Hospice, Home Health Yield Highest Multiples in Health Care M&A Deals

The hospice and home health care companies for the third quarter in a row have seen the highest multiples of any health care sector in merger and acquisitions transactions, reaching 22.7x in the second quarter of 2019, according to auditing and consulting firm PwC

These high valuations for hospice and home health acquisitions come in the midst of a resurgent health services M&A market. Average valuations in health care during Q2 rose to 10.3%, exceeding average multiples for the previous seven quarters. Second-quarter deal values rose 13% from the prior quarter. 

“In Q2, acquirers reconfirmed their interest in health services with a return to growth in deal volumes and value (when excluding megadeals),” Nick Donkar, U.S. health services deals leader for PwC, said in the report. “While the [Affordable Care Act’s] future, plus macroeconomic factors such as interest rates and tariffs, continue to dominate headlines, we think that industry fundamentals remain favorable to deals. Interest in managing high costs and population health, while engaging patients and addressing social determinants of health, remain top-of-mind issues.”

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The hospice M&A market has been particularly strong in recent years. From 2016 to 2018, there were more than 10 transactions of $250 million or higher in total enterprise value, with at least five transactions, individually exceeding $700 million of value, the highest ever in the industry according to the investment firm Cain Brothers.

Demographic tailwinds and availability of capital should continue to drive a robust market for companies looking to acquire hospice and palliative care providers. Eight hospice acquisitions took place during the first quarter of 2019, up from seven transactions during Q1 2018 as well as Q4 2018, which also saw seven transactions, according to a report from M&A advisory firm Mertz Taggart.

A number of high-profile companies, including Amedisys (NASDAQ: AMED) and LHC Group (NASDAQ: LHCG] have said they are actively seeking new acquisitions, focusing more of their efforts on building their hospice segments as they wait to gauge the impact of the forthcoming Patient-Driven Groupings Model on their home health business. 

“We are really going to feed the beast in hospice. Right now from an M&A perspective, from where should we be focusing on de novos, on tuck-ins, on deals, on integrations — we are pushing hospice,” said Amedisys CEO Paul Kusserow in a presentation at the RBC Capital Markets Global Healthcare Conference in May.

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