Despite prevailing COVID-19 headwinds, the hospice and home health mergers and acquisitions market shows no signs of slowing. Labor shortages plaguing the industry may be spurring additional activity as the dwindling workforce is limiting some providers’ ability to grow organically.

A number of the larger strategic buyers — LHC Group (NASDAQ: LHCG), Amedisys (NASDAQ: AMED), The Pennant Group (NYSE: PNTG), Addus (NYSE: ADUS)— have indicated that they will pull back on hospice M&A due to COVID headwinds and high valuations, or will turn their focus towards home health.

However, these moves likely do not signal a downturn in the market, according to Kevin Palamara, managing director, and Jake Vesely, investment banking associate, of the M&A advisory firm Provident Healthcare Partners.

“While some of them may be taking their foot off the gas to ensure they successfully integrate these recently acquired groups, there are plenty of other strategic consolidators and private equity firms that are itching to either get into the hospice space or expanding their existing platforms and service offerings,” Palamara and Vesely told Hospice News in an e-mail. “For the remaining groups pursuing a transaction or considering exploring the market, interest levels and valuations will remain extremely strong.”

In one of the year’s most significant deals, LHC Group acquired home health and hospice operations in 22 states from the joint venture between Brookdale Senior Living (NYSE: BKD) and hospital system HCA Healthcare (NYSE: HCA). The company’s merger and acquisition activity hit an all-time high this year. The company doubled down on hospice deals heading in the first half of 2021. Continuing this momentum in the third quarter, LHC Group completed its acquisition of South Carolina-based Heart of Hospice. 

In another large recent transaction, Amedisys, Inc. (NASDAQ: AMED) purchase Contessa Health, a Tennessee-based company that provides hospital-at-home and skilled nursing-at-home services, for a total consideration of $250 million, according to a Securities and Exchange Commission filing. The multiple in the deal was 3.9 times 2022 revenue, compared to 6x for similar companies.

Overall, deal volume in the home health, hospice and personal care once again hit record highs during the third quarter, according to Provident data. In addition to the larger transactions, an uptick occurred in smaller tuck-in acquisitions, involving a spectrum of buyers.

“The tradition strategics and PE firms make up the bulk of the buyer universe. However, there are a growing number of payors, health systems, and other outside-the-box type of buyers that are looking to enter the end-of-life care space,” Palamara and Vesely said.

Humana in April completed the acquisition of a remaining 60% stake in Kindred at Home for $8.1 billion during the third quarter, which included an equity value of $2.4 billion from its existing 40% ownership of the business. Humana initially acquired 40% ownership in 2018, with private equity firms Welsh, Carson, Anderson & Stowe and TPG Capital then holding the remaining 60%.

Humana plans to spin off and sell Kindred’s hospice business to capitalize on high market valuations.

An overwhelming majority of hospices are experiencing labor pressures during 2021. The hospice workforce has been dwindling even as demand for care rises.

Factors such as retirement and burnout are leading some clinicians to leave the field. In a Hospice News survey earlier this year, 35% of hospice leaders indicated that the staffing shortage was their No.1 non-COVID related concern for 2021, compared to 16% who cited increased competition. 

Some in the hospice space fear that forthcoming federal vaccine mandates will worsen the crisis. The shortage is impacting hospices’ ability to grow but seems unlikely to slow M&A.

“It’s no secret that providers across the country are experiencing the burden of the current labor markets. Organizations are having to constantly adapt with the challenging market conditions,” Palamara and Vesely told Hospice News. “That being said, the underlying trends within the hospice industry remain unchanged and extremely strong and as a result, M&A activity and interest remains at all-time highs.”