Home-Based Care M&A Market Could Rebound Late in the Year, Valuations Likely to Stay Strong

The hospice and home health M&A landscape has become marked with uncertain terrain.

Deal volume thus far in 2023 is down 50% to 60% from the previous two years, Cory Mertz, managing partner at M&A advisory firm Mertz Taggart, said at the HI2 Conference in Chicago.

While companies that have a positive cash flow and demonstrate solid regulatory compliance are still in demand, the lower to middle market has been in a slump, according to Mertz.


“There are two reasons for this,” he said during a panel discussion. “No. 1 is scarcity. Everybody sold in 2020, 2021 or the first two quarters of 2022, so there’s just not a lot of inventory out there. The other driver is value-based care.”

Dominating the market in 2023 are massive outlier deals, including some involving payers or other massive health care companies, according to data from Provident Healthcare Partners. This includes the $5.4 billion purchase of LHC Group by the UnitedHealth Group (NYSE: UNH) subsidiary Optum Health, and that same company’s recent acquisition of Amedisys (NASDAQ: AMED).

Also of interest to the home-based care space is the sale of Signify Health (NYSE: SGFY) to CVS Health (NYSE: CVS) for $8 billion.


Labor headwinds are also taking a toll when it comes to transactions, according to Kevin Palamara, managing director at Provident.

“After an incredibly robust market in the 2020-2021 timeframe, with several of the largest independent and [private equity-backed] groups transacting, there has clearly been a slowdown in market activity, in part due to what was very outsized activity during that period and in part due to lingering impacts from the labor market, which have had a direct impact on both census growth and margins,” Palamara told Hospice News.

Factors impacting the larger economy have also thrown some wrenches into home-based care transactions, including rising interest rates.

In an effort to combat inflation, the U.S. Federal Reserve has raised interest rates aggressively during the past two years — 10 consecutive increases totaling more than five percentage points — a pace unseen since the 1980s.

Though the Fed opted to hold rates steady at their June meeting, more hikes could come as the year proceeds.

“The banks have tighter lending standards,” Mertz said. “They want a little bit more control in some of these transactions, and, ultimately, we all answer to the banks for the most part. Getting deals done is a little bit harder, and takes a little bit longer, especially the platform transactions. That’s because there is more structure to them.”

Some companies on the M&A market are getting letters of intent with a 90- to 120-day lead time, according to David Marks, a partner at Holland & Knight.

“I’d say, to get the signing, it should take no longer than 45 to 60 days,” he said at the conference.

Holland & Knight is a Miami-based law firm that provides representation in litigation, business, real estate, governmental and health care law.

For now, private equity (PE) groups with experience in the home-based care market and solid banking relationships will likely have an upper hand, Mertz indicated.

And for sellers that want to draw PE attention, demonstrating growth is crucial.

“You have to show growth to get the targets you’re looking for,” ARF Financial CEO Steve Glenn said. “That takes some funding, some debt to do that — to hire a few more people, possibly make some small acquisitions, and be in a better position to get the number you’re looking for. Short-term debt can do that.”

Despite these complexities, rebounds in admissions and census among large regional and multi-regional providers suggest that the market may be stabilizing leading to a potential uptick later this year and in early 2024, according to Palamara.

Hospice valuations, he said, should remain strong in the near term.

“While valuations were absolutely at peak levels during the ’20 and ’21 time periods, we would anticipate that quality, sizable hospice-only opportunities would still garner very attractive valuation levels in the current environment,” Palamara said. “Despite the interest rate environment which has impacted larger, middle-market transactions, we believe a scarcity of actionable deals of scale combined with what is still a very diverse buyer environment will lead to seller-friendly outcomes.”

Home Health Care News Reporter Joyce Famakinwa contributed to this report.

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