The latest Home-Based Care M&A Report from Mertz Taggart, a Fort Myers, Florida-based M&A firm, sheds light on the subdued M&A activity in the Home Health & Hospice (HH&H) sectors throughout 2023. While the second quarter showed a slight uptick, Q3 remained slow, raising concerns within the industry. The third quarter witnessed historically low transaction numbers, with only 23 HH&H transactions announced, a 12% decrease from Q2:23, and a 15% decrease from Q3:22, according to data captured in the LevinPro HC database.
One factor contributing to the slowdown could be the anticipation surrounding the home health payment rule, which resulted in a modest 0.8% aggregate payment increase. Uncertainty about the rule’s impact may have led potential buyers to adopt a cautious “wait-and-see” approach. Despite the slow quarter, there is ongoing high demand for cashflow-positive home-based care companies, driven by a scarcity of supply and robust private equity interest in add-on acquisitions.
“While the valuation curve has shifted a bit, a clean, lower middle market agency with strong cash flow will still command premium multiples, in line with 2021 numbers,” according to Mertz Taggart Managing Partner Cory Mertz. “For the agencies that have some work to do to command a premium in today’s environment, this is an opportunity to take stock. How would a critical buyer view the company in terms of valuation and its drivers? The answers to these questions should feed into a seller’s ultimate exit strategy.”
Buyers, especially on the hospice side, are becoming more disciplined with their acquisitions due to several factors, including narrower acquisition criteria, stricter due diligence and tighter economics and lending standards. In the hospice space specifically, hospices with poor cash flow that would have previously commanded premium valuations and admission trends, no longer command those premiums.
“Buyers are having a harder time justifying paying for a hospice based on average daily census, and what they think they will do with the agency in the twelve-month period post-close,” Mertz says. “Their PE investors and the debt providers won’t let them. So, those transactions have slowed significantly.”
To read the full report, visit: Mertz Taggart’s Q3 2023 Home-Based Care M&A Report
