Private Equity Buyers Press Pause on Home Health Plans

In a change of pace compared to recent trends, private equity buyers appear to be shying away from home health purchases.

There were at least 13 transactions for Medicare-certified home health assets in 2019’s third quarter, with many of those purchases coming from the industry’s big publicly traded companies, according to the latest quarterly M&A report from advisory firm Mertz Taggart.

With only a few months to go before the Patient-Driven Groupings Model (PDGM) goes into effect, PE buyers are likely sitting tight and feeling out the new home health care landscape that’s beginning to take shape, Mertz Taggart Managing Partner Cory Mertz wrote in his firm’s Q3 report.

“Right now, it’s hard enough for a PE firm to get a handle on the industry in general, but then to figure out how PDGM might impact a target is very difficult,” Taggart stated. “They have other opportunities they can look at for now until the dust settles in home health. I would look for private equity to jump back into the mix in the second half of 2020, barring any other unforeseen regulatory announcements.”

Lafayette, Louisiana-based home health, hospice and personal care giant LHC Group Inc. (Nasdaq: LHCG) was part of at least six transactions in Q3. In August, the company finalized a joint venture agreement in Missouri, formed a new JV in Alabama and purchased the assets of two home- and community-based services locations in Ohio.

Also during Q3, Birmingham, Alabama-based Encompass Health Corporation (NYSE: EHC) finalized its $217.5 million acquisition of Alacare Home Health & Hospice, a privately owned company. Upon its closing, the deal added 23 home health locations and 23 hospice locations to Encompass Health’s expanding footprint. 

“We’ve been talking to Alacare for years,” April Anthony, CEO of Encompass Health’s home health and hospice business, told Home Health Care News in April. “We’ve over the years had many occasions to talk about the potential opportunity … because our cultures just align so well.”

Frisco, Texas-based Addus HomeCare Corporation (Nasdaq: ADUS) was also active in the quarter, acquiring Alliance Home Health Care LLC and affiliate House Calls of New Mexico, among other moves. 

“We saw a lot more activity from the public companies like LHC Group and Encompass Health this quarter,” Mertz wrote. “In the recent past, private equity has really been the catalyst.”

Q3’s 13 home health transactions is in line with the previous quarter, which saw 12 deals take place.

On the home care front, there were at least 10 transactions in the third quarter of 2019, an increase of three over Q2, according to the Mertz Taggart report.

Broadly, some home care buyers have recently expressed frustration regarding a lack of scalable, quality home care assets currently on the market.

In some ways, it’s a reality that played into the formation of the Amedisys-ClearCare personal care network.