Home Health, Hospice Multiples Hit Record High Amid COVID-19 Emergency

Despite the economic turmoil of the ongoing COVID-19 emergency, home health and hospice multiples hit record-breaking numbers in the first half of 2020. 

Specifically, multiples reached 29 times in the early part of this year, beating their previous high of 26 times in 2019, according to a recent report by PricewaterhouseCoopers’ (PwC) Health Research Institute. Contextually, those figures are in reference to LTM EV/EBITDA.

PwC is a global network of firms that delivers tax and consulting services for businesses.

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The record-high multiples reaffirm what so many experts have said over the past few months: The coronavirus is elevating the importance of home-based care, finally earning providers the recognition they deserve.

“COVID-19-driven needs could impact the types of assets health services companies find valuable,” the report said. “For example, the pandemic has accelerated the shift to virtual health, home health and remote work, making targets that enable these functions more attractive.”

From a multiples perspective, home health and hospice performed among the best of any sub-sector in health care during the first six months of the year. In fact, their sky-high multiples helped elevate the health care sector as a whole.

Overall, health care sector multiples hit 13.9 times, up slightly from 13.8 times in 2019. Without home health and hospice, that figure would have fallen to 12.3 times in the first six months of the year.

Deal volume, however, was a different story.

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As a whole, the health care sector saw mergers-and-acquisition activity slow in the first six months of 2020, falling below 500 transactions for the first time since 2015.

“From 2016 to 2019, the health services sector routinely experienced more than 500 deals by the year’s halfway mark,” the report said. “[The first half of] 2020 fell just 3% short of that level, even amid the unprecedented challenges of the COVID-19 crisis.”

Overall, there were 483 health care deals in the first half of 2020, according to the report. The home health and hospice space saw 32 of those, with year-over-year deal growth by volume falling more than 33%.

While the coronavirus has undoubtedly played a part in slowing overall health care deals, the implementation of the Patient-Driven Groupings Model (PDGM) is more so responsible for delaying deals in the home health M&A market.

At least, that’s what Cory Mertz, managing partner at M&A advisory firm Mertz Taggart, believes.

“We may have had a few deals get pushed back or killed due to COVID-19, but most of this dip is a predictable result of PDGM,” Mertz previously said. “Buyers want to wait until the dust has settled on PDGM and see how potential targets perform under the new model, which requires at least a few months of financial and patient data.”

Deal activity should get back to near-normal levels by mid-2021, Mertz predicted.

Meanwhile, skilled nursing facilities, assisted living facilities and long-term care hospitals saw the greatest decline in multiples in the early part of this year. That’s possibly due to the market’s perception of these facilities’ vulnerability to COVID-19 cases, the PwC report speculated.

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