Encompass’ April Anthony: High Multiples No Deterrent to Hospice M&A

Interest in the hospice mergers and acquisitions market will remain high despite record-high multiples occurring in the space, April Anthony, CEO of Encompass Home Health & Hospice (NYSE: EHC), said at the Hospice News Elevate conference. Encompass expects to complete hospice transactions late in 2020 or early in 2021 after seeing some deals delayed early in the year due to the COVID-19 pandemic.

Multiples in the hospice and home care space reached as high as 29x thus far in 2020, beating 2019’s record high of 26x, according to a recent research report by PwC’s Health Research Institute.

“There have been a few hospice deals that closed of late. They happened to have very attractive multiples for the sellers — maybe not so attractive for the buyers. From the seller perspective, they’ve gone at some very high multiples compared to past practice,” Anthony said. “I think we are likely to see that trend continue into 2021, and that hospices are likely to get a bigger share of the M&A activity.”


Hospice and home health merger and acquisition activity has buoyed the market in the larger health care services sector, which saw transactions decline during the past 12 months, largely due to the fallout from the COVID-19 pandemic, according to the PwC report. Overall health care sector multiples hovered near 13.9x, up slightly from 13.8x the prior year.

It may seem counterintuitive that hospice deals are picking up during a time of high valuations, but demographic tailwinds and growing utilization continue to whet buyers’ appetites, outweighing pricing concerns.

Nearly 10,000 people become Medicare-eligible every day, according to the Kaiser Family Foundation. Hospice utilization is also rising, reaching slightly more than 50% among Medicare decedents during 2018.


“There’s this recognition that if there was ever a program that was designed to really be a win-win kind of program, it is hospice,” Anthony told Hospice News. “It is good for the patient and the family, and it is good for the [health care] system from a cost control perspective. It’s good for the providers from an ability to grow their businesses. Hospice really meets a ton of objectives that everyone can get excited about — patients, families, payers, providers. We can all succeed together under the same set of rules and motivation. When you see that kind of kind of perfect alignment, then I think acquirers say that’s the kind of business I want to be in.”

The Encompass hospice segment has proven resilient to pandemic-related headwinds compared to the company’s other business lines. Hospice saw revenue and census growth during the third quarter of 2020 even as the company’s home health operations saw some declines due to reduced referrals and fallout from the patient-driven groupings model (PDGM).

All told, the hospice business line brought in $51.2 million during Q3, up from $50.4 million in the prior year’s quarter. The overall Home Health & Hospice segment saw a decline of 5.1%, or $14.8 million, largely due to issues on the home health side.

Hospice growth is on the agenda for Encompass moving into 2021, including in same-store admissions and acquisitions, Anthony said.
When considering an acquisition target, Encompass looks for companies with a diverse referral base, as well as length-of-stay data, quality and patient satisfaction scores, and employee metrics such as turnover and compensations structures, among others.

“More subjectively, but equally important, what’s the culture of the business? What’s the personality of the agency, and how do we try to understand that culture?” Anthony said. “For us, we are really a big believer that culture is the foundation for success. You’ve got to be the kind of place people want to work in order to attract great people, and so we want to see if that culture align with ours.”

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