Current Market Conditions
Last quarter’s LOIs are this quarter’s closed transactions as the new normal sets in. Although COVID 19 certainly disrupted operations and the M&A market, the fundamentals of in-home care are just too strong to be derailed by pandemics, politics, or anything else. Even the World Economic Forum agrees, stating that in-home care is the “safer, more affordable and higher-quality option for aging seniors.”
In spite of the disruption, the same old trends of consolidation continue apace. The MedPAC 2020 Data Book noted that the universe of Medicare certified home health agencies has shrunk by 8% since 2015 with almost half of that happening from 2018-2019 and that trend is accelerating again in 2020 as PDGM places financial pressure on weaker agencies. We’re seeing similar trends in Medicaid and Private Pay as larger providers capitalize on economies of scale.
…but size is in the eye of the beholder. The largest providers and largest transactions capture the headlines, but the industry is still highly fragmented with smaller providers outnumbering their larger rivals by more than 100 to 1. This means that the market is still very active as providers stake out their strategic positions. The largest providers are announcing blockbuster deals, but they’re also doing small tuck-ins to execute on strategy. Consolidation is really being accelerated by private equity investors acting as a catalyst for a chain reaction: Acquire a platform, gain scale by rolling up smaller providers, then exit for a premium by selling to a large strategic buyer. This process is repeating itself time and again in every in-home segment: Medicare, Medicaid, private pay, and hospice.
Feel free to contact us any time: We’re always happy to discuss market conditions, valuations, and the process we undertake to effect a successful transaction.