It’s been a quiet year in the Rehabilitation M&A market, at least through October. There have been 27 deals announced that targeted rehabilitation facilities only, a decline of 37% compared with the 43 deals announced in the full year of 2018. True, that’s 10 months in 2019 versus all 12 in 2018, but we’re not expecting a rash of deal announcements between now and December 31.
Activity in this sector has been dropping since its peak in 2017, with 49 transactions. Onc factor may be the October 1 launch of the CMS’ new rule, the Patient Driven Payment Model (PDPM), which changes reimbursement and regulations on rehabilitation in skilled nursing facilities and inpatient rehab facilities. And former pure-play inpatient rehab companies such as Encompass Health Corp. (NYSE: EHC), formerly HealthSouth Corp., are moving into the Home Health & Hospice sector with their M&A strategies.
In 2019, the buyers in the Rehabilitation sector are primarily private equity firms or their sponsored companies, with exception of two deals from U.S. Physical Therapy (NYSE: USPT) and one deal each from real estate investment companies, Global Medical REIT (NYSE: GMRE) and NorthWest Healthcare Properties REIT (TSX: NWH.UN).
Eleven PE/portfolio companies have announced 18 transactions in this space. Gryphon Investors‘ CORA Health Services leads the pack with six deals this year (no financial terms disclosed). Great Point Partners‘ most recent PT company, Spine & Sport Physical Therapy, has two announced two deals.
Some new entrants are making their mark, too. ClearSky Health was launched by Blue Wolf Capital Partners LLC and Peloton Equity LLC in 2019 to develop and acquire inpatient rehabilitation facilities (IRFs) and related post-acute services companies. Its first deal was announced at the end of April, targeted four IRFs in Texas being sold by Maxim Management Group, LLC.
And some PT companies that have changed hands in the past 12 months are making moves. Swiss PE firm Partners Group (SIX: PGHN) picked up Confluent Health in May from Edgewater Funds. Louisville, Kentucky-based Confluent provides PT and occupational therapy at 200 clinics in 12 states. The target made its first acquisition under Partners Group in September, buying Capitol Physical Therapy in Wisconsin. In December 2018, Audax Group acquired Phoenix Rehabilitation from Three Rivers Capital, which had invested in Phoenix in 2013. In September, Phoenix announced its first deal, buying Black Mountain Physical Therapy in North Carolina.
Perhaps 2020 will see more action from these new and newly funded players.
