Despite the proposed rule of home health, M&A procedures are already within 10% of 2021

Despite the proposed rule of home health, M&A procedures are already within 10% of 2021

Until the final home health payment rule drops from the Centers for Medicare and Medicaid Services (CMS), mergers and acquisitions are expected to remain relatively quiet.

However, some experts believe that if cuts are avoided through legislation or other means, mergers and acquisitions should see a huge boon.

“If we are successful as an industry and pushed to 2026, that gives a level of consistency and predictability in the industry,” Mark Kollek, senior managing director of the Braff Group, said during the FUTURE Home Healthcare News event. week. “For M&A, the most important thing is predictability, reliability or lack of risk. So if it is pushed to 2026, we have a fertile environment for the next several years from an M&A perspective.”

However, postponing the cuts until 2026 seems somewhat unlikely. But either way, once the final rule is announced, it will allow buyers and sellers to move forward with more certainty about where things stand.

Currently, the proposed rule places a wrench in many transaction plans.

“I put a pause [M&A] “Obviously, that was a surprise,” Kollek said. “I never saw it coming. I don’t think anyone in the industry saw it coming, especially after COVID.”

The proposed rule threw a cold bucket of water on a hot industry.

It also adds an element of risk, an element that wasn’t there during a few years of price increases.

Similarly, the patient-driven group model (PDGM) has added relative uncertainty to the home health market. Because of COVID-19—and thus government aid—the ramifications of PDGM may not be fully realized yet.

“during [2020 and 2021]If you talk to the owners, a lot of well-managed home health agencies have already improved their EBITDA by a point or two, Kollek said. “I was surprised when I talked to people across the country. People thought it would be such a big reduction, but the industry has adjusted and the better run agencies have actually shown a 1% or 2% increase in their profitability.”

Even in a year when uncertainty emerged halfway with the proposed payment rule, 2022 remains a more optimistic M&A picture than many might think.

“2021 saw a record year with 83 home health treatments taking place across the country,” Kollek said. “Since we’re sitting here today, if you release the first half of 2022 annually, we’re at 74. So we’re close. We’re about 10% away from record activity last year.”

Going forward, Kollek feels there is the potential for more transactions to take place between smaller and larger providers without the involvement of private equity.

“The strategic buyers that are in the market certainly know the issues, they know where to look, and they know the business truth,” Kollek said. “This due diligence process is going a little bit more smoothly because there is an understanding of, ‘I work in this market, and I know what was going on. “

On the other extreme for private equity, these companies come from very practical and financially motivated positions.

“It’s a return on investment for them,” Kollek said. They are looking to try and buy an authentic organization. If they have the 20 most important things to them, they want to select all 20 boxes if they are going to pay an exorbitant price to that agency.”

There are indications in the market that private equity activity across all sectors is slowing down in 2022 as well.

New data from a capital marketing company stadium book It showed that mid-market private equity firms raised $55.6 billion across 70 funds in the first half of 2022. Since 2019, mid-market firms have raised an average of more than $130 billion year-over-year.

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