In-home care tailwinds have only grown stronger during the COVID-19 crisis. That, in turn, is prompting the home health industry itself to change.
Initially, much of that change has come in the form of more M&A action and investment, especially from private equity interests. Eventually, though, it will also likely manifest in more activity in the public markets, with multiple providers positioned for possible IPOs.
“COVID made everybody realize that people do prefer home-based care versus [other options],” Rich Tinsley, president and CEO of Stoneridge Partners, told Home Health Care News. “That’s partly because outcomes are better. Payers like it because it’s less expensive for them, but there are other [investors] as well. This perfect storm, it’s been a long time coming.”
Stoneridge Partners is a health care M&A advisory firm based in Louisville, Kentucky.
The most recent in-home care company to venture into the public waters was the Atlanta-based Aveanna Healthcare (Nasdaq: AVAH), which filed for a $100 million initial public stock offering in April.
Accumulating $1.5 billion in revenue in 2020, Aveanna has traditionally been a pediatric home health provider, serving patients through 245 locations in 30 states. As it went public, the company said it also plans to develop an industry-leading home health and hospice business for adults.
Besides Aveanna and the home health giants that have been public for years, there are plenty of other formidable companies that could feasibly reach public status in months to come.
“I think when you’re trying to predict who might be the next company to go public, you have to start with size. The biggest privately owned in-home care companies right now, to my knowledge, are BrightSpring and AccentCare,” Mertz Taggart Managing Partner Cory Mertz told HHCN. “They both have the size and scale where it might make sense to do a public offering.”
Fort Myers, Florida-based Mertz Taggart is an M&A firm focused on behavioral health, home care, home health and hospice dealmaking.
For BrightSpring or AccentCare, it makes a lot of sense for their next transaction to be either “highly strategic” or a public offering, Mertz speculated.
On its end, Louisville, Kentucky-based BrightSpring is one of the largest providers of home- and community-based services (HCBS) in the U.S., serving more than 350,000 patients across all 50 states. Formerly known as ResCare, the company is backed by global PE powerhouse KKR and an affiliate of Walgreens Boots Alliance (Nasdaq: WBA).
In February, BrightSpring acquired Abode Hospice and Home Health — a home health, hospice and palliative care services provider — for $775 million.
“If you put those two together and add in organic growth and general expansion, you’re likely looking at an enterprise value over $2 billion,” Mertz said.
Dallas-based AccentCare is another company that could have a public future, some industry insiders believe. Backed by Advent International, AccentCare delivers home health, hospice, care management and personal care services across 240 U.S. locations.
After its merger with Seasons Hospice & Palliative Care, it became one of the largest home health-hospice combinations in the country.
“AccentCare has the size, especially after the Seasons merger, but it was big before then,” Mertz said. “I would expect they’ll be looking at an exit anytime in the next three to four years. I would expect their multiple would be comparable to the current public companies, including Aveanna. It has an enterprise value right about $2 billion and is trading at a 33 times multiple, and private equity won’t pay that kind of multiple.”
Without a private equity buyer able to meet its value, going public could make the most sense for AccentCare.
“Currently, the public companies are doing well,” Tinsley said. “And so I wouldn’t be surprised to see large, regional providers or national, private equity-backed companies deciding to exit by going public.”
Before Aveanna, the last home health company to go public was The Pennant Group (Nasdaq: PNTG). Pennant spun off from The Ensign Group (Nasdaq: ENSG) in 2019.
Besides BrightSpring and AccentCare, Help At Home is another company that insiders are keeping their eyes on. Backed by the Vistria Group and Centerbridge, Chicago-based Help At Home provides HCBS across 12 states, serving about 67,000 clients across its network.
Moorestown, New Jersey-based Bayada Home Health Care is a home-based care company with similar size and capabilities to BrightSpring and AccentCare, but it currently operates as a nonprofit.
Pros, cons of going public
The formula is not as easy as getting big and then going public. There are other considerations for companies to make before they step out of the private sector and into the spotlight.
One obvious benefit is the ability to command a higher valuation.
“If you have the size and scale, you will often command a higher valuation by going public than by selling to, say, private equity,” Mertz said. “The biggest reason for this is liquidity. Investors can buy and sell public company stocks in a few mouse clicks. They will pay a premium for that liquidity. To sell to a privately held company takes months — and sometimes longer — depending on the regulatory approvals required.”
But public status requires a level of transparency that privately held companies are not subject to. That includes quarterly — at a minimum — reports and heightened costs to comply with SEC regulations. It also includes a much larger group of investors to keep happy.
“There is a risk and a rigor to it because you are now public and have to fulfill all the public requirements, and there is a time and focus cost to that,” Tinsley said. “You have all of these reports to fulfill and disclosures of when a material event happens. When you are a publicly traded company, you’re expected to be as transparent as possible, so the public can make their own determination of value.”
The other downside to going public is being able to take fewer risks.
Experimental and aggressive companies generally change their tune once they become a listed stock.
“Public companies aren’t able to take the kind of risks a private company can,” Mertz said. “Everything is out in the open and subject to analyst criticism, which can affect the stock price.”