Amedisys (NASDAQ: AMED) will be honing its acquisitional focus more towards the home health care space heading into next year. Soaring valuations in hospice, along with a crowded market and the complexity of integrating these assets are among the factors pulling the company’s gaze, according to CEO Paul Kusserow.
The hospice merger and acquisitions market has been hot in recent years, with a rising volume of deals taking place and record-high valuations outpacing those in other health care sectors. Multiples in the hospice and home care space hit a record 26x, according to a report by PwC’s Health Research Institute.
The pace and price tags in a frothy hospice market has some strategic buyers looking elsewhere as 2022 rolls in. Several large, publicly traded companies have signaled a shift in their M&A focus more heavily towards home health, including Amedisys.
“We see very strong demand from our competitors to pay prices north of 20x, and that’s clearly not what we got into and it’s very hard to make that work,” said Kusserow at the recent Stephens Annual Investment Conference. “Problem is, the market is so overheated in the hospice valuations that it just doesn’t work. I think where there’s more confusion — which is obviously where we want to go — and [where there’s] more realistic valuations is in home health.”
Mounting private equity interest in the hospice sector has helped heat up the market. Private equity hospice transactions rose by roughly 25% between 2011 to 2020, according to an industry transaction report that M&A advisory firm The Braff Group shared with Hospice News.
Amedisys’ hospice segment has rolled with the punches of COVID-19 as the pandemic continues to billow financial headwinds for providers across the country. The company’s net service revenues jumped to $553.5 million during the third quarter of this year, a rise from $544.1 million during the same period last year. COVID-related hits have come as cases of the virus and its variants continue to spread. Hospice segment revenues saw a dip in Q3 to $195.5 million from $199.7 million in the prior year’s quarter.
Despite shrinking its hospice M&A pipeline next year, Amedisys remains positive about the sector’s promising growth on the horizon in coming years. The company’s hospice acquisition strategy approach includes finding high-quality assets with subpar or generally low average daily patient census rates that can be built up over time, according to Kusserow.
However, those acquired assets can be more time-consuming to integrate compared to home health acquisitions.
“We have a really good formula for hospice, but it takes about two to three years to churn through,” said Kusserow. “Clearly, we lost some time with some of the changes to the COVID cause. Ultimately, hospice is something that needs a really strong integration plan.”
Though M&A focus may be turning to home health acquisitions for the time being, Amedisys still sees continued growth in the hospice space in coming years. Kusserow indicated that hospice is one of the highest markets in terms of projected growth rates, largely due to a growing aging population driving up demand.
Patient demographics are the largest factors driving wetting investor appetites in hospice. The U.S. Census Bureau reported in 2018 that the population of adults 65 and older will make up around 12% of the projected total world population by 2030, or roughly 1 billion people. These numbers are projected to swell to 17%, or 1.6 billion people, by 2050, according to the bureau.
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