversified your referral sources, and checked all other boxes, it’s vital to foster healthy sale conditions. Sellers are advised to get multiple credible buyers involved in the process, working to encourage them to make the best offer. This can be done by consistently and subtly reminding them that there are several players with seats at the table. Take baseball, for example, A team trading a star player gets the most blue-chip prospects back when multiple teams are bidding against each other, repeatedly upping their antes. We’ve all seen those charity auctions and fundraisers where one person’s interest drives up the interest of other buyers, and the bidding war starts. The same holds true for quality hospices on the market when the process is run correctly and confidentially. Start now Whether you’re looking to sell now or in a few years, following these seven steps will help you maximize the value of your hospice. While some of the steps can be carried out quickly, others take time, so be sure to start solidifying your sale plan today.

Optimism around an M&A rebound. Value-Based Care. Quality deal flow will dictate activity.   Those were the most common themes as the nation’s largest home-based care providers shared their M&A strategies with Mertz Taggart for the next 12-24 months.   The healthcare M&A advisory firm interviewed 51 of the most active acquirers interested in home-based care M&A, including home health, hospice, personal care/home care and private duty nursing. ​ Survey Overview: 51 of the most active acquirers in home-based M&A: 4 publicly traded companies 41 sponsor-backed home-based care portfolio companies 6 non-profit, health system and facility-based strategic acquirers ​ Total respondent estimated revenue: $19 billion ​ Topics covered: Geographical preferences Service line/payer preferences Value-based care Acquisition appetite: 2024 vs 2023 2024 outlook ​ If you are interested in receiving a copy of the Buyer Survey Report, please visit www.mertztaggart.com/buyer-survey and sign up for your copy.

LOUISVILLE, Ky.–(BUSINESS WIRE)–Kindred Healthcare, LLC (“Kindred” or the “Company”) today announced it has signed a definitive agreement with WellBridge Healthcare (“WellBridge”) to acquire two behavioral healt h hospitals, WellBridge Greater Dallas and WellBridge Fort Worth, in the Dallas-Fort Worth metropolitan area. WellBridge Greater Dallas and WellBridge Fort Worth provide a full continuum of inpatient and outpatient behavioral health services to senior and adult populations in North Texas. Each hospital has 48 licensed beds and both are regional leaders in behavioral healthcare with a history of providing exceptional behavioral health treatment services and superior clinical outcomes. Kindred plans to continue using the WellBridge name. This acquisition advances Kindred’s objective of expanding the Company’s behavioral health services. Kindred is dedicated to providing hope, healing and recovery for the most medically complex patients – a mission that naturally extends to those suffering from behavioral health issues. Through Kindred Behavioral Health (“KBH”), Kindred is focused on addressing the unmet need for high-quality, specialized and compassionate behavioral health services, including crisis stabilization for acute mental health and substance use disorders; detoxification from alcohol, opiates, cocaine and other drugs; suicidal thoughts or actions, anxiety, depression and post-traumatic stress disorder; and many other behavioral health illnesses. Under the leadership of Rob Marsh, Senior Vice President and Chief Operating Officer for Behavioral Health, Kindred intends to continue growing its behavioral health footprint across the United States through joint ventures and distinct part unit management with leading hospital systems, in addition to opportunistic acquisitions and organic growth opportunities. Kindred believes that behavioral health services are highly complementary to Kindred’s other facility-based healthcare services and build upon its existing clinical and operational capabilities. To learn more about KBH and the services it provides, go to www.KindredBehavioralHealth.com. “Kindred is proud to provide specialized, high-quality care for patients who are acutely sick or facing medically complex diagnoses,” said Jason Zachariah, Kindre d’s Chief Operating Officer. “O ur expansion into behavioral health services is consistent with our mission and is a natural extension of the high-quality services we provide in our long-term acute care hospitals and inpatient rehabilitation facilities. We look forward to applying our expertise and experience to serve more patients with behavioral health issues.” Mr. Zachariah added, “Kindred has a successful track record of incubating new business lines to address unmet healthcare needs, and this expansion extends that record and advances the Company’s long-term growth objectives. Rob Marsh, along with his seasoned leadership team, bring significant industry and operational expertise, and we are confident KBH is poised for growth and success under their leadership.” Mr. Marsh said, “Since joining Kindred last year, I have been inspired by the tireless commitment of team members across the Company to supporting our patients and their families. By expanding KBH, Kindred will be able to help more patients reach their highest potential for health and healing. I am thrilled to have an experienced leadership team alongside me at KBH and, supported by the clinical, operational and financial strength of Kindred, I am confident we will successfully expand Kindred’s behavioral healthcare continuum and drive strong revenue growth and patient outcomes.” The transaction is expected to close in the summer of 2020, subject to the receipt of standard regulatory approvals and customary closing conditions. Read more here…  BusinessWire