By Bailey Bryant | August 2,
2020 geralt/Pixabay | CC0
The COVID-19 emergency has slowed
mergers-and-acquisitions activity in the home-based care space, largely due to
travel restrictions, general sector uncertainty and the shifting priorities of
top leadership.
However, interest in home-based care deals
remains robust and valuations remain high. In fact, M&A experts expect deal
activity to pick up dramatically come fall 2020 and beyond.
“The cash assistance that came from COVID-19
kind of masked the cash flow problems that we expected providers to have from
the Patient-Driven Groupings Model (PDGM),” Stoneridge Partners President Rich
Tinsley said. “I would expect after August [or] September you’re going to start
seeing those agencies have some [difficulties] … as that cash burns off. … In
so doing, I think you’re going to see those agencies come back out to market.”
Tinsley made those comments Tuesday during a
presentation at the National Association for Home Care & Hospice (NAHC)
2020 Financial Management Conference, which was held virtually this year due to
the COVID-19 emergency.
Struggling agencies will likely come to market
with lower valuations, presenting unique, affordable opportunities for private
equity companies and strategic buyers looking to make a deal.
Those opportunities are especially appealing
considering the fact that home health services are in high demand amid the
coronavirus. The COVID-19 emergency has pushed more and more long-term and
post-acute care into the home and out of institutional settings to keep seniors
safe.
More than half of the states in the country have
rising COVID-19 case counts in nursing facilities, according to new same-store data compiled by the
National Investment Center for Seniors Housing & Care (NIC).
On top of that, home health and hospice
valuations reached an all-time high in the first half of 2020, according to a recent report by PricewaterhouseCoopers’
(PwC) Health Research Institute. Multiples hit 29 times in the first
six months of the year, up from the previous high of 26 times in 2019.
Those figures are in reference to LTM
EV/EBITDA.
PDGM and the coronavirus could help drive down
those multiples — or at least, that’s what some buyers are hoping, according to
David Berman, principal of health care M&A at Simione Healthcare
Consultants.
“Moving forward into the next hundred days and
having some conversations with some active buyers in the past, they expect Q3,
Q4 and Q1 of 2021 to be very active on the M&A side,” Berman said during
the presentation. “I don’t think anybody’s going to be looking to overpay for a
B- or C-level asset. … People are going to be looking for value.”
While some private equity companies could be
willing to pay more, he noted that most buyers are looking to drive down the
multiples in the home health space.
Buyer considerations
Even though providers will come to market at a
lower price than usual, don’t expect buyers to jump on every affordable agency
they see. There are a number of considerations in play for acquiring entities
to ponder before diving in.
“It’s trite to say, ‘One plus one has to equal
more than two,’ but in the M&A world, it has to equal more than two,’”
Berman said. “Otherwise, why do the deal? There has to be gained synergies.”
Those synergies can be expense savings,
revenue growth or market expansion opportunities, just to name a few examples.
In addition to identifying potential synergies, another important consideration
is how long it will take for those synergies to be realized, Berman said.
Buyers will also be conducting other typical
pre-transaction due diligence activities, such as working to understand an
agency’s workflows, culture and financials. On top of that, they’ll be looking
at new COVID-19 specific considerations.
For example, does the potential acquisition
target have a PPP loan? If so, that introduces new risk for the buyer.
Bailey
Bryant - When she’s not
reporting, Bailey likes exploring Chicago for brunch spots and workout classes.
Previously, she worked in book and magazine publishing before becoming a tv
reporter.
No comments:
Post a Comment