Deal volume in hospice and home health took a dive during the first quarter of 2022, though the dollar amounts in those acquisitions appear to be rising.
A total of 30 transactions occurred during Q1 this year in the hospice and home health space, compared to 41 deals in Q4 of last year, according to a report from Irving Levin Associates, a Connecticut-based M&A firm focused on senior housing and health care transactions.
Deals spiked late last year as transactions delayed by COVID finally came to fruition and sellers fearing capital gains hikes scrambled to close sales before the new year.
Though M&A activity cooled, the number of deals still adds up to a “healthy total” as pandemic-related pressures eased in the market, according to Dylan Sammut, editor of health care at Irving Levin Associates.
“After the breakneck pace of M&A in the fourth quarter of 2021, and as COVID restrictions have waned, it was only a matter of time before deal activity returned to more normal levels,” said Sammut in an announcement.
While private equity firms have accounted for a large portion of the deals in the sector for several years running, they too seem to have backed off to some degree during the first few months of 2022.
Private equity buyers in Q1 participated in 30% of home health and hospice acquisitions, down substantially from 60% during the fourth quarter last year, according to Irving Levin Associates.
The blame for this may rest with the industry-wide workforce shortages, which could be a deterrent for investors, according to Sammut. The timing of a rebound may depend on providers’ ability to mollify the labor pressures.
“If labor problems are solved across the country, or at least stabilized, investors should continue to pour into the sector,” Sammut said.
Nevertheless, price tags for hospice assets are still running high, and according to some projections the number of forthcoming 2022 deals could exceed last year’s surge.
Hospice multiples reached a record-high of 26x in 2020, reported the PwC’s Health Research Institute.
During Q1, dollars spent on hospice transactions ticked past $7.6 billion total in Q1, up from $863.9 million during Q4 last year, according to the Irving Levin Associates report.
An outlier deal fueled the massive increase, UnitedHealth Group’s (NYSE: UNH) forthcoming purchase of LHC Group (NASDAQ: LHC) for a reported $5.5 billion, pending customary regulatory approvals. Post-acquisition, LHC Group will be integrated into the insurance company’s existing home health asset, Optum Health.
Other considerations that could be slowing deals include climbing interest rates and intensifying regulatory oversight. These factors could dampen valuations while also making it more expensive and challenging to invest in the space.
This creates a “Rubik’s cube combination” that could impact the flow of deals and dollars spent in the hospice market, according to Mark Kulik, managing director of M&A advisory firm The Braff Group.
“Hospice is an extremely dynamic marketplace with so many factors that influence growth,” Kulik told Hospice News. “Investors are definitely keeping an eye on what’s happening. It’s hard to say what the golden rules for the marketplace will be going forward for the next year or two when things are in flux and have a bearing on financial engineering and activity.”
Companies featured in this article:
Irving Levin Associates, LHC Group, Optum Health, The Braff Group, UnitedHealth Group