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ComplianceMay 24, 2021

5 trends driving home healthcare mergers and acquisitions

Accelerated by the COVID-19 pandemic, home healthcare is one of the fastest-growing healthcare sectors and includes services such as hospice care, home nursing, home medical supply delivery, and in-home diagnostics. Reflecting this growth, home healthcare mergers and acquisitions surged by 120% in the final months of 2020, with 22 publicly announced transactions in Q3 alone.

As deal activity ramps up, we look at five trends that are driving home healthcare M&A and important due diligence considerations for investors.

1. Fragmented market

The home healthcare market is still relatively fragmented and comprised of independent operators, franchises, and corporate affiliates. Most of these providers (78%) employ a relatively small workforce of fewer than 50 workers.

However, consolidation is taking place in certain segments as companies look to expand their services in areas such as hospice care, non-medical care, and skilled home health.

2. Aging population

Baby Boomers and retirees are driving demand for home healthcare services. According to Forbes, ten thousand Baby Boomers turn 65 each day and this segment is anticipated to make up nearly 20% of the population by 2030. The desire to “age in place” will continue to drive demand for in-home care and fuel investor enthusiasm for M&A activity in these niche sectors.

3. Telehealth

The pandemic has transformed how Americans interact with their healthcare providers. Previously slow to catch on to the benefits of technology-enabled healthcare delivery, doctors, patients, insurers, and regulators are embracing the benefits of delivering patient care virtually. As early as April 2020, telehealth services were being used by 46% of consumers up from 19% the prior year — a number that is expected to continue to rise. This new mode of healthcare has almost certainly piqued the interest of dealmakers looking to capitalize on this hugely profitable and evolving segment of the industry.

4. Technology

Driven by necessity, technology has transformed how Americans consume services, particularly older generations. Just as online grocery shopping has become a way of life for many households, the shift to digital health is becoming the new normal. Healthcare programs, like Medicaid, are making moves to accommodate this demand while reducing administrative costs. For instance, new government guidelines have tied financial reimbursement with digital adoptions such as patient portals, digitized patient records, and communication capabilities. This is likely to drive growth and dealmaking as the sector looks to cloud technologies, big data, and other technology to automate and drive efficiencies.

5. Increased acceptance of palliative care services

In-home palliative care is gaining acceptance in the United States. In response, healthcare providers, patients, governments, and advocates are engaging in efforts to make this form of hospice care more accessible and affordable. Many providers see a role for themselves and are looking to launch or expand their services to enable the delivery of seamless home healthcare programs through joint ventures and M&A.

Due diligence considerations for healthcare dealmakers

If your firm is interested in the home healthcare segment, due diligence is critical. Here are some areas to consider:

  • Conduct a comprehensive search. If real estate is involved in the transaction, your firm — as a buyer — should insist on a comprehensive search strategy. Information about liens, valuations, and ownership is an essential part of any such strategy.

  • Legal due diligence requirements should be satisfied. These include UCC searches, federal, state and county tax lien searches, judgment and bankruptcy searches, and good standing verification.

  • Understand intellectual property (IP) assets. The transaction value of an acquisition that targets IP assets can reach into the billions. Without a thorough understanding of the complexities of these high-stake transactions, it's virtually impossible to derive precise valuation numbers when negotiating a deal.

  • Reputational due diligence is an absolute must. When pursuing a deal in the healthcare M&A market, due diligence can uncover potentially damaging information that is publicly available in the media, but not tracked by a government agency. For instance, negative news searches, which comb through press outlets, can alert you to any red flags or negative information that could affect your company’s reputation and be financially impactful.

  • Business license due diligence must be pursued. This is essential for identifying jurisdictional requirements and identifying the required forms and data filings for business licenses. By doing so, your firm can ensure continual, uninterrupted operations of business assets after a sale and minimize the risk of fines or other penalties in these highly regulated industries.

Once these considerations have been thoroughly explored, your company can rest secure in the knowledge that proper due diligence has been performed, thereby greatly lessening the risk of complications derailing the deal

Get all the M&A support you need in one place

Whether at the beginning stages of due diligence and compliance, or the high-pressure stages of closing, CT Corporation has assisted thousands of corporate transactions. Our team understands the complexity of each deal. For more information on how we can help support your next deal, contact a CT Corporation specialist today.

The CT Corporation staff is comprised of experts offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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