Mergers and acquisitions in the home health and hospice sector have continued a downward spiral, beginning in Q1:17. 2016 ended with 62 deals, which was a healthy rebound following a lackluster performance in 2015. The sector also experienced growing interest from financial buyers in that time.
But, as of September 21, only 33 deals have been publicly announced, down 27% from the 45 deals announced in the same period last year. Based on disclosed prices, only $20.95 million has been spent, down 98% from the same period in 2016, when $1.0 billion had been committed to finance those deals.
The bulk of this year’s spending total comes from a deal announced on March 1 by Amedisys, Inc. (NASDAQ: AMED). The company made public that it was spending $20 million on six home health and hospice operations owned by Tenet Healthcare (NYSE: THC) in Arizona, Illinois, Massachusetts and Texas. Since then, financial terms have remained undisclosed.
Demographic and market trends still favor this sector, such as the aging population, prevalence of chronic conditions, shorter hospital stays and a general desire to stay at home, rather than a skilled nursing facility.
The market is also transitioning from treating episodes of care to treating actual conditions. The shift takes emphasis away from volume and puts it on treating chronic conditions and looking for better outcomes.
However, the home health and hospice sector remains under the cloud of uncertainty that lingers over Medicare and Medicaid reimbursement. Some industry-specific legislation, such as Conditions of Participation (COP) rules and the pre-claim review demonstration (PCRD) pilot have experienced several delays and changes since their inception. And the sector also faces labor shortages and wage pressures, as it struggles to find a labor pool to fill all the necessary hours. These headwinds are crimping investors’ M&A appetite until the fog clears.
While home health and hospice isn’t on track to surpass last year’s level of deal making, we aren’t counting this sector out just yet.
