Private equity players are sitting on more dry powder than ever before, entering 2020 with a reported $1.5 trillion in unspent capital. In all likelihood, a portion of this cash will go into the in-home care space.

In general, the health care sector has already seen an increase in private equity investment over the past few years. There were 299 health care deals involving private equity buyers or sellers in 2009; that number is expected to skyrocket to almost 750 for 2019 when all the deal data is in and analyzed, according to statistics from PricewaterhouseCoopers.

“There has been a large increase in private equity interest in health care,” Matt Picciano, principal at Alpine Investors, told Home Health Care News. “Overall, the market is big and growing, so you’re seeing private equity become more comfortable in the health care space. It’s a flywheel effect.” 

Historically, private equity has set its sights on larger transactions.

This has typically meant moves totaling over $100 million — sometimes even $1 billion or more. The in-home market became a player when private equity firms began coming up with alternative investment strategies that allowed them to come down to market, according to Cory Mertz, managing partner at M&A advisory firm Mertz Taggart.

As a result, the in-home market has seen growing interest from private equity investors, stemming from providers’ ability to provide care at lower costs and the substantial increase of older adults in the U.S. who need home-based care services, according to Picciano. Those macro-level tailwinds aren’t going away anytime soon, as the Silver Tsunami has yet to make landfall and federal policymakers continue to push home-focused reimbursement strategies. 

“The private equity interest in health care has definitely gone to home health,” Picciano said. “[Alpine Investors] is an example of that.”

To say Alpine Investors is an example is an understatement. Since its formation in 2001, San Francisco-based PE firm Alpine Investors has fully leaned into the in-home market, making at least nine investments in the space overall.

Last October, TEAM Services Group, a portfolio company of Alpine Investors, purchased AmeriBest Home Care, a Philadelphia-based home agency that provides long-term care, skilled nursing, medical social work, physical and occupational therapy, as well as non-medical personal care.

Last May, the firm acquired Circle of Life Home Care Anishinaabe Inc., a Minneapolis, Minnesota-based home care agency that focuses on serving Native American communities.

Prior to that, Alpine Investors purchased Advantage In-Home Services, which was formerly part of St. Louis-based Advantage Nursing Services Inc., a pediatric care provider with locations in Missouri and Illinois.

But Alpine Investors isn’t alone in home-based care M&A activity. Private equity firms such as BelHealth Investment Partners, TPG Capital, KKR and RAB Ventures have also planted seeds in the in-home space.

And with private equity having ample cash on hand, there is the potential for even more dealmaking in 2020.  

“The fact that private equity firms have a lot of cash going into 2020 is going to mean, for sellers of businesses, that it will continue to be a seller’s market,” Picciano said. “There is a lot of demand for high-quality businesses, and a lot of potential buyers with a lot of cash that they need to deploy into companies. I’d expect the M&A market to continue to be robust.”

Overall, the last two years have seen more than 100 in-home related transactions. In 2018, private equity accounted for 57 of the 129 transactions; in 2019, private equity accounted for 46 of the 101 transactions.

In both years, private equity is involved with almost 50% of in-home industry deals.

While those who follow market trends can expect to see dealmaking continue throughout 2020, the market is likely to remain status quo to some extent in terms of private equity involvement early on.

But there is the possibility of a spike in the market, factoring in the Patient-Driven Groupings Model (PDGM), according to Mertz.

“I expect that [private equity] activity will be on par with what we have seen over the last two years,” Mertz said. “I expect we will probably see an uptick in activity overall on the heels of PDGM. We will see as many, or perhaps a few more private equity deals this year.”

Still, the launch of PDGM — which began on Jan. 1 — could mean a slowdown in platform transactions during Q1 and Q2, according to Mertz.

“I expect we will see very few platform transactions occurring in the first six months of the year,” he said. “We may see some add-on type of transactions that take place with the private equity-owned portfolio companies that are out there — think AccentCare. We will see consolidation, but it’s hard to predict whether they will take the form of actual transactions or just companies informally merging. Either way, we will see an uptick of private equity-backed companies involved.”

In June, Global private equity firm Advent International completed its acquisition of Dallas-based AccentCare. a post-acute care provider that has rapidly grown into one of the largest in the country, partly thanks to its M&A success. The company offers post-acute care services across more than 170 locations.

Of course, PE firms don’t just operate from the buyer side.

Some PE owners may look to sell their home-based care businesses as well. That’s especially true for hospice assets, which have normally featured higher multiples than home health businesses of late.

It’s a point that April Anthony, CEO of Encompass Health’s (NYSE: EHC) home health and hospice segment, made during the company’s Q4 earnings call earlier in February.

“We anticipate that there will probably be a few larger transactions, predominantly companies that are private equity-backed that may come to market in the course of 2020,” Anthony said. “It’s our anticipation — just given the potential volatility associated with the transition to PDGM — that those PE properties brought to market may be more heavily skewed towards hospice than home health. We will certainly be a candidate to look at those, and we recognize that industry multiples are higher right now that they have been.”