Over the next 12-18 months, the mergers and acquisitions that do or do not take place in home-based care will tell a story worth listening to about the future of the space.

The context has become monotonous to tell at this point: high interest rates are affecting dealmaking across the country; Medicare Advantage (MA) penetration is causing payment issues for most providers; home health agencies, specifically, are navigating fee-for-service rate cuts; and valuation expectations have been too high after a whitehot 2020 and 2021.

There’s a general expectation that interest rates will come down at some point this year. Potential buyers have also signaled that seller expectations around pricing have started to come down, helping both parties start negotiations with more reasonable expectations.

The rest of the aforementioned context points remain the same. MA penetration is likely to continue, and there is no sign the Centers for Medicare & Medicaid Services (CMS) will back off home health rate cuts in traditional Medicare.

Of course, home-based care M&A could tick up in 2024, and one sector could still have a down year. For instance, Medicaid home- and community-based services deals had a strong fourth quarter, but traditional home care and home health care did not.

But what may be more interesting is how the market responds in each section of each sector. There’s the large providers, those in the middle and the mom-and-pops.

In this week’s exclusive, members-only HHCN+ Update, I take a stab at projecting how M&A will play out over the next 12-18 months in each part of the market.

The largest players

In Home Health Care News’ trends piece at the beginning of 2023, we predicted that “there was a good chance that 2023 [passed] without another monster, jaw-dropping mega deal anywhere close to UnitedHealth Group’s LHC Group buy.”

We got egg on our face almost immediately, as UnitedHealth Group agreed to purchase Amedisys Inc. (Nasdaq: AMED) a few months later.

We’re most likely in the third year in a row where a mega-home health deal will be agreed to, at the very least. Enhabit Inc. (NYSE: EHAB) has a fourth-quarter earnings call in early March – which is later than usual – and I expect their strategic review to be completed by that time.

I also expect that to wind up in a sale, but Enhabit is being affected by just about everything that’s currently affecting the home health market, whether macro or micro.

For one, many buyers that may have jumped at the opportunity to buy Enhabit just a few years ago could be out of the game, for one reason or another. They may have already purchased another entity, or have decided to stay out of home health care entirely until the MA and fee-for-service rate questions get cleared up.

In my estimation, though, Enhabit would have a large, willing buyer right in front of it right now if it wasn’t for the current M&A environment. On Monday, I wrote briefly about the impact that the Biden administration’s attitude toward health care dealmaking is having on the market.

Currently, regulators and lawmakers are taking a hard stance against major consolidation and private equity involvement in dealmaking.

If that weren’t the case – and it obviously may not be the case following this fall’s election – I believe UnitedHealth Group (NYSE: UNH) would be happy to add Enhabit to its home health repertoire, which would then include Enhabit, LHC Group and Amedisys Inc. (Nasdaq: AMED), if the Amedisys deal went through.

UnitedHealth Group’s Optum would still own just about 15% – or less – of the home health market, not a huge number in other industries. But the juice may not be worth the squeeze for the company at this point, as they are under the spotlight for pending acquisitions in other sectors, too.

Where Enhabit goes is of note for the entire industry, as they are basically the only pure home health and hospice player left on the public market. They are also one of the only large home-based care companies likely to sell in the year ahead.

The others that could sell include companies nearing the end of their private equity sponsorship, like Elara Caring or Help at Home, for example.

Help at Home, specifically, could reap the benefits of a couple of better-than-average years in the HCBS space, which is its bread and butter. A report surfaced in December suggesting that the PE firms The Vistria Group and Centerbridge Partners were weighing a Help at Home sale.

My guess would be that a sale wouldn’t go final until CMS finalized its “80-20” rule, which is likely to come to fruition in the spring.

There may not be a flurry of big-time deals in the next 12-18 months at the top, but the ones that are finalized will say a lot about their respective sectors within home-based care.

Middle market

M&A experts have repeatedly told me that there has never been a dip in demand for quality home-based care agencies over the last two years, despite a lull in activity.

In the next 12-18 months, that lasting demand will likely finally come to the surface in the middle of the home-based care market.

Think providers that have multiple locations covering a significant footprint in one state or more.

Most leaders I have spoken with over the last month expect for M&A in this area to pick up sooner rather than later. Nautic Partners helped kick things off with the acquisition of Texas-based Angels of Care this week.

“The big question mark right now is what multiples are going to look like,” VitalCaring President Luke James recently told me. “I think we’re going to see a couple of deals that reset the market, especially for sizable transactions.”

New Day Healthcare CEO G. Scott Herman told me in January that his company is not only expecting home health M&A to open up this year, but also banking on that for growth.

I cautiously expect the largest companies to revamp their M&A strategies, and I expect growing, regional providers like New Day to continue on their growth paths in this area of the market. That’s without even mentioning more robust PE activity.

The only question will be around how many quality targets are left. Herman also mentioned straying away from “fixer-uppers” moving forward.

Others have echoed that sentiment over recent years, suggesting that fixer-uppers are not worth the time, resources and effort at this stage of the game.

“We don’t want to do another fixer-upper, period,” Traditions Health CEO David Klementz told me last year.

Mom-and-pops, smaller providers

There are likely going to be a lot of fixer-uppers in this category over the next 12-18 months, even if they weren’t before. MA penetration, and fee-for-service rate reductions, will likely be too much for smaller providers to handle.

While smaller businesses do have the flexibility to change course quicker than larger organizations at times, they also don’t have the financial capacity to handle multiple blows over a five-year period.

That’s, essentially, what’s occurring with MA penetration and a less stable fee-for-service leg to stand on.

Now, the quality ones could obviously outlast that, and some backing provided by a PE firm or strategic could pay off if the bottom falls out of the middle market. In other words, if not much is left in the middle of the market, I believe small, quality agencies will begin to be bought up in bunches.

The ones that aren’t so lucky will still provide opportunities for the larger providers in it for the long haul, but mostly through the absorption of staff.

The post Projecting The Most Impactful Home-Based Care M&A In Near-Term Future appeared first on Home Health Care News.

Announced Tuesday, the firm is acquiring the McKinney, Texas-based Angels of Care from Varsity Healthcare Partners.

“I am extremely grateful to the entire VHP team for their extensive capital, operational and strategic support, which was instrumental in enhancing the growth and success of AOC during our partnership,” Angels of Care CEO Jessica Riggs said in a statement.

Angels of Care providers private-duty nursing, skilled nursing, respite care and a range of therapy services in the home to medically complex children and young adults. The company employs more than 2,000 private-duty nurses, skilled nurses, physical therapists, speech therapists, attendants and specialists.

Its footprint currently spans Texas, Colorado, North Carolina, South Carolina, Florida, Arizona and Pennsylvania. That reach grew from two states to seven states under Varsity Healthcare Partners’ watch, which began in 2019.

In comes Nautic Partners, which already has home health assets in its portfolio. It is one of the backers of the April Anthony-led VitalCaring, along with The Vistria Group.

Based in Providence, Rhode Island, Nautic Partners is a middle-market private equity firm with three major industry focuses, one of which is health care.

The company has historically invested in community-based health care providers, including those in behavioral health, primary care and post-acute management. It also backs Integrated Home Care Services (IHCS).

Private equity dealmaking has been slow in home-based care over the last couple of years, after a surge in 2020 and 2021. But most experts are expecting it to tick up in 2024, particularly if interest rates come down.

Terms of the Angels of Care deal were not disclosed. Angels of Care and Nautic Partners could not be reached for comment prior to the publishing of this story.

The post Nautic Partners Scoops Up Home Health Provider Angels of Care appeared first on Home Health Care News.

Under terms of the strategic partnership, Nursing Solutions and Mission Medstaff will join Angels of Care’s platform going forward. The financial terms of the deal were not disclosed.

Founded in 1992, Phoenix, Arizona-based Nursing Solutions is a home health provider that cares for both adult and pediatric patients. Its service lines include long-term skilled nursing care, personal care and respite service.

Mission Medstaff — founded in 2009 — also provides home health services to both pediatric and adult patients, doing so in North Carolina and South Carolina.

Moving forward, Nursing Solutions and Mission Medstaff patients will continue to receive services from the caregivers and office staff they are familiar with, Jessica Riggs, CEO of Angels of Care, told Home Health Care News in an email.

“The partnership will enable each company to benefit from Angels of Care’s scale and expertise in recruiting and training excellent nurses, and supporting the families of patients with complex medical needs,” Riggs said.

Founded in 2000 by Bonnie West, Sherman, Texas-based Angels of Care provides private-duty nursing care, skilled therapy and other home health services across five states. According to the provider’s website, it employs more than 4,000 passionate pediatric nurses, skilled nurses, physical therapists, occupational therapists, speech therapists, attendants and specialists.

Angels of Care is backed by Varsity Healthcare Partners, a lower middle-market private equity firm focused on health care services.

For Angels of Care, Nursing Solutions and Mission Medstaff were attractive targets because of how well the companies aligned as far as mission, services and values.

“Like us, Angels of Care is passionate about providing the highest quality care possible to its patients,” Matt Hampton, founder of Mission Medstaff, said in a statement. “We are excited to join their platform, which will enable us to continue providing exceptional, cost-effective, family-focused care for our patients with complex medical needs.”

Another draw for Angels of Care: The deal allows the company to further expand into additional geographies.

On Nursing Solutions’ end, the opportunity to join an established home health platform that has a strong industry foothold was appealing.

“We evaluated a number of alternatives and felt this partnership with Angels of Care was in the best interest of our clients and caregivers,” Bill Johnsen, founder of Nursing Solutions, said in a statement. “We look forward to joining this winning team and continuing to serve the needs of our patients 24/7.”

The global pediatric home health care market is valued at $30.9 billion and is expected to grow to roughly $56 billion by 2026, according to a 2020 study conducted by Acumen Research.

While there is high demand for pediatric home health services, operators are often challenged by staffing and reimbursement constraints. One innovative solution focused on both problems has been the “Family CNA Model,” pioneered in Colorado by companies like Team Select Home Care.

The post Varsity-Backed Angels of Care Announces Strategic Partnerships, Expands into Three New States appeared first on Home Health Care News.

As a response to the growing demand for integrated delivery models in the post-acute care sector, private equity firms Blue Wolf Capital Partners and Peloton Equity have partnered to launch rehabilitative health care provider ClearSky Health.

Austin, Texas-based ClearSky Health plans to develop and acquire in-patient rehabilitation facilities (IRFs), as well as post-acute services companies.

For now, ClearSky Health will be entirely devoted to the IRF space, a spokesperson told Home Health Care News, though Blue Wolf has extensive experience in home health, home care and hospice as well.

“The post-acute care sector in the U.S. is evolving towards integrated delivery models and value-based care, and we believe IRFs are well-positioned to play an important role in this transformation,” Ted Lundberg, co-founding partner at Peloton Equity said in a press release announcing the news.

New York-based Blue Wolf made major moves last year when the private equity firm backed a three-way merger that created one of the largest home health providers in the U.S. The combined company — which operates under the name Elara Caring — provides care for more than 65,000 patients across 16 states.

“Blue Wolf’s commitment to ClearSky Health reflects our strategy of continuing to invest in the post-acute care industry,” Jeremy Kogler, a partner at Blue Wolf Capital, said in the release. “We are actively seeking opportunities to develop and acquire additional assets in this highly fragmented and growing market.”

Adam Blumenthal, founder and managing partner at Blue Wolf, recently participated on an M&A panel at HHCN’s Capital + Strategy Forum in Washington, D.C.

During the panel, Blumenthal provided an update on Elara Caring, noting that the bulk of Blue Wolf’s efforts were currently focused on completing integration and teaming up with states policymakers on efforts related to opioid addiction.

Darby Brockette — who most recently served as the chief executive officer of Ernest Health — will serve as the CEO of ClearSky Health.

Perry Memorial Hospital purchases In-Home Care VNA

In order to expand into the at-home health arena, Perry Memorial Hospital, a Princeton, Illinois-based health care organization, will take over ownership of In-Home Care VNA.

Also based in Princeton, In-Home Care VNA provides home health services including skilled nursing and rehabilitation.

Under terms of the acquisition, In-Home Care VNA will rebrand as Perry Home Care beginning in June. Perry Home Care will serve residents in Bureau, Putnam, Marshall, LaSalle, Lee and Stark counties in Illinois.

“Perry Home Care providing home health aligns with the Perry Mission to provide compassionate, quality health services to the people and communities we serve,” Annette Schnabel, president and CEO of Perry Memorial Hospital, told the Bureau County Republican.

Workforce challenges and financial struggles have increasingly prompted several hospitals to turn to outside home health agencies to either replace, reinforce or manage their internal operations.

From 2016 to 2018, 177 hospitals or health systems acquired home health agencies, according to proprietary data from The Braff Group.

CIT leads $425 million senior credit facility

CIT Group Inc. (NYSE: CIT) and its Healthcare Finance business have led a $425 million senior credit facility on behalf of AdaptHealth LLC. The financing is the latest in a series of CIT-led moves aimed at supporting AdaptHealth’s growth.

AdaptHealth — which has over 1,000 employees — is an Oaks, Pennsylvania-based home medical and respiratory equipment provider with 160 locations in 36 states. More than 1 million patients annually use in-home equipment provided by the company.

New York-based CIT is a financial holding company that provides services to commercial and individual customers. The AdaptHealth credit facility will be used to refinance existing debt and provide access to growth capital.

The new financing will also be used to support the entry of BlueMountain Capital Management LLC, a diversified alternative asset manager, as a minority investor in AdaptHealth.

“We greatly appreciate the expertise and agility that CIT has demonstrated in supporting our financing and banking needs as we have continued to expand our customer base and geographic footprint,” AdaptHealth CEO Luke McGee said in a press release announcing the news.

Varsity Healthcare Partners completes Angels of Care partnership

Varsity Healthcare Partners, a private equity firm focused on health care services, has completed its growth equity investment in Sherman, Texas-based Angels of Care. Investment terms were not disclosed.

Angels of Care provides long-term home health services to pediatric patients and has over 3,000 clinicians across 18 locations.

Under terms of the partnership, Varsity will provide the capital to fuel Angels of Care’s continued growth.

Jessica Riggs will remain in her role as CEO, along with the current management team, which will maintain all respective roles.

The post Blue Wolf, Peloton Equity Launch ClearSky Health; Perry Memorial Hospital Acquires In-Home Care VNA appeared first on Home Health Care News.