The impact of the coronavirus on home health and home care M&A activity is becoming clearer.
Earlier this month, a handful of M&A experts told Home Health Care News that the global spread of COVID-19 had yet to seriously affect home health and home care dealmaking. It now appears likely that the ongoing pandemic — and rollercoaster economic landscape that comes with it — will, at the very least, slow down transaction frequency for the time being.
That slight slowdown is partly tied to C-suite decisionmakers being preoccupied with their COVID-19 response plan, according to Cory Mertz, managing partner at M&A advisory firm Mertz Taggart. It’s also due to some banks being more judicious with their lending.
“Executive teams are understandably distracted, to say the least, by the coronavirus,” Mertz told HHCN. “That’s their top priority.”
To accurately gauge the short-term M&A outlook, Mertz Taggart spent two days last week conducting qualitative surveys with roughly two dozen individuals, many of whom work in the home health and home care spaces.
“Although the M&A team is all systems go, the executive team and operations team have other pressing issues to deal with right now,” one executive from an integrated home health, hospice and home care company told Mertz Taggart.
In addition to diverted attention, other factors influencing the pace of M&A activity include travel limitations, social distancing and seller engagement.
Supply chain management and the overall availability of operations teams are also factors to keep an eye on, according to Mertz.
“Typically, deal teams work closely with the operations team to make sure they’re getting operations buy-in,” Mertz said. “In a lot of cases, the folks in operations are helping with or doing the due diligence. But right now, the operations teams are fairly swamped.”
While some predicted a slowdown, others reaffirmed their commitment to dealmaking.
“We are in it for the long game and will continue to look at opportunities,” one home care respondent told Mertz Taggart.
When it comes to bankings, at least one respondent speculated that banks will continue to lend, while perhaps getting “more stringent” and adjusting their coverage ratios.
“I think it’s possible some banks will be forced to slam on the brakes,” Mertz said. “I’m sure there are a lot of them scrambling because they’ve financed a lot of other industries taking a bigger hit than health care services.”
Of course, any speculation on dealmaking or what banks are willing to do moving forward could be quickly changed by the nearly $2 trillion economic stimulus package currently making its way through Congress. Among its provisions, the package would create a $500 billion fund for distressed companies.
Additional moves from the U.S. Centers for Medicare & Medicaid Services (CMS) could likewise improve dealmaking odds. Many home health stakeholders, for example, are hoping CMS will change its tune on reimbursement for home health telehealth visits or Medicare’s homebound requirement.
Flexibility on either front would create more stability in the home health market.
Ultimately, the COVID-19 pandemic will likely help home health providers showcase their value, potentially leading to more M&A action down the road, Mertz said.
“As unfortunate as this crisis is, it really underscores the importance of supporting home health, home care and hospice, because those providers are the ones who are best equipped to take care of our frail and elderly populations,” he said. “I think the response to this pandemic — along with technology enablement — is going to change the trajectory of those industries. They’re already growing, but I think they’re going to grow even faster.”