After dipping to start the year, home health merger and acquisition activity bounced back in the second half of 2015—and dealmakers believe that activity will be robust in the year ahead.
There were 12 publicly announced transactions in the fourth quarter of 2015, with the largest being the $63 million acquisition of Infinity Home Care by Amedisys Inc. (NASDAQ: AMED), according to data released Monday by business intelligence firm Irving Levin Associates.
This matched the number of deals in the third quarter of 2015, but was below the 20 announced transactions that occurred in the fourth quarter of 2014.
Total dollars were down steeply year-over-year, coming in at $108.7 million in the last quarter of 2015 as compared with $2.55 billion the year prior. However, the $1.8 billion merger of Gentiva Health Services and Kindred Healthcare (NYSE: KND), as well as the $750 million HealthSouth (NYSE: HLS) acquisition of Encompass Home Health and Hospice, both occurred at the end of 2014.
While 2015 did not include those types of blockbuster deals, the outlook for home health M&A remains strong, many observers say—including Jim Moskal, who leads the Global Healthcare Practice at Livingstone, an international mid-market M&A and debt advisory firm that advised Infinity on the Amedisys deal.
A variety of factors are driving M&A dealmaking in the home health space, Moskal tells Home Health Care News. Among these are increased regulations and costs, which are leading smaller and mid-sized agencies to pursue sales. A volatile rate environment also incentivizes consolidation, as larger organizations can leverage their scale and efficiencies in response to reduced Medicare or Medicaid reimbursements.
And then there’s the shift in the U.S. health care system, which is making high-quality, low-cost post-acute care more important to large payors, hospital systems and integrated provider networks like Accountable Care Organizations (ACOs). It is theoretically easier for an ACO, say, to work with a single, large post-acute/home health provider rather than numerous smaller ones, Moskal points out.
Given these dynamics, Moskal anticipates an active year to come.
“I think valuations are going to remain high, volume is going to remain high for 2016,” he says.
Written by Tim Mullaney