Hospice M&A Accelerating Despite High Price Tags

The hospice mergers and acquisitions market has never been more active among both strategic buyers and private equity investors. The industry is also seeing larger companies seeking to take advantage of record-high valuations to capitalize on their hospice assets, according to a first quarter M&A report from the advisory firm Provident Healthcare Partners.  

Activity in the space is unlikely to slow down in the near future. Industry observers are watching closing for forthcoming transactions, such as the sale of Bristol Hospice by the PE firm Webster Equity Partners. Bids in that deal reportedly are reaching as high as $1 billion.

Another industry-shaker in the works is the repositioning of Encompass Health’s (NYSE: EHC) home health and hospice business. Encompass announced in Dec. 2020 that its leadership was pondering a spin off, merger, sale, initial public offering or other transaction for hospice and home health.

“It’s impossible to ignore the record-high valuations we are witnessing in the hospice space,” Provident’s Managing Director Kevin Palamara, and Associate Jake Vesely told Hospice News in an email. “Given the obligation these public companies have to their shareholders, many groups are at a minimum exploring strategic alternatives to potentially benefit from this trend.”

One of the earliest large-scale moves was the $400 million sale of an 80% stake in Brookdale Senior Living’s (NYSE: BKD) hospice and home health business to hospital system HCA Healthcare (NYSE: HCA) in February.

The Brookdale deal also demonstrates renewed interest in home health acquisitions, which had fallen behind hospice due to disruption from the 2020 implementation of the patient-driven groupings payment model, according to Provident’s report.

A desire to recoup losses stemming from COVID-19 and the opportunity to sell hospice assets with a high price tag are key factors in some of these large transactions.

The trading multiple for hospice and home health giant Amedisys (NASDAQ: AMED) hit 34.3x in the first quarter of 2021. In Sept. 2019, that company was trading at 20.33x, according to Vesely and Palamara, who told Hospice News that “The trading multiples we are currently witnessing are not typical.”

A key motivator for acquirers is the desire to build density in regions where they already operate, rather than spreading further out geographically, according to Palamara and Vesely. Some companies, like LHC Group (NASDAQ: LHCG) are seeking to build their hospice presence in markets where they already have home health locations.

“We continue to see a highly fragmented industry, favorable demographic and legislative tailwinds, and a transition towards a value-based care model, all of which will continue to drive M&A activity in the space,” Palamara and Vesely said in their email. “We continue to receive a high level of inbound interest from existing platforms in the space, both private-equity backed and public companies, as well as new health care investors looking to get into the sector.”