VITAS CEO Westfall: Market Conditions More Favorable for Hospice Acquisitions

Changes in the marketplace have made further acquisitions by VITAS Healthcare more likely.

VITAS, a subsidiary of Chemed Corp. (NYSE: CHE), recently announced its first deal in several years, the $85 million purchase of hospice assets from Covenant Health. While the company does not comment on its specific acquisition plans or its pipeline, VITAS may be more active in the M&A space in the coming year, CEO Nick Westfall indicated at the Oppenheimer 34th Annual Healthcare MedTech & Services Conference.

“It’s the best environment that I’ve seen in that entire window, where you now have opportunities in markets that maybe we had always desired to be in for a variety of different reasons for strategic purposes, where we may have real opportunities to engage and evaluate acquisitions in those markets, and at pricing that makes a lot of sense,” Westfall said at the conference.

The pricing issue has been a sticking point for VITAS in the past. Even during the record-high flurry of M&A activity between 2019 and 2022, the company abstained from making deals. Skyrocketing valuations were among the factors behind that decision, Westfall told Hospice News in 2020.

Its recent Covenant Health deal expands the company’s footprint into Alabama and grows its presence in Florida. The transaction also brought VITAS into the assisted living arena, as its acquired assets included one such community. The deal is expected to close in the second quarter.

The company is now considering its options going forward.

“We’re in the early innings of really being able to explore a lot of those [acquisition opportunities], though it’s not some of the previous volume that occurred when capital was cheap,” Westfall said at Oppenheimer.

Overall transaction volume declined in the hospice and home-based care space in 2023, following the two record-breaking prior years. Only three hospice deals took place in the third quarter of this year compared to 11 in Q3 2022 and 18 in the same period in 2021, according to data from the M&A advisory firm The Braff Group.

A range of factors contributed to the decline, including the more intensive regulatory activity, as well as rising interest rates and inflation, macroeconomic issues and gaps between sellers’ valuations and the amounts that buyers were willing to pay. However, some of those valuations are coming into greater alignment, according to Jared Rhodes, partner at the M&A advisory firm Triavo Health.

This could further whet buyers’ appetites for hospice assets in 2024, when many in the space expect at least a partial rebound.

“Sellers are understanding the market and climate more than they used to. When you’re coming off a peak in the market, it’s difficult to come to the realization that things have changed,” Rhodes told Hospice News. “So there are there’s no question that from the peak we’re down in terms of multiples. But I do see them kind of coming together a little more and in sellers being a little more realistic in terms of their expectations.”