Despite slowed activity in part tempered by the COVID-19 pandemic, hospice and home health provider Encompass Health Corp. (NYSE: EHC) anticipates accelerated M&A activity in the near future, seeking acquisitions in both spaces as markets become thick with competition.

Similar to many providers nationwide, Encompass Health was impacted by pandemic-related headwinds throughout 2020. The company’s M&A activity recovered quickly against COVID-19 forces, picking up in the second half of last year. The Encompass hospice segment brought in $53.6 million during the fourth quarter of 2020, up from $50.8 million in the prior year’s quarter.

“We think there’s a lot of momentum going into the second half [of 2021] and hopefully it will be beyond the pandemic, or at least very low impacts from the pandemic,” said Encompass President and CEO Mark Tarr, during the recent Bank of America Securities Health Care Conference.

The Encompass footprint includes 82 hospice and 241 home health locations across 39 states in the United States and Puerto Rico. The company expects to expand as 2021 continues, largely through hospice and home health acquisitions. Encompass is poised for growth in its hospice segment, with both same-store admissions and acquisitions a part of its growth strategy.

Navigating a swelling hospice footprint comes at a crucial time as Encompass continues to consider a strategic repositioning of its hospice and home health business, with leadership announcing in Dec. 2020 a potential spin off, merger, sale, initial public offering or other transaction.

The company expects to provide an update on this process by the second quarter of this year, according to Tarr. Encompass is currently evaluating all options including a partial or complete separation, working with advisors in what Tarr described as a “very comprehensive and complex review.”

“Our focus right now is identifying how best to return our shareholders for the long term. We’ll be using a pretty substantial amount of our free cash flow in funding the growth for the next few years and just servicing the growth opportunities that we have,” said Tarr. “We’re very excited about the future of that if that were the way that we would go, then the free cash flow that we have would either help fund the growth, or we would consider continuing on with the dividend program, or the potential for share buyback.”

“The M&A pipeline for hospice recovered very quickly, and really became pretty robust in the second half of last year. That was not surprising,” said Doug Coltharp, executive vice president and chief financial officer of Encompass during the conference. “Although most of the providers, ourselves included, had shown some short term issues, we’re still under the anticipation that there’s going to be an accelerated level of consolidation activity, and it really needs to happen in the business. There’s a real desire on the major players, ourselves included, to increase their scale and their market density.”

Coltharp pointed to the recent acquisition of Frontier Home Health & Hospice as a “good indicator” of accelerated activity after seeing a slump in the home health space last year. Frontier earned nearly $36 million during 2020, with the transaction giving Encompass 11 new hospice and nine home health locations in the Alaska, Colorado, Montana, Washington and Wyoming markets.

Florida is another region where Encompass is eyeing acquisition targets, according to Coltharp.

The Sunshine State ranked fourth nationwide in hospice utilization with a rate of 57.9% among Medicare beneficiaries during 2018, according to the National Hospice and Palliative Care Organization. The national average climbed above 50% that year, with Utah holding the highest rate at 60.5%.

“Looking at the composition of our pipeline today, you’ve got the 12 to 15 opportunities that we had identified beginning back in March of 2020 that are related to Florida,” said Coltharp. “We’ve got an equal or potentially larger pool of identified projects existing outside the state of Florida”