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

By Michael Lloyd The convergence of unique market factors has created an opportunity for owners of home-based care businesses in the lower middle market. The major contributing factors in the market are rising interest rates [ML1], which are causing private equity to delay their exits on platform investments, and a scarcity of quality assets currently on the market. In other words, large private equity-owned businesses cannot fetch the terms and values they want in the 100M+ market due to interest rates, so they are forced to continue investing in their businesses by acquiring assets that fit their strategy. “The top has come off the higher end of the market, forcing private equity portfolio companies to delay their exits for now. In terms of multiples, these larger companies that would have sold a couple years ago in the mid- to high-teens are not commanding that right now. Transactions that size tend to be more highly leveraged, which will ultimately weigh down valuation,” Mertz Taggart Managing Partner Cory Mertz said. “But private equity has a mandate to spend the piles of cash they are sitting on, so that’s what their portfolio companies are doing right now. Or at least they are trying to.” The issue for these strategic buyers and opportunity for owners (sellers) lies in the availability or lack thereof of quality assets currently on the market. Although home-based care M&A ticked up in Q2(see report) , Q1(see report) recorded near-historic lows for completed transactions, and it appears Q3 will follow suit. “Transaction volume right now is, for the most part, a function of quality opportunities in the marketplace,” Mertz added. Healthy businesses with EBITDA numbers between $1 million-$10 million have benefited from these conditions. In a market where assets are more readily available, these companies may not garner the same level of interest or demand as they are currently getting. Consistently, in a competitive process, owners are capitalizing on this demand by exceeding valuation expectations. While values hold firm, the buyers are increasingly disciplined in diligence due to the general sense of uncertainty and historically high values. It is essential that owners are stringent with compliance and manage margins to capitalize on the values being offered. “We will almost always recommend our clients perform some level of a compliance audit and quality of earnings before going to market,” Mertz said. “It costs money, so it can be a tough pill to swallow for owners, but it will give them insight into how the buyer will ultimately size up the company. It’s better to know that before jumping into a months-long sale process.”

I get asked all the time…’what kind of multiple would my home care agency command?’ ‘Not So Fast’…There’s No Straight Answer. I would go as irresponsible to give guidance simply in the form of a multiple without knowing the other half of the valuation equation – Adjusted EBITDA .s far as saying it’ The Adjusted EBITDA can be dramatically different depending on whether it is based on a trailing twelve-month (TTM) period, calendar year, annualized pro- forma, or some other formulation. It can also vary significantly based on the buyer and which adjustments will be considered. The question should be, ‘what kind of VALUE would my home care agency command?’ which is more complicated. Let’s take a step back and explain the value equation that is commonly used in the home care industry. Value = (Adjusted EBITDA) x (the Multiple), whereby: Adjusted EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a proxy for “normalized” cash flow (normalizing for typical variations in a company’s revenue cycle). The Multiple is the inverse of the go-forward risk of that cash flow continuing after the transaction is complete. The lower the risk of cash flow deterioration, the higher the multiple. For example, a 7x multiple implies a 14.3% return and a 5x implies a 20% return, so the 5x multiple is viewed as a riskier investment for the buyer, therefore he/she requires a higher rate of return. Pretty straightforward, right? Well, not always. And here’s why …Adjusted EBITDA is in the eye of the beholder. Consider three case studies to illustrate: The Growing Agency I represented the seller of a home care agency with the following value drivers: Trailing 12 months (TTM) revenue of $12,o00,000 Trailing 12 months adjusted EBITDA of $2,200,000 (~18% of revenue) Strong growth Multiple locations Strong clinical and compliance program Non-CON state Virtually no seasonality After receiving multiple bids, and after negotiations, the successful buyer (a large private equity fund) came in with a valuation of $17,600,000. Clearly a healthy multiple of 8x ($17,600,000/$2,200,000), right? I can assure you the buyer was looking at this differently. Remember, this was a fast growing company that had no seasonality. Trailing 12 months (TTM) Last 6 months, annualized Revenue $12,000,000 $14,400,000 Adjusted EBITDA $2,200,000 $2,880,000 Multiple 7.3 5.6 So, what was the multiple? Depends on who you ask. The buyer was telling their board that they got this company for a steal – a multiple of 5.6 My client, the seller, was telling his golf buddies he sold for a multiple of 7.3x… EBITDA & multiples are in the eye of the beholder. Corporate Overhead and Synergies Here’s an example of a hospice we represented: Trailing 12 months revenue: $5,600,000 Trailing 12 months adjusted EBITDA: $800,000 Modest growth Strong clinical and compliance program Non-CON state After running a competitive bid process, the buyer agreed to pay $5,600,000 (or about 1x revenue). This company commanded a multiple of 7, ($5,600,000/$800,000) right? Maybe/Maybe not… In this case, the seller was paying an annual salary of $200,000 to a high-priced CFO who was not an owner of the company. Although he was instrumental in the success of the company, he was not needed by the buyer. This is typical, as nearly all strategic buyers have their own CFO who can take on these responsibilities. So the buyer would enjoy an immediate $200,000 bump in EBITDA on day one – to $1,000,000. To the buyer, this company was purchased for a multiple of 5.6x ($5,600,000/$1,000,000). The Low Margin Business Another example: Trailing 12 months revenue: $4,800,000 Absentee owner, not involved in the business Trailing 12 months EBITDA: $150,000 The sale price was $2,400,000, or a multiple of 16 ($4,800,000/$150,000). Clearly not a standard industry multiple for a privately held home care agency, but it was a competitive process and the company had a high strategic geographical interest to the industry buyer. In this case, the buyer saw some “low hanging fruit” in the seller’s cost structure and knew it could bring its EBITDA up to 12% (or about $600,000) very quickly. This included $220,000 in salary and “home office” expense enjoyed by the absentee owner who was not involved in the day to day operation of the business. In the eyes of the buyer, the multiple was a conservative 4x (or $2,400,000/$600,000). So that begs the question…what is the multiple of a break-even (or money-losing) agency that sells for any price? It’s all about the value.

Treatment Center Value Insights: It’s All About the Multiple (…Or Is It?) I get asked all the time…’what kind of multiple would my treatment center command?’ ‘Not So Fast’…There’s No Straight Answer. I would go as far as saying it’s irresponsible to give guidance simply in the form of a multiple without knowing the other half of the valuation equation – Adjusted EBITDA. The Adjusted EBITDA can be dramatically different depending on whether it is based on a trailing twelve-month (TTM) period, calendar year, annualized pro- forma, or some other formulation. It can also vary significantly based on the buyer and which adjustments will be considered. The question should be, ‘what kind of VALUE would my treatment center command?’ which is more complicated. Let’s take a step back and explain the value equation that is commonly used in the industry. Value = (Adjusted EBITDA) x (the Multiple), whereby: Adjusted EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a proxy for “normalized” cash flow (normalizing for typical variations in a company’s revenue cycle). The Multiple is the inverse of the go-forward risk of that cash flow continuing after the transaction is complete. The lower the risk of cash flow deterioration, the higher the multiple. For example, a 7x multiple implies a 14.3% return and a 5x implies a 20% return, so the 5x multiple is viewed as a riskier investment for the buyer, therefore he/she requires a higher rate of return. Pretty straightforward, right? Well, not always. And here’s why …Adjusted EBITDA is in the eye of the beholder. Consider three case studies to illustrate: The Fast Growing Company We represented the seller of an opioid treatment program with the following value drivers: Trailing 12 months (TTM) revenue of $9,100,000 Trailing 12 months adjusted EBITDA of $2,400,000 (~26% of revenue) Strong growth Multiple locations Strong clinical and compliance program No seasonality After receiving multiple bids, and after negotiations, the successful buyer (a large private equity fund) came in with a valuation of $34,000,000. Clearly a healthy multiple of 14.2x ($34,000,000/$2,400,000), right? I can assure you the buyer was looking at this differently. Remember, this was a fast growing company that had no seasonality. Trailing 12 months (TTM) Last 3 months, annualized Revenue $9,100,000 $16,800,000 Adjusted EBITDA $2,600,000 $4,500,000 Multiple 14.2 7.6 So, what was the multiple? Depends on who you ask. The buyer was telling their board that they got this company for a fair price – a multiple of 7.6 My client, the seller, was telling his golf buddies he sold for a multiple of 14.2x… EBITDA & multiples are in the eye of the beholder. Corporate Overhead and Synergies Here’s an example of a multi-location residential treatment center we represented: Trailing 12 months revenue: $9,600,000 Trailing 12 months adjusted EBITDA: $1,600,000 Modest growth Strong clinical and compliance program Primarily in-network revenue After running a competitive bid process, the buyer agreed to pay $21,000,000. This company commanded a multiple of 13.1x, ($21,000,000/$1,600,000) right? Maybe/Maybe not… In this case, the seller was paying an annual salary of $500,000 to a high-priced CEO who was not an owner of the company, but a close confidant who had a long business relationship with the seller, and worked part-time in the business. Although he was instrumental in the success of the company, he was not needed by the buyer. The buyer had a regional VP who had the bandwidth to take on these responsibilities. So the buyer would enjoy an immediate $500,000 bump in EBITDA on day one – to $2,100,000. To the buyer, this company was purchased for a multiple of 10x ($21,000,000/$2,100,000). The Low Margin Business Another example: Trailing 12 months revenue: $5,100,000 Absentee owner, not involved in the day-to-day operation Trailing 12 months EBITDA: $300,000 Revenue derived primarily from public funding The sale price was $7,000,000, or a multiple of 23.3x ($7,000,000/$300,000). Clearly not a standard industry multiple for a single-location, privately held treatment center, but it was a competitive process and the company had a high strategic geographical interest to this industry buyer. In this case, the buyer saw opportunity that wasn’t being capitalized by the current owner. This buyer had a very strong marketing group and in-network relationships that could bring the center’s occupancy from 12% to 70% within 12 months. Because of the competitive nature of the offering, they valued the treatment center based on it’s pro-forma financial performance – what they could do with it after the closing. So that begs the question…what is the multiple of a break-even (or money-losing) treatment center that sells for any price? It’s all about the value. -Mertz Taggart

Autism and I/DD Organizations Led the Sector this Quarter Mertz Taggart has just released its quarterly M&A report for the behavioral health sector. According to the report, transaction activity in behavioral health has rebounded in the third quarter of 2020, with a total of 26 transactions. Autism and intellectual/developmental disabilities organizations led the sector, accounting for 13 announcements in Q3. “We anticipate strong demand for behavioral health organizations of all types over the next 12 months,” said Mertz Taggart Managing Partner Kevin Taggart. “The strong demand for specialty care, coupled with the providers’ smart pivot toward telehealth services, creates an attractive landscape for investments and follow-on deals.” Taggart pointed out that private equity buyers are gauging their portfolios against long-term propositions. Yet for now, with uncertainty in market circumstances, many buyers will be hyperfocused on the executive leadership of any potential deal target. Note: The sum of sub-industries (broken down below) does not always equal total sector deal volume, as some transactions include more than one sub-industry. “Several CEOs who have been leading some of the industry’s well-known legacy brands in addiction treatment announced this quarter that they would be retiring or moving on, launching a series of simultaneous succession plans,” Taggart said. “Experienced executives have always been valuable assets in any deal, but that could very well become a top priority if we start to see a trickledown effect that results in up-and-coming leaders shifting between organizations or taking on new roles.” CEOs at Hazelden Betty Ford , Rosecrance, Universal Health Services, and Caron Treatment Centers all announced that they would step down or retire in the coming months. Across behavioral health, sellers should be standing their ground on valuations, according to Taggart. They especially should consider pushing back against any perception that the global coronavirus pandemic has devalued operations. “In fact, history has proven that healthcare is quite resilient, and behavioral health continues to be an attractive buy,” he said. “We often see slow-moving deals suddenly pick up pace in the fall, so sellers would be wise to present solid, reasonably optimistic valuations.” What’s more, the managed care outlook is decidedly bullish for 2021, according to the largest insurance company leaders. That translates into an extra advantage for any behavioral health provider that has in-network contracts and established relationships with payers. In the past five years or so, behavioral health has witnessed not only a flurry of mergers and acquisitions , but organic expansion as well, Taggart said. Combined synergies have created opportunities to enter into new geographic markets and to add new clinical offerings. The industry forecast leans toward plenty of deal volume yet to be realized in 2021. Addiction Treatment New openings continue in the addiction treatment space—an indicator of an optimistic outlook for the long-term rate of service demand. While the Northeast and California have seen the most noteworthy ribbon cuttings, smaller markets are responding to local needs as well. “Service expansion is typically a factor in deal targets,” Taggart said. “Buyers still have their eyes on building the continuum as well as breaking into new markets.” BrightView , an outpatient addiction treatment provider with 18 locations in Ohio, announced that it has acquired Rebound Recovery Centers with multiple locations in Kentucky. The company offers medication-assisted treatment and counseling services. The not-for-profit First Step of Sarasota and Coastal Behavioral Healthcare merged on July 1 and began operating under the First Step brand. With the transaction, First Step brings its number of locations to 33 throughout the Sarasota, Florida, region. It offers residential, crisis, inpatient and outpatient services. Hunter Street Partners and Healy Capital Partners have jointly invested in Ark Behavioral Health in Massachusetts. The provider offers detox, residential, partial hospitalization and intensive outpatient services in four locations. Capital will be dedicated to expanding Ark’s number of treatment centers. Providence Treatment has acquired Main Line Recovery , which will now operate under the Providence Treatment brand. The organization offers outpatient addiction treatment services in Pennsylvania. Pinnacle Treatment Centers announced its acquisition of HealthQwest and the organization’s five outpatient centers in Georgia. It will continue to operate under the HealthQwest brand. Pinnacle operates inpatient and outpatient facilities in eight states. Averhealth , a provider of drug testing services for courts and social programs, has acquired the testing services of Treatment Assessment Screening Center , a private, not-for-profit in Arizona. Private equity firm Five Arrows Capital Partners provided the investment. Outreach Recovery has acquired More With Doc C, LLC , expanding its medication-assisted treatment services in Maryland. The company operates multiple locations in four states. Autism Services & Intellectual/Developmental Disabilities There’s a renewed effort to encourage early diagnosis and intervention for children with autism spectrum disorder. With a higher prevalence rate, the demand for services will continue to grow. Meanwhile, with attention focused on job growth for the balance of 2020, advocates will likely ask for more assistance in care coordination for those with intellectual and developmental disabilities (I/DD). Such services will be an attractive complement to traditional supports among deal targets. Proud Moments ABA in July acquired Autism & Behavior Consulting Services, LLC. Founded in 2014, Proud Moments ABA offers applied behavior analysis (ABA) at 11 locations nationwide. Acorn Health , a national provider of autism services for children, has acquired the ABA therapy assets affiliated with Concord Foundations Network . The deal enables Acorn Health to expand services into Maryland, Pennsylvania, and Tennessee, while increasing capacity in Michigan and Virginia. The Center for Social Dynamics, LLC, a portfolio company of NMS Capital , has acquired Behavior & Development Center, LLC, located in Southern California. The deal marks the portfolio company’s second transaction since June. The Columbus Organization in July announced it had acquired assets of Rendon Support Services , a Florida-based provider of I/DD support services. In September, it also acquired the assets of Advocates in Action , a New Jersey-based care coordination provider. The organization operates under the HealthEdge Investment Partners, LLC portfolio and is CARF-accredited. Texas-based Caregiver Inc. in August closed the deal to acquire Pine Ridge-Pine Village Inc. in Ohio, which provides residential, day treatment and supported living I/DD services. The transaction represents Caregiver’s seventh acquisition in the state. Mental Health Because overall costs are high for individuals with mental health conditions, providers can make an excellent case for payers to continue on with policies that enable access to care, such as telehealth options. In fact, payers report annual costs as much as 3.5 times higher for those with mental health and addiction disorders. A recent survey also found that 81% of behavioral health providers began using telehealth for the first time this year in response to the COVID-19 pandemic. Additionally, 70% said they plan to continue offering telehealth moving forward. Summit BHC in July acquired Highland Hospital in Charleston, West Virginia, marking its first entry into the state. The hospital has 115 beds for acute and residential psychiatric care as well as a 16-bed crisis residential/detox substance use disorder treatment center. The deal was Summit’s second acquisition of the year, and has grown its network to 15 states. Column Health in July announced the acquisition of the Center for Psychiatric Medicine . The organization’s community-based outpatient clinics are located throughout Massachusetts and Connecticut, offering psychiatry, neuropsychiatry and addiction treatment services. The Comprehensive Counseling LCSWs counseling practice in September was acquired by LearnWell , a Massachusetts-based mental health services company, which gains new multilingual virtual counseling capabilities as a result of deal. Eagle Private Capital and 424 Capital provided the investment. Private equity firm Enhanced Healthcare Partners has invested in NeuroPsychiatric Hospitals , an acute care provider with four locations in Indiana. The funding will help scale up services and expand into other geographic areas.

NEW ORLEANS (PRWEB) May 15, 2020 AppleGate Recovery, a BayMark Health Services company, announced this week the acquisition of Medication Assisted Recovery Centers (MARC), an office-based opioid treatment (OBOT) program with two locations near New Orleans, LA. The clinics, situated in Metairie and Slidell, provide medication-assisted treatment (MAT) and recovery services in a physician’s office setting. AppleGate Recovery now operates 8 clinics serving the residents of Louisiana who struggle with opioid use disorder. Our programs provide outpatient MAT with buprenorphine and buprenorphine compounds such as the well-known Suboxone®, as well as Bunavail® and Zubsolv®. These medications, when supported by counseling, provide a comprehensive treatment modality that addresses physical withdrawal symptoms and psychological cravings. AppleGate Recovery is equally pleased that Dan Forman, Co-Founder of the MARC programs, will be joining the AppleGate Recovery team as a Regional Director, Operations. Dan brings 10 years of experience as a health care executive and recovery advocate. Dan’s wealth of knowledge will help AppleGate continue to innovate enhancements to patient care and lead our programs in partnering with their communities to provide treatment to those who need it most. “My founding partner and I have been in the field of addiction treatment for many years. We opened the MARC programs because we saw a great need in the New Orleans area for proven opioid addiction treatment, free of judgement, and knew we had the ability to help,” shared Dan Forman, Co-Founder of MARC. “BayMark has established themselves as the leader in opioid addiction treatment. We feel they have the expertise to not only maintain but grow our ability to serve our patients, and I am thrilled to be joining the AppleGate team who is going to do just that.” In addition to providing MAT services in office, AppleGate will be offering patients flexible telehealth options in all locations, including Metairie and Slidell. This enhancement to the already flexible OBOT treatment model will give our patients the freedom to focus on their recovery and rebuilding their lives. Our programs also provide laboratory services, case management and collaborative treatment during pregnancy. Offering patients access to medical providers, counselors and administrative staff whose focus is to help them rebuild their lives and ensure their overall health is our goal. “We are proud to continue our efforts to support the State of Louisiana and its residents in their fight against the opioid crisis,” shared Mike Saul, BayMark Division President. “We look to work with organizations which have established themselves as quality providers of patient care and MARC has absolutely done that. In addition, we’ve added a strong member to the AppleGate family in Dan Forman and look forward to the positive impact he will have on our team.” This article originally appeared in PRWeb . Trackbacks/Pingbacks Behavioral Health M&A Report: Q2 2020 – Mertz Taggart - […] was a busy quarter for BayMark Health Services. In May, its AppleGate Recovery brand announced the acquisition of Medication… First Step, Coastal Behavioral Healthcare Officially Merge - [...] After a nine-month consolidation process, First Step of Sarasota and Coastal Behavioral Healthcare have officially – as of July 1...

Mertz Taggart and McBee have collaborated on numerous transactions over the years. The following is one example of the many risk areas we uncover during our diligence process. “Knowledge is power” is a universal truth across many settings and industries, including post-acute mergers and acquisitions. Having the most current and accurate information possible is key whether you are evaluating day-to-day operations, preparing to put an organization on the market, or as a buyer evaluating a potential home health acquisition. Confidence in your data and compliance makes the difference between real value and breezing through due diligence, and a long, difficult, and disappointing process. One of the most significant aspects of clinical diligence reviews is technical issues around face-to-face (F2F) requirements, such as the encounter visit completed by the certifying physician. If the F2F visit records are not completed in a timely manner or do not match the reason for service, it can have serious ramifications. Though there have been no changes in F2F regulation, many organizations have F2F elements that do not meet Medicare billing requirements that can put the full reimbursement amount at risk. A weak F2F completion process can be indicative of more significant compliance or performance issues in an agency. Understanding any potential level of risk is a vital part of the clinical due diligence process. Whether determining if you are compliant now, preparing for a sale, or evaluating a potential acquisition, a thorough clinical compliance review will help organizations understand their historical trends, evaluate current risks, as well as identify specific areas for improvement. These diligence assessments provide vital insight into how well an organization is delivering care with complete and compliant documentation to justify that the services provided meet Medicare regulations. This is the first in a series of home health & hospice transaction considerations. Next up will be examples of face-to-face weaknesses and failures that have been encountered. About McBee McBee is a recognized leader in providing financial, clinical and operational strategic advisory services that have addressed the unique needs of more than 3,800 providers across the healthcare industry. Since 1973, McBee has designed services to address challenges and ensure the success of healthcare organizations across the continuum of care by delivering meaningful insights, tailored strategies, and sustainable results. With an average of over 20 years of experience, McBee’s consulting professionals have extensive expertise and in-depth knowledge of healthcare regulations, operations, and policies. Home health, hospice, long-term care, skilled nursing and other healthcare organizations across the nation look to McBee to provide comprehensive services and expert resolution of the various issues they encounter. McBee is a trusted strategic advisor to our clients in their efforts to go to market or conduct buy-side clinical compliance reviews. During the 2020 calendar year, McBee supported our clients in completing 19 publicly reported transactions carrying a purchase price exceeding $1.8 billion *(based on disclosed purchase prices only). Our commitment to our clients, compliance and quality is unmatched in the industry. McBee’s unwavering dedication backed by their industry knowledge has made them one of the largest, well-regarded healthcare consulting firms in the country. They are located in Wayne, Pennsylvania with additional offices around the country. For more information, please visit www.mcbeeassociates.com. About Mertz Taggart Mertz Taggart is an industry-leading mergers and acquisitions firm specializing in home health, home care, hospice, and behavioral health. This focus yields invaluable insight into the challenges and opportunities operators face. The depth of our industry knowledge is garnered by our relationships with industry leaders, knowledge of buyers’ acquisition strategies, and our hands-on experience owning and operating a healthcare company. Our competitive advantages translate to maximizing value for our clients, as proven by over 100 successfully completed healthcare transactions since 2006. www.MertzTaggart.com