Thus far in 2023, hospice merger and acquisition activity has deviated from prior years.
This year is distinctive because of factors such as valuations, asset sizes and the mix of buyers.
A number of trends have shifted. The last five years saw record-breaking multiples in the hospice space and private equity-backed platform deals were among the most common types of transactions. But in 2023, private equity activity slowed from its formerly frenzied pace.
These trends are indicative of forces brewing in the hospice industry, according to Mark Kulik, senior managing director of The Braff Group.
“A lot of unusual things are happening in hospice today compared to the last few years,” Kulik told Hospice News. “There are a few of these enormously transformative deals taking place alongside a growing number of smaller deals, and there’s some interesting, inconsistent trends as far as the buyers coming to the table. There are more not-for-profit hospices acquiring one another than private equity buyers, and that’s a major difference from prior years.”
A new range of buyers
Payers and nonprofit organizations are becoming more prevalent as buyers, a contrast to the private equity’s former dominance.
The majority of the 13 publicly announced hospice and home health deals in 2023 have involved “bolt-ons,” or smaller entities, Kulik stated. Only three of those transactions included private equity investors, while the remainder largely involved affiliations between nonprofits, he said.
Among 2023’s largest nonprofit hospice transactions are Hosparus Health’s acquisition of Baptist Health Deaconess Hospice in June, the affiliation of Capital Caring Health and Chapters Health System in May and the merging of Kosciusko Home Care & Hospice (KHCH) with Stillwater Hospice in March, among others.
Payers’ interest in the provider space is also heating up.
Case in point, UnitedHealth Group (NYSE: UNH) subsidiary Optum has plucked two of the largest home health and hospice operators nationwide. The insurance mammoth is in the process of acquiring Amedisys (NASDAQ: AMED), which is currently pending customary approvals.
Optum announced plans in June to acquire the massive home health and hospice provider for $3.3 billion.
This followed Optum’s acquisition of Lousianna-based home health and hospice provider LHC Group for $5.4 billion, which closed at the end of 2022.
These two massive transactions marked the “biggest post-acute industry news in 2023,” according to Brentwood Capital Advisors Director John Allgood. The industry could see similar deals take shape as payers increasingly recognize the value of having a foothold in home-based care, he indicated.
“The potential combination of LHC Group and Amedisys under Optum underscores the trends of consolidation and the growing prevalence of ‘payviders’ in the home health and hospice sector,” Allgood told Hospice News in an email.
An evolving value-based reimbursement system will likely continue to fan payer interest in the direction of hospice, according to Dan Beuerlein, managing director at Brentwood Capital Advisors.
“The pending acquisition of Amedisys by Optum is clearly a market leading deal,” Beuerlein told Hospice News in an email. “Like many recent deals in the health care services space, the line between payer and provider continues to blur as industries move toward value-based care arrangements.”
Home health and hospice will continue to play a “pivotal role” in payers’ value-based care strategies, according to Jake Vesely, vice president of Provident Healthcare Partners.
“Investor interest remains strong for top quality assets. Growing and diverse investor pools [are] providing a wide range of options for organizations considering potential transaction options,” Vesely emailed Hospice News. “And [this] is increasing competition in processes.”
Along with more payer interest, “landmark deals” such as the sales of Amedisys and LHC Group could signal a similar trend of strategic considerations, he stated.
The sale of Amedisys and LHC Group spurred a minority investor of Enhabit Inc. (NYSE: EHAB) to push the consideration of a sale or other alternative. AREX Capital Management in June began urging the Dallas-based home health and hospice’s board of directors to explore strategic alternatives, in part driven by these two massive deals.
“Enhabit is currently engaged in a strategic review process which could lead to a transaction that would further change the industry landscape,” Allgood said.
Smaller transactions prevalent
Smaller deals have reigned in the hospice space this year, falling in line with industry expectations.
“Tuck-ins by sponsor-backed platforms have comprised the bulk of hospice M&A transactions over the past year,” H2C Securities Inc. Director Chaz Bauer told Hospice News. “Going forward, we expect several of these platforms to transact, as there remains to be strong interest in high quality hospice assets.”
A pattern of “megadeals” occurring in 2021 and 2022 set a high bar for transaction valuations and volumes, which contributed to this year’s slump compared to previous record-breaking levels.
“Hospice has been red hot in terms of valuation and the number of large-scale deals taking place,” Kulik said. “But this year has been the time for these deals to be digested, processed and integrated with efficiency.”
Nevertheless, a handful of larger transactions have been molding the hospice space.
Among this year’s biggest deals in terms of valuation and size was Gentiva’s $710 million acquisition of ProMedica’s hospice and home-based care assets. The Georgia-based hospice, palliative and personal care provider in February agreed to acquire Heartland Hospice and other assets from the nonprofit health system.
Gentiva is a portfolio company of the private equity firm Clayton, Dubilier & Rice (CDR). The ProMedica deal marked Gentiva’s first purchase since the company emerged from Humana Inc.’s (NYSE: HUM) $2.8 billion divestiture of a 60% stake in Kindred at Home’s hospice and personal care segments.
The deal marked a continued, growing interest in hospice and segments further upstream, according to Bauer.
“The most significant hospice deal of the past year is Gentiva’s pending acquisition of the Heartland business from ProMedica,” Bauer told Hospice News in an email. “We will continue to see health systems evaluate post-acute divestitures, including hospice assets, as many systems continue to face financial pressures in their acute care business.”
Another significantly-sized deal in the industry came in August when Addus HomeCare Corp. (NASDAQ: ADUS) completed its acquisition of Tennessee Quality Care for an undisclosed amount. The home health, hospice and private-duty company covers more than half of that state’s 95 counties and is anticipated to generate nearly $40 million in annual revenue, Addus CEO Dirk Allison said in earnings calls.
The deal made Tennessee the third state in which Addus offers all three of its services, along with New Mexico and Illinois.
Despite the slowdown, activity is likely to pick up during the second half of the year, including some larger deals, according to Vesely.
“[We’re] expecting to see several other large transactions in the back half of 2023 that are currently out to market or coming out to market shortly,” he said
Companies featured in this article:
Addus Homecare Corp., Amedisys, AREX Capital Management, Baptist Health Deaconess Hospice, Brentwood Capital Advisors, Capital Caring Health, Chapters Health System, Clayton Dubilier & Rice, Enhabit Inc., Gentiva, H2C Securities Inc., Heartland Hospice, Hosparus Health, Humana, Kindred at Home, LHC Group, Optum, ProMedica, Provident Healthcare Partners, Stillwater Hospice, Tennessee Quality Care, The Braff Group, UnitedHealth Group