While the appetite for home health and home care dealmaking remains strong, other health care subsectors are catching up.
Coming off a record-breaking 2021 for M&A activity, the home-based sector saw a slightly down Q1 in 2022. However, experts have told Home Health Care News that M&A players are taking their time with deals, and even though the number of deals is lower, the valuations in those deals have not dipped.
Home health and hospice M&A transactions sat comfortably in second among other health care subsectors for Q1 2022.
So while buyers and sellers continue to be busy in the home-based care space, taking a peek at noisier – and less noisy – areas for M&A is always a worthwhile exercise.
“Businesses go in cycles,” Mark Kulik, managing director at the M&A advisory firm The Braff Group, told HHCN. “Behavioral health, that’s on the high end of the curve. That has been very active, and I think will stay very active for a while. But I think it all goes in cycles, depending upon multiple things.”
A busy time for behavioral health deals
Overall health care services deals also saw a dip in Q1 of 2022. Deals fell from 460 in Q1 2021 to 304 in Q1 2022, according to a recent report from Provident Healthcare Partners.
Home-based care dealmaking had a big 2021. Yet other subsectors are not only keeping the pace now; they’re also setting it.
For context: Kulik said there were 82 completed Medicare-certified home health transactions in 2021. In behavioral health, there were 251 transactions last year, more than three times the number of home health deals.
“It was a very active market, and it continues to be,” Kulik said. “I would say it’s a bit of ‘apples to oranges,’ because [the home health and hospice] market is very fragmented. It’s still very fragmented. So when you say, ‘Is there still room for activity?’ Absolutely. Because it’s still very fragmented, and there’s still consolidation coming up in the future, for sure.”
Data from other M&A firms backs those notions up as well.
Across home-based care, a total of 26 home health, home care and hospice deals occurred in the first quarter of 2022, according to a report from M&A advisory firm Mertz Taggart.
Meanwhile, Provident tracked a total of 27 transactions in autism, mental health and addiction services.
One of the major transactions Provident highlighted in behavioral health was when Webster Equity Partners acquired Oceans Healthcare, which has 34 locations in Louisiana, Mississippi and Texas.
In part, M&A in behavioral health has picked up because addiction has gotten worse over the last several years, Kulik said.
“Drugs continue to flow into the country, thus the need for more treatment centers and more ways to try and arrest the growth of the problem,” Kulik said. “That’s one driver there. Then sadly, there’s no cure for autism, but certainly there is a desire to try and find a way to help children cope and function. So you’ve got continued growth on that side of behavioral health as well.”
Brian Bruenderman, partner and managing director of M&A advisory firm Stoneridge Partners, added that a main reason why behavioral health is an attractive buy is because of the nature of the business.
“One of the reasons [these are so attractive] is because there is a very long length of stay,” he said. “Just anecdotally, I just sold a 30-year-old behavioral health company and they still have several of their very first clients.”
What this means for home-based care
Experts in the M&A field told HHCN that buyers and sellers in the home-based care shouldn’t worry too much about being left behind.
But skyrocketing valuations may be coming to an end, Bruenderman said.
“I don’t know if there are fewer deals out there, I think that they’re taking longer,” he said. “I’m not going to say that valuations aren’t still at historical highs, because they are, but I think we’ve seen a stabilization of valuations.”
Some health care sectors — like institutional pharmacies and infusion therapy companies — are on the other end of the spectrum in terms of M&A deals. Kulik said the reason for the low numbers in those sectors is because there’s been significant consolidation already. The demand is being satiated.
Part of the game is understanding the cycles, as Kulik mentioned. However, there are some lessons to be learned from the boom in the behavioral health M&A environment.
“Behavioral health does a very, very good job with staffing,” Bruenderman said. “I think it’s a testament to its staff retention practices that I think could really work well in the high turnover world of home care — particularly in the Medicaid, personal care and the private-pay side.”
Health care sectors with healthy staffing situations are more valuable, Bruenderman said, thus more attractive for buyers.
There is some evidence to suggest that the staffing situation could be getting better in home-based care, which could be the one thing to keep M&A and valuations on an upward trajectory.
“There’s a long-standing, ingrained culture [in behavioral health] where employees feel like what they’re doing makes a difference,” Bruenderman said. “I think behavioral health providers, historically, have had to do a really good job of sort of creating more of a humanitarian feel.”
Another reason why behavioral health is slightly outpacing home-based care deals, Bruenderman said, is in the approach.
“We’re seeing the private equity folks take a much more conscious, cautious approaches – with sort of one eye on the market at large and one eye on these [home-based care] transactions,” he said. “There’s less of a sense of urgency to beat out competing offers. There’s a new diligent, cautious approach as opposed to, ‘We’ve got to beat out everybody for this platform.’ I think it’s opened the door for some [different] strategies.”
Companies featured in this article:
