Home Health, Hospice Experiencing Unprecedented M&A Action

Thanks to heightened interest from private equity buyers and companies’ efforts to diversify business operations, 2018 has seen an acceleration in the number and size of home health, hospice and personal care transactions. The hot market should continue going forward, although the new home health payment model and sky-high valuations raise some questions about what types of deals will be completed and who the most active buyers will be.

“The volume of the transactions in terms of service — it’s been an unprecedented year,” Darby Anderson, executive vice president and chief development officer for Addus, said last week at the Home Health Care News Summit in Chicago. “I think there will continue to be more deals, more individual acquisitions, but I don’t think you can replicate the size.”

So far, there have been 84 home health, hospice and personal care deals in 2018, according to data from M&A firm Mertz Taggart. Annualized, 2018 is on pace to see well-above 100 transactions.


“We’re definitely seeing acceleration,” Cory Mertz, managing partner of Mertz Taggart, said.

Valuations also have been extremely high throughout the sector and particularly in hospice, leading some large players to largely sit out the current transaction spree.

“We go out into the market and deals aren’t doable,” Paul Kusserow, CEO of Baton Rouge, Louisiana-based Amedisys (Nasdaq: AMED), said. “Hospice, it’s overvalued at this point — plus, the big players are gone now, so you’re looking at mom-and-pop stuff.”


Pricing has been driven in large part by private equity, Kusserow noted. These investors like the home health space due to the coming demographic age wave, and are willing to pay high prices to create an initial platform in the space that they can build around. However, Amedisys does see some opportunity on the horizon, particularly as hospitals and senior living companies shed their home health arms.

Expect further action from private equity in 2019, Mertz said.

“There are a lot of private equity groups sitting on a lot of cash, a lot of dry powder, as they call it,” he said.

The PE money is indeed driving valuations higher and leverage could be pushed “well north of six-times” on deals, said Morris Estes, managing director, Capital One Healthcare. However, he also notes that the valuations are a positive indicator, showing that investors are aware of the positive demographics and appear undeterred by regulatory and reimbursement challenges. Indeed, some of the public home health companies have been trading higher than Netflix in recent months, he noted.

“I think the valuations that you see out there provide a nice validation on the entire sector,” he said.

Home health activity may slow

A big chunk of the M&A action in 2018 has come on the home health side, including through some blockbuster deals. These have included the merger of LHC Group (Nasdaq: LHCG) and Almost Family, as well as the acquisition of Kindred at Home by insurer Humana (NYSE: HUM) and PE firms TPG Capital and Welsh, Carson, Anderson & Stowe.

Going forward, though, home health wheeling and dealing may hit somewhat of a lull because of the Patient-Driven Groupings Model (PDGM), introduced by the Centers for Medicare & Medicaid Services in July.

“Anybody with any seriousness is not going to do anything over the next 18 months because PDGM,” Kusserow said. “You don’t know what that’s going to look like.”

Estes concurred.

“I do think that PDGM has to play itself out, and we’ll see how that affects targets for M&A,” he said.

The top roadblock in PDGM is its behavioral adjustment component, Kusserow said. Amedisys has led the charge to eliminate this component of PDGM through a recently introduced federal bill.

In 2019, buyers may look to make personal care deals in light of future Medicare Advantage opportunities and small- to mid-sized agencies are pressured by regulatory hurdles.

“The electronic visit verification mandate is going to force technology use at the point of care for what’s been a paper-driven [sector] for the last 20 or 30 years — that’s a wholesale, significant change for most providers,” Anderson said. “Couple that with recruitment issues, couple that with state or municipal minimum wage mandates … all those challenges put a lot of pressure on the smaller and mid-sized providers.”

The number of personal care deals increased by roughly 250% from 2017 to 2018, according to Mertz Taggart data.

No more silos

In addition to PE interest, well-capitalized companies are looking to grow while simultaneously diversifying their offerings to take advantage of alternative payment models, Mertz said.

“It used to be that buyers operated in silos — hospice buyers bought hospices, home health buyers acquired home health agencies and private-duty companies acquired home care agencies,” he said. “Now we’re seeing all of them buying different things across the continuum.”

As one of the two remaining publicly traded and independent home health companies remaining, Amedisys’ value has gone up sixfold over the past three-and-a-half years. While Amedisys has branched into the personal care space through acquisitions, the company has mostly achieved growth organically, not really pursuing an aggressive mergers-and-acquisition strategy, according to Kusserow.

Amedisys has taken that approach, in part, because of the relatively high, double-digit valuations for home health, hospice and personal care deals.

For strategic buyers, though, it’s a matter of weighing the multiple against other considerations, Anderson noted.

“You’re going to run into some situations where you feel like, ‘That multiple just doesn’t make sense for us,'” Anderson said. “But it depends on the strategy of the buyers and if that’s a piece of business they really need to have.”

When buyers do decide to pursue deals, they need to make sure the acquisition has seen stable growth and has employed quality personnel. On the flip side of that, when companies are looking to sell, they should do their due diligence beforehand, making sure their business is compliant with wage and hour laws.

“Companies that have done that ahead of time, have presented that information effectively from the beginning, they’re going to get our attention earlier,” Anderson said. “We don’t have to look under every rock. There’s value to that, and it demonstrates a real capacity on [the seller’s] part to manage their business effectiveness and well, so we’ll pay more for that.”

Written by Robert Holly

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