As Covid starts to wane, we’re seeing changes in our society that may become permanent. In the healthcare industry, Covid has reinforced a trend that has been building for decades: both patients and providers prefer care that is provided in the home. Even Walgreens and Kaiser are getting in on the action! This trend dovetails perfectly into demographic trends, creating almost unlimited demand for services. Thus, the M&A market for home and community-based services is as active as it ever has been, but a rising tide isn’t necessarily lifting all boats equally.
Market dynamics and regulatory tailwinds are encouraging consolidation in every segment within home and community-based care but, unlike in previous waves of consolidation, this time buyers are being very strategic rather than just gobbling up volume. The largest providers have reversed course and, rather than focusing on one core business, are diversifying their business and payer mixes to capitalize on value-based compensation by following the patient. Ironically, when strategic buyers acquire to diversify their mix, they typically acquire a pure-play provider to ensure that they’re acquiring management with deep expertise in a newly acquired segment. So, the top of the market is currently characterized by many cross-segment deals while smaller providers are being handsomely rewarded for selling pure-play assets.
The connection between the top of the market and individual pure-play providers is often the private equity investor. Private equity investors typically create value by acquiring a “platform” in a particular industrial segment, then growing the platform through acquisitions until ultimately selling to a larger investor or strategic buyer. Private equity investors are active within every segment of home and community-based care, driving up valuations and giving owners of smaller and medium-sized companies a great opportunity to exit for a premium.
Feel free to contact us any time. We’re always happy to discuss market conditions, valuations, and how we can add value to your transaction.