Inside The Risk And Reward Calculus Driving M&A In Home-Based Care

The day before our Capital+Strategy conference began in Orlando during the first week of April, Mertz Taggart released the firm’s latest M&A data. The timing was perfect, as Capital+Strategy primarily focuses on trends in dealmaking.

The Mertz Taggart data indicated a surge in home-based care M&A activity at the start of the year, and the conversations at the conference reflected a bullish outlook. Before the conference, I noted through earnings calls and interviews that investors were concerned about a slow start to 2025; however, the sentiment at the conference was overwhelmingly positive, with discussions highlighting ongoing deals and transactions.

There’s particular momentum in the home care industry, with Mertz Taggart’s data demonstrating that non-medical in-home services dramatically outpaced deals in the home health industry – despite concerns over potential Medicaid cuts. Industry experts attribute this to the lower regulatory risk and steadier returns associated with personal care services, making them increasingly attractive to investors seeking reliable growth opportunities.

Still, questions hover in the home-based care atmosphere regarding what the rest of the year will look like in terms of buying and selling due to political uncertainties, changing regulations and economic instability. These factors and concerns specific to home health spell a strong possibility that home care will become the most desired segment of the in-home care industry.

In this week’s exclusive, members-only HHCN+ Update, I provide analysis and key takeaways, including:

• The potential for risk in the home health industry
• Why home care is particularly attractive to investors
• Insights from investors about the future of acquisitions

The potential for risk

The new year has started with a surge, as the first quarter of 2025 has been the most active quarter for M&A since 2023, according to Mertz Taggart.

“Deal activity is picking up,” Cory Mertz, managing partner at Mertz Taggart, told Home Health Care News in early April. “When I say deal activity, I’m not just talking about closed deals on the ground. More deals are moving forward than we saw a year ago. There’s definitely momentum.”

In the first quarter of 2025, 29 home-based care and hospice transactions closed, compared to just 14 in the first quarter of 2024. According to Mertz, some of these transactions were initially scheduled to close in 2024 but were delayed until the beginning of 2025.

Mertz indicated that the demand for home health services is rated as an eight on a scale of one to ten. The levels of risk and uncertainty in home health are relatively low, he said.

While Mertz has categorized overall risk in the home health industry as low, industry leaders have identified areas of potential concern.

Home health providers are always subject to stroke-of-the-pen risk related to regulations and Medicare payment rates. Recent proposed rate announcements for 2026 from the Centers for Medicare & Medicaid Services (CMS) serve as reminders of this risk; for instance, CMS proposed a 2.4% Medicare base rate increase for hospices, which was lower than the 2.9% hike that the agency approved for 2025. Industry advocates have pushed back, noting challenges such as inflation and a workforce shortage.

“The proposed payment update for FY 2026 falls short of what is needed to sustain high-quality hospice care,” Dr. Steven Landers, CEO of the National Alliance for Care at Home, said in a statement shared with Hospice News.

However, while such a risk could deter some potential home health buyers, it might actually motivate others. That’s because scale can help insulate an organization from risk by driving operational and financial efficiencies while also creating larger companies that have more sway when it comes to lobbying for particular policies.

We might have seen this in action with a recent deal in the hospital-at-home space.

Adam Groff, CEO and co-founder of Maribel Health, told me during a recent conversation that the Acute Hospital Care at Home waiver, set to expire on Sept. 30, is one significant risk factor for companies such as DispatchHealth and Medically Home, which recently announced an agreement to merge.

The merger between DispatchHealth and Medically Home will establish the country’s most comprehensive provider of advanced medical care at home, according to the companies. Medically Home and DispatchHealth will operate in 50 major metropolitan areas and partner with almost 40 health systems.

“Whenever two organizations with a vested interest in a particular area come together, it can be beneficial for them to join forces from an advocacy standpoint,” Groff told me. “I believe this collaboration signals their need to unite to mitigate the existing risks related to the Acute Hospital Care at Home waiver extension. I hope they can continue to advocate with payers and regulators to refine the acute-care-at-home model. The potential loss of this model poses a significant challenge for Medically Home, as they are heavily reliant on that waiver.”

Maribel Health, based in Hanover, New Hampshire, combines technology with professional expertise to help health systems address capacity constraints by designing, building and operating advanced clinical care within home and community settings.

The merger between Medically Home and DispatchHealth is expected to close in mid-2025, subject to customary closing conditions and receipt of all necessary regulatory approvals.

“There are a lot of people that are in a wait-and-see mode right now in terms of M&A,” Groff said. “I think highly committed organizations remain highly committed. It’s more about those who have been on the sidelines, waiting to see what’s happening. We had a five-year extension on the table in December, and many have pent-up interest in clarity surrounding that. Because we didn’t get the clarity, I think that has slowed down new programs and called into question some struggling ones.”

Overcoming M&A challenges

In light of the current regulatory risk and uncertainty, the less heavily regulated personal care market is emerging as a sector of particular investor interest — despite the risks associated with some personal care providers’ ties to Medicaid.

With more than double the activity of home health, home care saw 17 closed deals in Q1, while home health saw eight transactions.

The personal home care sector presents promising opportunities for low-risk M&A. Home care typically operates with lower profit margins but sidesteps complex regulations, as it does not involve medical components. Furthermore, acquiring companies in this field opens access to a private-pay market that is not restricted by payer policies.

All signs point to consistent activity in this sector for 2025, according to Mertz Taggart.

“We expect activity to pick up in 2025 relative to 2024,” Mertz said. “There is too much pent-up demand from private equity, driven by aging dry powder.”

Home care may not have some of the same risk factors as home health, but Medicaid uncertainty could add an element of risk for home care providers who serve beneficiaries of this program.

CMS has already cut back on some in-home non-medical services when it announced it would not approve new federal funding for designated state health programs (DSHP) and designated state investment programs (DSIP) through section 1115 waivers. The potential for other Medicaid budget cuts hangs heavy in the air.

However, concern over Medicaid funding did not stop Q1 from being a stellar quarter for home care M&A. Of the 17 home care deals in Q1, 11 were of agencies funded by Medicaid, according to Mertz Taggart data.

Keeping that pattern in mind, as well as the notable risks associated with home health dealmaking, I foresee home care dealmaking to be the hot industry for deal activity over the next three quarters of 2025.

In terms of what other types of deals to expect, conversations at Capital+Strategy provided some great perspective.

Service diversification was a hot topic and is another way businesses can mitigate risk in a particular area and make themselves more attractive to investors. BrightStar Care, which recently was acquired by a private equity firm, is an example of a company that has pursued diversification, with Medicare-certified home health, personal care and a senior living business.

Aveanna’s recent acquisition of Thrive Skilled Pediatric Care offers another example of these trends. The deal creates more diversification for Aveanna in terms of geographic footprint and is a private-duty play, while also focusing on a part of the market with particular demand potential. While Aveanna CEO Jeff Shaner is cautious due to Medicaid uncertainty, that did not hold the company back from making this acquisition. He also is focused on diversification as he looks ahead, telling HHCN that a priority will be expanding the geriatric-focused division from 11% of revenue to between 20% and 30% of revenue within three to five years.

At Capital+Strategy, I moderated a panel focused on the topic of what investors are seeking in home health agencies that are potential acquisition opportunities. Beyond the basics–strong financial performance, compliance verified by chart audit, growth capacity, strong leadership–the panelists emphasized the need for agencies to be innovative and stand out from the pack, and to operate efficiently through the use of technology.

“When I’m looking to acquire a provider, I seek innovation,” said David DeGumbia, SVP and chief development officer with Compassus. “I’m interested in what unique approaches providers are implementing and how they are simplifying life for their caregivers.”

Likewise, GrandCare Health Services CEO David Bell said “the world” – and investors – don’t need “another generic provider.”

“We focused on achieving clinical, operational and financial excellence and leveraged technology to accomplish that,” he said. “We tested software designed to streamline and optimize various sections of our workflow. As a result, we experienced growth of 30% to 35% in the last 12 months and doubled our profit.”

This type of streamlined operation is not only in the interest of maximizing profit but also hedging against risk, Bell emphasized.

“Over the next five years, home health is expected to handle double the volume of patients but receive only half the revenue from Medicare,” he said. “Organizations need to become more efficient and some buyers might not fully grasp this reality.”