Hospice Dealmaking Could Slow After Strong Q4

Last year finished with a flurry of hospice transactions, with private equity groups continuing to show ample interest in the space.

Overall, there were at least 23 hospice-related deals in 2021’s fourth quarter, according to a recently released report from M&A advisory firm Mertz Taggart. That total is on par with the 23 that came in Q3, but noticeably below the 29 deals that closed out the prior year.

“It wasn’t a huge quarter for transactions completed, as we thought it might be,” Mertz Taggart Managing Partner Cory Mertz said in the report. “However, I think that likely bodes well for a strong Q1, as many year-end transactions haven’t been announced and other deals will carry into early 2022 as we get more clarity on potential tax increases.”

There were at least 49 transactions across the hospice, home health and home care industries in the fourth quarter, according to Mertz Taggart. Last year saw more than 166 deals in those spaces in total – up from 153 in 2020.

“PE buyers continue to see long-term opportunity in the home health, hospice and home care sub-sectors — and they continue to have vast stockpiles of cash they’re looking to deploy,” Mertz continued.

Among the notable deals to wrap up 2021 were The Vistria Group’s sale of hospice provider Agape Care Group to Ridgemont Equity Partners and the Pharos Capital Group-backed Charter Healthcare Group’s purchase of Silver Linings Hospice Care.

Both of those transactions reflect PE’s bullishness on end-of-life care providers, despite the industry’s persistent staffing struggles and the ongoing disruption caused by the COVID-19 pandemic.

Of the 23 hospice-related deals in the fourth quarter, 18 involved PE buyers.

Other major hospice-related transactions in Q4 included LHC Group Inc.’s (Nasdaq: LHCG) purchase of 11 hospice locations from HCA Healthcare Inc. (NYSE: HCA) and Brookdale Senior Living Inc. (NYSE: BKD), plus the affiliation agreement between Chapters Health System and Cornerstone Hospice & Palliative Care.

In the franchising realm, Wellspring Capital Management also acquired Caring Brands International, the parent entity of home health and hospice company Interim HealthCare, in October.

While hospice M&A activity stayed hot in 2021, some industry insiders expect a measured slowdown in 2022 – for a variety of reasons. Some buyers, for example, are beginning to shy away from hospice dealmaking simply because of steep price tags.

“Problem is, the market is so overheated in the hospice valuations that it just doesn’t work,” Amedisys Inc. (Nasdaq: AMED) Chairman and CEO Paul Kusserow said in December.

Others, meanwhile, are less interested in hospice deals this year because they’ve already executed large transactions and now need to focus on integration.

Yet even with a relative lull compared to 2020 and 2021, hospice dealmaking will likely still be solid over the next 12 months, thanks to macro-level trends and a relatively favorable reimbursement environment.

Additionally, there are still a couple big fish out there to catch. Humana Inc. (NYSE: HUM), for instance, previously indicated that its plan is to divest Kindred at Home’s hospice operations.

“We expect that we will be able to capitalize on a robust market for hospice assets by divesting a majority stake in that portion of the business at what we anticipate will be an attractive valuation,” Humana CFO Brian Kane said last April.