The Home Health & Hospice sector is far less fragmented than it was just five years ago. The sector has seen a lot of activity, thanks to the push by payors to move patients towards lower-cost post-acute care settings. That has attracted a lot of investor interest in recent years, and 2018 proved to be a watershed moment as the large-market private equity firms moved in to acquire or build national platforms.

Deals by publicly traded companies have changed the sector in significant ways, too. Some merged, such as LHC Group (NASDAQ: LHCG) and Almost Family, Inc. have morphed to focus more on home health than other services, such as Encompass Health Corp. (NYSE: EHC), formerly known as HealthSouth Corp., the inpatient rehabilitation company.

Since 2014, annual deal volume has ranged between 60- and 80-plus transactions made public. Several more private ones have closed without announcements, no doubt, so they can’t be counted. Dollar values have swung from a low of just $526 million in 2015 to $5.4 billion in 2017.

The action began in November 2017 when LHC Group announced its acquisition of Almost Family (then listed as NASDAQ: AFAM) in an all-stock transaction valued at approximately $983 million (1.3x revenue and 17.1x EBITDA). At the time, Louisiana-based LHC operated in 320 home health locations, 92 hospice locations, 12 community-based service locations and 15 long-term acute-care hospitals (LTACHs). On a trailing 12-month basis, it generated $961.6 million in revenue, $92.0 million in EBITDA and net income of $40.2 million.

Almost Family, based in Louisville, Kentucky, provided home healthcare services through 332 branch locations in 26 states, including its joint venture with Community Health Systems (NYSE: CYH). At the closing in March 2018, the combined company had 781 locations in 36 states with more than 31,000 employees.

Just a month later, in December 2017, the sector got another shock when Kindred Healthcare (then NYSE: KND) agreed to be acquired by a consortium of strategic and financial buyers for $4.1 billion (0.7x revenue and approximately 12.0x EBITDA).

Kindred was the largest post-acute health services provider. As of Sept. 30, 2017, its continuing operations had approximately 86,400 employees in 2,475 locations in 45 states, including 77 LTAC hospitals, 19 inpatient rehabilitation hospitals, 16 sub-acute unites, 609 Kindred at Home home health, hospice and non-medical care sites of service, 101 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses, which served 1,653 non-affiliated sites of service.

The buyer consortium was led by Humana Inc. (NYSE: HUM) together with private equity firms Welsh, Carson, Anderson & Stowe (WCAS) and TPG Capital. After the close in July 2018, the home health, hospice and community care businesses were separated from Kindred and operated as a stand-alone company owned 40% by Humana and 60% by WCAS and TPG. The LTAC hospitals, IRFs and contract rehabilitation services businesses are now owned by the two private equity firms and operated as Kindred Healthcare.

Those deals set the stage for an active year to follow, as the Humana/WCAS/TPG consortium went on to acquire one of the largest hospice companies in the United States, Curo Health Services, just four months later in April 2018.

Curo was a portfolio company of Thomas H. Lee Partners, which acquired it from GTCR LLP in December 2014 for an undisclosed price. At the time, Curo had hospice operations in 19 states and served about 7,200 patients daily. By the time it was sold to the consortium for $1.4 billion, it had grown to 245 locations in 22 states. It was merged with Kindred’s hospice business to form the largest hospice operator in the country.

Private Equity Gets Building

Watching these large players grow bigger stoked some fires in the private equity community. Canadian firm Onex Corporation (TSX: ONEX) exited BrightSpring Health Services (formerly ResCare) in a sale to KKR & Co. (NYSE: KKR) for an undisclosed price. BrightSpring provides comprehensive home- and community-based health services in areas such as behavioral health, pharmacy, ehealth, hospice, and home care to complex medical populations. KKR merged it with another of its portfolio companies, Pharmerica, which provides specialized pharmacy services to the long-term care industry. Both are based in Louisville and will serve more than 300,000 clients daily in 44 states and Washington D.C.

Bain Capital Double Impact, part of Bain Capital, announced a double acquisition in December 2018. It acquired Durham, North Carolina-based Arosa, which operated Nurse Care of North Carolina and Developmental Therapy Associates, and Los Angeles-based LivHome, which provides in-home care and care management services in California, Illinois and Texas. The two were merged to create a new national platform called Arosa+LivHome. A month later, in January 2019, it added Partners in Senior Care, an Illinois-based home care and geriatric care management company.

Regional platforms were also branching out. Down in Texas, AccentCare was busy rolling up five acquisitions in 2018, expanding its footprint to 14 states. A portfolio company of Oak Hill Partners, the company operates under brand names such as Alliance for Health, AccentCare of New York and Texas Home Health.

Blue Wolf Capital Partners teamed up with Kelso & Co. in two deals that merged three regional home health agencies into a national player. First it acquired Jordan Health Services from Palladium Equity for an undisclosed price.The Texas-based agency served approximately 39,000 patients in Louisiana, Missouri, Oklahoma and Texas. Jordan Health was then merged with Great Lakes Caring (Michigan), National Home Health Care (Connecticut) to create one of the largest home care providers in the United States. The combined company will serve more than 63,000 patients on a daily basis, employing more than 31,000 caregivers across 15 states and 221 locations.

Blue Wolf Capital had backed National Home Health Care and Great Lakes Caring for the previous two years. Kelso & Company joined forces with Blue Wolf to facilitate the addition of Jordan Health Services.

Smaller players like Richmond, Virginia-based Care Advantage, Inc., backed by BelHealth Investment Partners, were building their own regional platforms. Care Advantage announced four deals in that state last year, expanding its footprint from Alexandria to Portsmouth. Simplura Health (formerly All Metro Care in Long Island, New York), a portfolio company of One Equity Partners, added three agencies based in Pennsylvania. And Webster Capital’s Bristol Hospice in Salt Lake City added three more companies in Colorado, Nevada and Utah.

Add-ons and Roll-ups Continue

The publicly traded players were sitting on the sidelines, either. Addus HomeCare (NASDAQ: ADUS) announced three deals in 2018 with a combined total of $98.5 million. The targets added operations in Michigan, New Mexico and New York state.

Amedisys (NASDAQ: AMED) announced two deals. The largest, at $340 million, targeted Compassionate Care Hospice. The Parsippany, New Jersey-based company owns 53 locations in 24 states. The second deal added Bring Care Home, a regional personal care and live-in care provider serving the greater Boston area. Financial terms weren’t disclosed in that transaction.

Encompass Health continued to expand across the Southeast with its acquisition of Mississippi-based Camellia Health Care, which provides home health, hospice and private duty care in Alabama, Louisiana, Mississippi and Tennessee.

With that level of activity in 2018, it’s not a stretch to expect more add-ons and roll-ups announced this year. However, activity could be curtailed by the advent of the Patient-driven Groupings Model (PDGM) on January 1, 2020, mandated as part of the Bipartisan Balanced Budget Act of 2018.I ts purpose is to revolutionize home health agencies and double billing efforts under the Prospective Payment System, beginning with cutting payments for 60-day episodes of care to just 30-day levels.

On the upside, the Centers for Medicare and Medicaid Services extended home health care services for some Medicare Advantage members, so things could balance out. Either way, private equity will be looking for fresh meat out there.