‘I Haven’t Seen Anything Cool Off’: Home Health Market Stays Hot Heading into 2022

Home health, hospice and personal care dealmaking has continued its fast pace throughout 2021 after a COVID-19-induced dry spell last year. As the industry looks forward to 2022, one trend that may pick up steam is an uptick in small-scale transactions.

In fact, deals that many buyers wouldn’t consider just a few years ago are now finding stiff competition, industry insiders say.

“I haven’t seen anything cool off with this market at all,” Angelo Spinola, home health, home care and hospice practice co-chair at law firm Polsinelli, said last week during the Home Health Care News FUTURE conference. “I’ve looked at some stuff from a diligence perspective that I wouldn’t have touched as a lawyer. I tell my clients that, but they go straight ahead.”

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Part of the reason for the interest in deals of all shapes and sizes is that more buyers have entered into the mix in the last 18 months.

That’s according to Rich Tinsley, president and CEO of M&A advisory firm Stoneridge Partners.

“It’s kind of like all boats rise,” Tinsley said during FUTURE. “The waters come up and there are a lot more buyers today than there were a year ago. I used to get four or five calls a month, … [when] now I get two to three a day, and it’s hard to keep up with them. There’s an imbalance between buyers and sellers.”

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“And that’s driving transactions up across the board,” he added.

As for the types of buyers entering the market, it has largely been private equity, which shouldn’t be too surprising for those following health care dealmaking. In the PE market, health care deal volume hit record levels in 2020, increasing by 21% to a total of 380 transactions, according to Bain & Company data.

“I’m selling transactions at valuations that would have been unheard of two years ago,” Tinsely said.

The list of PE firms that have been active in the home health, hospice and home care spaces is a long one. It includes, for example, RiverGlade Capital, The Vistria Group, Searchlight Capital, Triva Capital, Coltala Holdings and several other firms.

While PE buyers have certainly pulled off some bigger deals, they’ve also executed plenty of under-the-radar transactions as well.

“Companies that typically would not be a focus or target for private equity, or the larger providers, are now fair game,” Spinola said.

Strategic buyers, including the publicly traded home health companies, have likewise been busy.

Last month, Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) acquired Generations Home Health along with Freda H. Gordon Hospice and Palliative Care, both in Virginia Beach.

The Pennant Group Inc. (Nasdaq: PNTG) purchased the assets of Amarillo, Texas-based Open Heart Hospice last month.

Based in Louisville, Kentucky, BrightSpring Health Services has also been active on the M&A front. BrightSpring provides a diverse array of home- and community-based services, caring for more than 350,000 patients across 50 states.

“We’ve done about 14 acquisitions in the home health and hospice space over the last three and a half years,” Chris Consalus, senior vice president of development at BrightSpring, said at FUTURE. “We’ve been very, very active in the space over the last few years.”

Consalus noted that this had been the busiest time in health care M&A in recent memory.

As a result, the industry is seeing the definition of “a platform” change, according to Tinsely.

“It used to be $20 million, $5 million EBITDA, and that’s no longer the case,” he said. “People will get in on a much smaller deal.”

Broadly, the personal care space is also starting to see more M&A from health systems looking to enter the space, though time will tell if this is a trend that will continue on to next year.

A waiting game

One M&A trend that hasn’t materialized was the expected wave of consolidation that many believed would come as a result of the Patient-Driven Groupings Model (PDGM).

This is largely due to the COVID-19 emergency and the billions in federal relief dollars that have come with it, along with other factors.

“Those [U.S Department of Health and Human Services] funds came in really helped float any issues that came through with PDGM,” Consalus said. “The sequestration holiday got pushed. On top of that, probably 80% to 90% of the companies we looked at took [Paycheck Protection Program] money. There have been many vehicles for smaller providers to be able to avoid any sort of material disruption in their business that would force them to come to market.”

Consalus noted that the proposed expansion of the Home Health Value-Based Purchasing (HHVBP) Model and eventual dissipation of the above-noted lifelines, could play a role in activating consolidation.

For providers, the nationwide expansion of HHVBP could mean an up to 5% decline in reimbursement.

“It could be problematic for some of these smaller providers that do not have quality scores that are up to the industry standards,” Consalus said.

At BrightSpring, home health and hospice acquisitions have been the main point of focus, as the company is hoping to beef up this side of the business.

“Home care is a business that, once our current leadership got to the company about four years ago, was already pretty sizable,” Consalus said. “We’ve been trying to grow that home health and hospice business ever since.”

Looking ahead, the home-based care labor market shortage may soon become an M&A roadblock.

“[It] becomes a bigger and bigger problem every single day because of the vaccine, but just in general, because of the increase in the people who are going to be buying health care,” Tinsley said. “That’s going to impact M&A. It’s impacting businesses today. The providers here probably can’t grow as fast as they want to organically because they don’t have caregivers.”

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