Smaller Deals Likely to Reign in 2023 Hospice M&A

Though buyers remain hungry for hospice acquisitions, smaller deals will likely be the most prevalent during 2023.

Acquisition patterns established in 2021 and 2022 are shaping the M&A outlook for the current year. The number of hospice and home health deals fell by nearly a third last year, though a few “megadeals” have driven up transaction values. Consequently, transaction volume is expected to be more in line with 2022’s numbers rather than the record-breaking levels of years prior.

About 114 home health and hospice transactions occurred during the 12-month period ending Nov. 15, 2022, down 27% compared to the prior year, according to PwC Health Services’ U.S. Deals 2023 Outlook Report.


Other stakeholders have cited a higher number of deals than PwC, but even those estimates fall short of 2021 and 2020 volume. The M&A advisory firm The Braff Group indicated that an estimated 140 to 145 total hospice and home health transactions took place last year, according to Mark Kulik, the company’s senior managing director for home health, hospice, pediatric and private duty.

He anticipates that those industries will see similar numbers this year.

“For 2023, it’s going to be at the same levels and possibly around the 150-transaction ballpark,” Kulik told Hospice News. “Even though hospice is down, it’s still back up to pre-pandemic levels, and I think we’ll continue to see investors having a strong appetite for hospice going forward in future years.”


The influence of changing PE trends

Contributing to the drop in volume are changes in private equity activity, which some expect to continue into 2023.

Private equity firms have been voracious for hospice assets in recent years. In 2022, they picked up more hospices than any other buyers. Nevertheless, the frequency of their hospice investments slowed from the record-breaking levels seen in 2020 and 2021, according to Kulik.

The cooling effect is to some extent a consequence of the prior two years’ volumes, in which private equity deals represented 63% of all hospice acquisitions, Kulik added. Consequently, the number of larger hospice assets in a position to sell has dwindled. None of last year’s “platform acquisitions” involved private equity investors, compared to eight in 2021, The Braff Group indicated.

This could have a ripple effect down the road.

“There is not going to be as much of a demand for follow-on or or bolt-on acquisitions, because no platforms were made,” Kulik told Hospice News. “Theoretically, if no one buys any more platforms, then ultimately the demand for hospice will fall off by private equity, because there’s no platform to be used to add on more hospices down the road.”

PwC likewise reported a wider trend of “roll-up and platform add-on transactions,” during 2023 among private equity buyers, meaning that a large contingent of firms will build up their current assets with smaller acquisitions.

More hospice and home health divestitures could also occur due to the weight of labor and other financial pressures, according to the PwC report.

Likewise, future years may see more smaller hospices and potentially more nonprofit providers coming to the sellers’ table, Kulik explained.

“Companies that spinoff or divest their hospice and home health assets may do so because the business has gotten far more complex to run, manage and afford,” Kulik told Hospice News. “There’s more regulatory oversight coming, as well as labor issues continuing, and the need for more capital investment in technology for care delivery, staff management and patient records.”

Megadeals drove up value

While fewer transactions took place in 2022, deal values went up — largely spurred by multi-billion dollar “megadeals.”

The total value of hospice and home health deals rose 74% last year, reaching $19.5 billion, PwC reported. Two massive acquisitions accounted for 70% of that increase — CVS Health’s (NYSE: CVS) $8 billion purchase of Signify Health and UnitedHealth Group’s (NYSE: UHN) $5.5 billion deal for LHC Group (NASDAQ: LHCG).

Last year also saw Humana Inc.’s (NYSE: HUM) $2.8 billion divestiture of a 60% stake in Kindred at Home’s hospice and personal care segments to the private equity firm Clayton, Dubilier & Rice. Humana retained Kindred’s home health assets, as well as 40% of the hospice business.

Even with the reduced volume, the number of acquisitions will likely surpass those for joint ventures and mergers, despite the growing trend towards those partnerships, Kulik told Hospice News.

This will likely include buyers from other points in the health care continuum that seek to expand their reach in the home setting.

“Quantitatively, if we list out mergers, acquisitions or joint ventures, we’re going to see acquisitions far exceed JVs and mergers,” Kulik said. “We will continue to see larger health and hospital systems continuing to seek ways to enhance their coordination of care and look for ways to deal with the changing payment landscape in both home health and hospice.”

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