Thesis: In the time of the Covid-19 Pandemic, the same meta-data that protects us can be inadvertently manipulated to hurt us. In lower-middle-market healthcare transactions, we base our M&A health on actual data, not assumptions. The data is clear: our deal flow is thriving, and transactions continue to stay on track.
A Health Crisis by the Numbers. What It Means for Healthcare Operators.
It took me longer than most to realize this pandemic was real. Despite a shut down from Europe, canceled schools for the kids, and my wife looking into purchasing a spare refrigerator; I was still unmoved by the gravity of it all. Then I saw the ominous data coming out of Italy. The staggering statistics were more powerful than the images or articles. The data told a compelling and tragic story.1
Obviously, data matters. And the data from the past few months of transactions demonstrates that despite the current trajectory of the overall US economic markets, the healthcare industry is strong. Most people are surprised to learn that our past month is a record month in generating deals and deal execution. Furthermore, if you were to compare past trends leading up to the current data, you could assume our deal volume will persist, even in the worst of times. With our recent engagements and continued traction in the market, we can assume a better year-over-year outcome for 2020 Healthcare Services M&A.2
Several of our clients remain busy in this time of crisis. This suggests strong operational viability. It is in this viability that investors focus. If you can weather an economic storm, the likes of which we have never seen, and continue with the same numbers in revenue, census, scripts, or other financial metrics, you will maintain (or increase) your valuation even as other industries fall.
Deal Volume Increases Despite Economic Downturn.
We do not use financial models to generate valuations. They are rarely accurate and not usefully predictive. The true indicator of value is transactional comparative data. We have determined the strength of the healthcare lower-middle market based on deal flow and closed deals. In that regard, the deal volume has continued unaffected by the current economic depression in certain healthcare segments we represent.3 Despite our larger concern for the economic wellbeing of the nation, we see a massive silver-lining in healthcare services M&A. When virtually every other industry has inhibited deploying capital or acquiring assets, healthcare services, such as Home Health, Hospice, Pharmacy, and Behavioral Health, stay on a growth trajectory.
This economic shutdown has accentuated the need for viable well-supplied, well-staffed, and well-capitalized health services. Being an industry fueled by compassion and courage, it is fitting that healthcare is receiving the recognition it deserves. From a financial perspective, Healthcare investment is surging at a time when other industries have been in the steep declines. There is still room for improvement. I believe the post-COVID-19 US healthcare industry, will shore up its supply-side (PPE, DME and Pharma) and dedicate more resources to all services on the continuum of care.
Certainty will always increase a valuation. And there is no entity that is more financially certain than the Federal Government. Over the past month, the Federal government has shown its unwavering support for smaller healthcare agencies. CMS has delivered on advanced/accelerated payments to several of our clients with a Medicare payor.4 This is a significant form of stimulus, even for agencies that did not have an immediate need for it. As much as our clients are burdened by Medicare regulations, CMS is stepping up when they are most needed. This exhibition of Federal government support (and partnership) creates confidence with investors. Confidence is good for valuations. CMS is the largest payor for most of the business we transact. The vitality and wherewithal of this payor is extremely comforting to our clients and acquirors, alike.
Lower Middle Market Behavioral Health, Pharmacy, Home Health, and Hospice are as Strong as Ever.
The foregoing is actual valuation data of our current deals in process in the categories of Behavioral Health, Pharmacy, Home Health, and Hospice segments. These listings have been originated within past 3 months. The list is for statistical analysis; for more information on our current listings please contacts us.
Valuations are typically based on either Multiple (X) of EBITDA or Percentage (%) of Revenue. For each deal we have listed the more relevant metric.