Sector spotlight: Home health and hospice
Although overall healthcare merger and acquisition (M&A) activity slowed in the second quarter of 2017 (Q2-2017), activity in the home health and hospice sector increased despite experiencing headwinds. In Q2-2017, the number of closed home health and hospice M&A transactions increased by 29 percent from the first quarter of 2017 (Q1-2017) to a total of nine transactions. Q2-2017’s total also represented a 50 percent year-over-year increase from the second quarter of 2016 (Q2-2016), when there were six closed transactions.
The sector is poised for continued M&A activity as companies look to expand their operations into varying geographic locations, diversify customer/patient base and achieve operational efficiencies through economies of scale and increased market share. The primary sector driver is an aging demographic.
- Aging demographic: The number of American senior citizens is growing, driving demand for the home health and hospice sector. Over the next 20 years, as the baby boomer generation (born 1946 through 1964) reaches 65, the senior population is projected to grow to nearly 80 million – almost double the estimated number in 2012 and representing approximately 20 percent of the total U.S. population.1
- Cost: In addition to a senior’s preference to remain in their home for as long as possible, cost is another sector driver. Compared to alternatives such as retirement communities and nursing homes, in-home senior care provides care and supervision at lower cost.
However, in the current landscape, headwinds related to political uncertainty and ongoing labor shortage continue to impact the sector:
- Political uncertainty: The majority of revenue for the industry comes from Medicare, Medicaid and private insurance. The policies of Medicare, which represent the largest single source of revenue in home healthcare services, have historically been closely linked to the industry’s growth. Due to uncertainty surrounding Medicare and Medicaid reimbursement and the replacement of the Affordable Care Act, potential buyers may be showing increased caution.
- Labor shortage: Finding and retaining qualified registered nurses and home health aides is a potential challenge. As the number of home healthcare businesses increase, the demand for qualified employees is high. Additionally, registered nurses are retiring faster than newly trained nurses can replace them.
Driven by an aging demographic with a desire to stay at home, the sector continues to garner significant interest from both strategic and private equity firms seeking to consolidate the fragmented market.
For more information on this deal, or to learn how Baker Tilly Capital specialists can help, contact our team.