The hospice, home health and home care sector saw a significant uptick in merger and acquisition transactions during the fourth quarter of 2020. About 51 deals took place in Q4 among those industries, according to a quarterly report by M&A advisory firm Mertz Taggart.
Among the various segments of the health care industry, hospice continues to be the most active, even as valuations soar and multiples continue to hit record highs.
The hospice M&A market has been particularly resilient to headwinds brought on by the pandemic. While the larger health care market saw more disruption, hospice activity proceeded apace. The rate of transactions took a dip early in the second quarter as providers turned their attention to responding to the pandemic, but picked up steam as the year progressed.
“Deal volume started to recover or trend upward across the home health, home care, and hospice markets toward the middle of 2020,” Mertz Taggart Managing Partner Cory Mertz said. “It seems like every quarter we’re saying demand for hospice is at an all-time high — and then we see even more demand materialize.”
Data from Mertz Taggart data indicated that at least 25 hospice transactions occurred in Q4 2020, exceeding the 19 reported for the third quarter. At least 15 hospice deals have occurred per quarter since the end of 2019, according to Mertz.
The hospice market is buoyed by strong tailwinds, including demographic forces driven by aging Baby Boomers, rising hospice utilization and, during the pandemic, and a shift towards patients’ being more receptive to receiving care in the home for fear of acquiring the virus in an institutional setting.
Providers haven’t seen a notable drop in their patient census, though the rate of referrals slowed somewhat in the first quarter and early in the second quarter. This is largely due to interruption of hospice’s traditional marketing methods, such as in-person sales calls to hospitals and skilled nursing facilities.
Despite those positives, some smaller providers have nevertheless had to buckle under the pandemic’s financial pressures, prompting some of them to seek a buyer. The prospect of higher capital gains taxes under the new Biden administration could also be driving some firms, particularly in the private equity space, to sell in the near term, according to Mertz.
Hospice M&A is not expected to slow during 2021.
“We have a confluence of factors that should drive higher-than-average transaction activity in 2021. The threat of a significant hike in capital gains tax rate and owner burnout as a result of the pandemic are two common themes we are hearing from owners,” Mertz said.