Multiples in the home care and hospice space reached as high as 26x EBITDA during 2019, the most significant rise for any health care sector. The space also saw positive growth in market capitalization, according to PwC’s Health Research Institute.
The hospice M&A market continues to go strong despite declines in the number of deals in the overall health care space, as well as a decline in the total value of health care transactions. Observers of M&A activity in the hospice space anticipate that this trend will continue during 2020.
“The sector-wide average was buoyed by the home health and hospice sub-sector, which showed the greatest gain as well as the highest level, surpassing 26.0x,” the PwC report indicated. “These companies’ market capitalization grew by more than any other sub-sector’s companies — more than 50% on both a mean and median basis. Drivers included reimbursement changes and multiple acquisitions.”
More than 1,200 M&A transactions occurred in the health care sector during 2019, down slightly — 1.5% — from the prior year, with home care and hospice accounting for 7.3%. The total value of these transactions reached $91.2 billion, down 26.6% from 2018, PwC reported. One factor contributing to the lower number may be a lack of data due to fewer companies disclosing the financial terms of their transactions.
Mergers and acquisitions in the hospice and home health space supported strong growth in EBITDA multiples throughout the health care services sector during 2019.
“Looking to quarterly performance, [the hospital sector] was the only sub-sector whose volumes grew on a year-over-year basis in each of the last three quarters of 2019, but home health and hospice and managed care also finished the year with strong positive volume growth,” the report indicated. “The sector-wide mean EV/EBITDA multiple saw an increase, to 15.1x, buoyed by home health and hospice.”
Some have speculated that hospice multiples may begin to level out or start to come down as 2021 nears due to the impact of the Medicare Advantage hospice carve-in.
Medicare advantage plans often negotiate with providers for payments lower than what is offered through fee-for-service Medicare, which could reduce the revenue streams into which an investor is buying.
However, the ultimate impact of the carve-in on hospice margins and M&A remains difficult to predict due to rising private equity interest in the space and hospices’ efforts to engage patients further upstream in the course of their illness, as well as the trend of providers beginning to offer new services — such as palliative care or home primary care — in addition to their traditional end-of-life services.