Projecting PE Activity In Home-Based Care In 2023

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Last year, home-based care M&A was up by dollar amount and down by volume. CVS Health’s (NYSE: CVS) $8 billion pending deal for Signify Health (NYSE: SGFY) and UnitedHealth Group’s (NYSE: UNH) pending deal for LHC Group Inc. (Nasdaq: LHCG) made sure of the former.

While 2021 was an outlier year from an M&A perspective, 2022 was not. It did not match the flurry of deals that transpired in the prior year.

It’s unlikely as prolific of a year as 2021 will happen again in the near-term future. However, there will likely be new kinds of deals in 2023 and in 2024. By that, I mean smaller platform deals and more minority investments.


Last year was the first downturn in PE health care dealmaking in nearly a decade. But firms are still looking to capitalize off of home-based care tailwinds.

That’s despite the major headwinds the space is facing right now.

“The quarter-over-quarter [deal] decline is pretty noticeable at this point, especially in the second half of last year,” Rebecca Springer, senior health care analyst at Pitchbook, told me this week. “There are a number of reasons for this. Staffing constraints are a really big driver of margin pressure.”


More broadly, liquidity constraints are making it more difficult to do larger deals while making leverage work more costly, Springer added.

“We expect that we may not be at the bottom yet, in terms of deal activity – that Q1 or possibly Q2 may be even a little bit quieter, as some of these constraints continue to work their way through the market,” she said.

Pitchbook’s PE-focused Healthcare Services Report was released this week, lending further insight into those trends.

Even in a quiet period, PE will make its moves, but likely in more creative ways.

In this week’s exclusive, members-only HHCN+ Update, I explore those creative possibilities, overall PE trends and what it all means for home-based care dealmaking.

PE dealmaking moving forward

There are the micro trends, such as staffing trouble, rising bill rates in home care and a poor reimbursement landscape in home health care. Then there are the macro headwinds, such as interest rates and inflation.

Those are all creating a “valuation gap” between buyers and sellers, something I’ve covered extensively in recent months.

“I do think deal activity [will still be strong],” Braff Group Senior Managing Director Mark Kulik told me last month. “I think that 2023 will probably be equal to 2022 in terms of activity, despite these environmental, economic issues, which I think are temporary. There’s the bigger picture, the megatrends. Boomers are getting older and are going to want to have access to care in the home. It’s still the least expensive venue to provide health care.”

There’s a way around that valuation gap, however. An example of that surfaced on Monday when Waud Capital announced that it had backed a post-acute executive, Steve Jakubcanin, with $100 million to build a home-based care platform.

“The partnership with Steve is another example of Waud Capital’s commitment to support experienced executive talent with a deep ecosystem of resources to execute transformative growth strategies in large, growing markets,” Chris Graber, a partner at Waud Capital, said in a statement. “We see significant opportunity in the broader home care services market and look forward to working closely with Steve to support the growth and transformation of another differentiated company.”

Jakubcanin is the former CEO of Cornerstone Healthcare Group. He was also the COO of AccentCare and an SVP at Kindred Healthcare.

Waud Capital invested in Concierge Home Care, a Jacksonville, Florida-based home health care company, in 2019. It also invested in PromptCare, a New Providence, New Jersey-based home infusion company, in 2021. With its latest investment in Jakubcanin, the firm has further built out a significant home-based care portfolio, all without haggling over an acquisition price.

This is the sort of deal that will likely become more popular in the near-term future with today’s market conditions, according to Springer.

“Models like that, which are going to allow firms to take advantage of a little bit better pricing on smaller agencies, while still putting capital to work without having to do big platform deals – we’re going to see a lot of that,” Springer said.

In those situations, PE firms will be able to start with smaller platforms, and then conduct M&A off of those, perhaps even by the time the market improves.

That enables them to avoid standing on the sideline, while also taking a step forward in home-based care.

Once market trends improve – and there’s some evidence they are – there could be pent-up demand that’s delivered on toward the end of 2023.

Inflation in the U.S. came down in six consecutive months to close out the year.

But Springer still believes that there will be minority investments taking place from PE players, as well as more of the above-mentioned platform creations.

“I think we’re going to see a lot of platform creations, a lot of add-ons and a lot of growth in our data, [including through] minority equity investments,” she said. “These firms still have capital to deploy. They’re not going to be doing as many large deals, but that capital has to go somewhere.”

There is still also significant interest in helping providers convert to more risk- and value-based care models.

For instance, as Medicare Advantage plans gain a greater market share, helping home health providers convert to a business that can better handle that could yield desirable results down the road for both parties.

“Private equity recognizes the demand trends are extremely compelling,” Springer said. “There’s a need for capital there. There are a lot of small, independent agencies that aren’t well-positioned to survive in the current climate – to do Medicare Advantage contracts, to do value-based purchasing. So there’s a huge opportunity there. It’s just a matter of a little bit more caution on the private equity side to make sure that the discounted cash flow model shows something that’s workable.”

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