Despite Slow Second Quarter, Home Health M&A Remains Strong
Only nine publicly announced home health deals occurred in the second quarter of 2017, according to research conducted by Norwalk, Connecticut-based Irving Levin Associates. This performance signified a 40% drop in activity when compared to the total publicly announced mergers and acquisitions in the first quarter of the year (15), as well as a back-to-back decline in performance.
But while publicly announced M&A activity for the sector has hit its “lowest level in years,” a few advisors feel otherwise, and believe these figures should be taken with a grain of salt.
‘A keener insight’
Though these figures might raise some eyebrows, investors should understand that such reports do not always factor in all transactions occurring in the landscape, according to Richard Tinsley, CEO and president for health care M&A advisory firm Stonebridge Partners.
“Not all of the non-public [activity] gets reported,” he told Home Health Care News. “There are a ton of transactions in the market that don’t always [get included] in those reports.”
This is particularly true for transactions that are specific to the types of home health agencies in the market, explained Mark Kulik, managing director at M&A advisory firm The Braff Group.
“I think you need to break it down to get a keener insight,” said Kulik. “If you look at, for example, Medicare-certified home health, we tracked 58 deals or so in 2016. Through the first half of 2017, we tracked 30 deals. So, it’s running at, or maybe, slightly ahead … over where we were last year.”
Other buyers in the game
The downturn in publicly announced M&A activity in the industry can be attributed to public companies becoming more strategic in their investments, explained Cory Mertz, managing partner at M&A advisory firm Mertz Taggart.
“As the public companies have grown over the years, they have progressively looked for larger transactions that can move the needle in terms of growth, which translates to fewer deals, simply because there are fewer of them out there,” said Mertz.
“Getting dots on the map” may have been the game plan years ago; but now, public companies tend to avoid oversaturating specific markets, paving the way for other buyers to get in the game, according to Kulik.
“While the national [companies] have certainly ratcheted down on their wide-open acquisitions, other buyers have stepped up — private equity, for example, has stepped up in a big way last year,” said Kulik.
The current landscape
The air of uncertainty surrounding health care reform may have also contributed to the recently slowed M&A activity, according to Kulik.
“I think the first half of the year was just consumed with, ‘What’s going to happen with Medicaid?’” he said. “So that’s one major element of [investors pausing].”
While this matter may have been settled with the Senate vetoing the GOP’s “skinny repeal” bill of the Affordable Care Act, how M&A activity in the industry plays out for the rest of the year may be too close to call, according to Tinsley.
“I just think it’s too soon to say M&A activity is on some sort of decline. The data is really hard to look at just a quarter of a time,” said Tinsley.
He adds that the timing of deals is also a key indicator as to how M&A deals are performing.
“If a lot of deals are done in the end of 2016, those companies may take a quarter or two for them to close, so I’m not [of the thought] yet that this [decline] is alarming in the industry,” said Tinsley.
Kulik remains optimistic, firmly believing that the second half of the year “has stronger numbers than the first half,” particularly in the fourth quarter as buyers and sellers make a last push to get deals closed.
“The whole conversation over the repeal of Obamacare is certainly causing people to tap their breaks,” said Kulik. “[But] now, with that off the table, I think [investors] are looking back at the second half of the year and saying ‘Hey, we still have a business to run and we still have goals to achieve.’ And now, the picture is a bit clearer.”
Written by Carlo Calma