Home Health Care M&A Looks to Bounce Back After a Tough 2011

After a rough year in 2011, the merger and acquisition market for home health care agencies is improving for larger companies in 2012, according to the Braff Group.

Speaking at the Decision Health M&A conference in Chicago in April, Dexter Braff, president of Braff Group, a mergers and acquisition advisory firm, said that banks are now freeing up capital for agencies looking to acquire companies with a certain level of earnings capability.

“There is more capital available for [agencies doing] greater than $10 million in earnings,” he said. “[The banks] want to write bigger checks compared to three years ago.”

Previously, banks were more interested in making smaller bets in an effort to diversify, but with the markets starting to free up a bit, some agencies can borrow up to five times the EBITDA of the company they are looking to acquire if earnings are over $10 million annually says Braff.

In 2011, the M&A market for home health care did not see a record setting year. Medicare home health deals fell 17%, while Medicaid-based transactions plunged 82%, completing only two transactions during the entire year. The private duty care market didn’t fare well either; it saw only 10 deals in 2011, down from 30 in 2010.

“Amidst extraordinary uncertainty in payment rates and rules, increasing regulatory oversight, and bad press, the industry suffered a triple-whammy of M&A declines,” according to a Braff Group report.

The only strong sector was hospice care, which saw a more stable reimbursement environment.


Companies currently looking to make acquisitions face challenges in home health care since most providers are small in size, have owner-centric models, and the fact that barriers to entry are quite low, said Braff.

“There are no synergies in home health care,” he added. “Home health care doesn’t have a lot of fixed costs. They’re almost all variable, so throwing companies together does not [typically] create synergies.”

Even though the number of deals completed was down last year, there are reasons 2012 is looking brighter.

Late last year, Humana announced an agreement to acquire SeniorBridge, a New York-based care provider with a reported $72 million of revenue in 2011. SeniorBridge is primarily private pay, but Humana said it plans to utilize the company through its Medicare business as well.

While synergies can be hard to find in merging two home health care agencies, they do exist. Deals that allow companies to start doing business in new states and regions will always make sense for some, according to Braff.

In April, HCR Home Care announced the acquisition of Madison County’s home care program in New York that would essentially double its footprint in the state. It also provides the company the ability to centralize a lot of the back-office functions, allowing it to leverage those systems in order to operate more efficiently across the state and focus local operations on direct clinical care.

For potential acquirers, compliance is also a huge factor in determining which companies to consider.

“If there is a concern about the company’s compliance, the buyers simply walk away,” said Braff. “It’s simply not worth it to engage in a transaction where compliance is a concern.”

While Braff isn’t expecting a huge turnaround in the number of home health acquisitions during 2012, new data released by Irving Levin Associates shows an improvement. During the first quarter of 2012, the number of home health deals increased to 11, up 10% from a the first quarter of 2011, with a total dollar amount of $760 million

Whether or not things will continue to trend in a positive direction is another story.

“We anticipate continued volatility in the coming year as the variables driving these sectors continue to evolve—both favorably and unfavorably,” said the Braff report.

Written by John Yedinak

John Yedinak



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