Home Health M&A Surges as Major Providers Vie for Growth

Home health merger and acquisition activity was on the upswing in the third quarter of 2015, and it appears that post-acute care providers remain particularly avid to increase their in-home services. However, signs indicate that the largest home health companies are positioning themselves to drive M&A activity as well.

With nine publicly announced transactions in the third quarter, M&A activity in the home health and hospice space was up 50% from the previous quarter, according to figures released Tuesday by market intelligence firm Irving Levin Associates Inc.

Most of those deals were small and did not include a disclosed acquisition price. Among the transactions with a disclosed price, the cumulative deal value was $241.9 million, down from $410 million a year earlier.

One large transaction that did include a publicly announced dollar value was LHC Group’s (NASDAQ: LHCG) acquisition of Halcyon Hospice for nearly $60 million in cash.

However, that deal was in some ways an aberration, insofar as LHC is a home health provider and most large transactions in the past year have involved a post-acute provider, including Kindred Healthcare (NYSE: KND), HealthSouth (NYSE: HLS) and Extendicare.

“More post-acute providers are beefing up their home health and hospice businesses in order to compete in the future of healthcare delivery and to get better control over post-acute outcomes, which is how they may be paid,” stated Steve Monroe, a partner at Irving Levin Associates, in a prepared statement.

More to Come

But while post-acute providers such as HealthSouth indeed have been very active in the M&A market lately, don’t count out the largest home health companies, says Kevin Palamara, managing director at Provident Healthcare Partners LLC. Provident provides M&A advisory services to home health players clients including Addus HomeCare Inc. (NASDAQ: ADUS).

In addition to the LHC-Halcyon acquisition, Palamara points to recent activity from Almost Family (NASDAQ: AFAM), including its $50 million acquisition of WillCare.

This activity is partly driven by the turnaround that the major home health providers have achieved on the public markets, Palamara says, and Amedisys (NASDAQ: AMED) also is a particularly striking example of this.

“Amedisys is much more flush with capital and we expect them to be more aggressive,” Palamara says.

Paul Kusserow, CEO of Amedisys, has publicly disclosed that the Baton Rouge, Louisiana-based company has been considering more than 200 potential acquisitions and partnerships. The provider also is exploring expanding from its current Medicare model to one that includes private duty care.

This type of diversification makes strategic sense for a number of reasons, Palamara says. It enables a company to tap into a client base of dually eligible Medicare-Medicaid beneficiaries, allows them to protect against Medicare reimbursement cuts, gives them more diversified revenue streams, and could enable them to tap into more lucrative payments from Medicaid managed care organizations (MCOs).

However, private duty care is “a much different animal,” from Medicare-reimbursed care, Palamara notes. So while he expects Amedisys to get into it at some point, he believes that the priority may be to continue to shore up the balance sheet.

These big players also are in a favorable environment to acquire because smaller operators may be compelled to sell due to current challenges, such as having adequate infrastructure to capture data and otherwise work with MCOs.

While strategic buyers are highly active, private equity also still is in the game, Palamara notes, so the M&A numbers are likely to rise going forward.

“There’s just a lot of activity going on right now,” he says.

Written by Tim Mullaney