PE Firms Adapting Hospice ‘Roll-Up’ Strategies

Private equity firms in the hospice space are adapting their “roll-up” strategies as economic uncertainties persist.

Roll ups are a common approach to private equity investment. This occurs when a firm buys a larger platform company and then gradually acquires smaller organizations to foster growth.

But in 2023, deal volume slowed across the board. While the slowdown applies to all buyers, the decline in private equity transactions is particularly noteworthy because they were among the most aggressive acquirers in the space between 2019 and 2022.


While PE firms are not abandoning the hospice space, they are slowing their momentum, according to Mark Kulik, senior managing director for the M&A advisory firm The Braff Group.

“When PE buys at a high valuation level — and now the marketplace has cooled down, and those valuations have dropped significantly — it’s hard to exit, because you still have to make a return on your investment from two and three and four years ago,” Kulik told Hospice News. “So that’s what’s happening today; PE is being a bit more patient. They’re being more selective in what they’re buying.”

Only three hospice M&A transactions occurred during the third quarter of 2023, down from eight in Q2. This is down from 11 in Q3 2022 and 18 in the same period in 2021.


These numbers are a far cry from the record-breaking PE volume of prior years. Of the estimated 60-plus hospice transactions that occurred during 2021, at least 39, or 65%, were private-equity based, a rise from 56% in 2020, according to The Braff Group.

“There have been a number of private equity firms that are using this period as an opportunity to focus on their existing portfolio companies,” David Cox, member of the law firm Bass, Berry & Sims, told Hospice News. “If you’re thinking about PE firms that are looking at getting into a particular sector and starting a roll-up strategy, 2023 was probably not the year that a number of them were pulling the trigger on that. There are challenges that are making those firms and those roll ups a little slower.”

One major contributing factor to the exit-deal slump is 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 rates seem to have stabilized for the time being, many investors are in a wait-and-see mode to gauge the impacts on hospice valuations. Other factors that are giving buyers pause are persistent labor pressures and reimbursement that may not be keeping pace with inflation, according to Cox.

These trends will likely continue throughout at least the first half of 2024, as PE firms scrutinize potential opportunities more carefully in light of the economic climate and the cost of borrowing remains elevated, Kulik indicated.

“We’re seeing them put up a lot more money because the cost of capital, the interest rates, are so high for them to complete a transaction, you have to put up more cash, 40 to 50, maybe even 60% cash in a transaction or more,” Kulik said. “And that just makes the acquisition more expensive relative to the return they expect to get. They’re going to be much more patient, with much more of a strategic and surgical type of acquisitions.”

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