Home Health, Hospice Valuations Remain Highest in All of Health Care

When it comes to asset valuation, the home health and hospice industries continue to blow the rest of health care out of the water, posting the highest trading multiples sector-wide for the third consecutive quarter.

In Q2 2019, home health and hospice had the highest mean trading multiple of 22.7 times EBITDA, up from 21.8 times for the same period in 2018. Meanwhile, the industry-wide mean EV/EBITDA multiple was just 14.9 times.

In other words, home health and hospice operations are valued higher than the average health care business.

Those insights come from a second quarter report from international auditing and accounting giant PricewaterhouseCoopers (PwC). PwC analyzed data from Irving Levin Associates, Dealogic Equity Capital Markets Analytics, S&P Capital IQ and publicly available transaction information to reach the findings. 

The PwC partners who compiled the report were unavailable for comment.

One big takeaway is that interest in health services remained high in Q2, growing 7.3% from Q1, according to the findings. Barring mega-deals — or those exceeding $5 billion — the health care industry as a whole saw growth in both deal volume and value.

Overall, there were 281 deals valued at a total of $15 billion. Home health care deals in particular made up 9% of those with 25 transactions, up 19% from the same period in 2018.

Meanwhile, home health care was down 85% in terms of deal volume at $200 million, though the decline in value could be due in part to the lack of Q2 mega-deals.

Deal interest is only likely to continue in the quarters to come, authors of the report predict.

“We think that industry fundamentals remain favorable to deals,” Nick Donkar, U.S. health services deals leader at PwC, said in the report. “Interest in managing high costs and population health, while engaging patients and addressing social determinants of health, remain top-of-mind issues.”

That’s good news for home health providers, who often pride themselves on their ability to cut health care costs and address social determinants of health while delivering care where patients want it.

Other drivers of deal interest include regulatory uncertainty, high costs, focus on consumerism, capital availability and cross-industry trends.

The home-based care industry has already started to see those drivers at work: For example, many providers are pivoting their M&A strategy ahead of the Patient-Driven Groupings Model (PDGM). For many, that means going after hospice deals in the short term, while preparing to swoop in and acquire home health agencies who struggle to perform under PDGM later on.

On top of that, tech is starting to play a larger role in the M&A landscape, authors of the report suggest.

“We anticipate assets (especially digitally focused) that help improve experience and outcomes, and/or lower costs, will remain of interest,” the report says.

PwC analysts predict private equity firms, which continue to have high levels of capital to deploy, will be among those acquiring parties interested. That’s especially true when it comes to technology and care delivery, according to the report.

Finally, the evolving trade environment and upcoming 2020 election will likely begin to shape deal considerations in the months to come, the authors suggest.