June 2021 M&A activity highlighted several compelling themes:
- COVID-19 Effect on Substance Abuse Rates: COVID-19 and the resulting economic challenges have brought on an unwelcome level of stress for many Americans, and according to the Centers for Disease Control and Prevention (CDC), 13% of Americans have reported using substances as a coping mechanism in response to COVID-19 related emotions. In addition to an increased risk of a potential overdose, individuals with a substance-use disorder (SUD) are statistically more likely to contract COVID-19 and experience higher hospital and mortality rates. Medication-assisted treatments and rehabilitation centers have proven to be vital solutions to improving the lives of individuals with SUD, and the need for SUD services is expected to continue as both reported COVID-19 cases and hospitalizations continue to rise. In response to the uptick of SUDs, rehabilitation centers continue to consolidate the market and investors are recognizing the opportunity to infuse cash into the market for further expansion of resources.
- Elective Surgeries Returning to Pre-COVID Levels: Elective procedures were put on hold during the first portion of the pandemic, and there has been uncertainty as to when, and at what volume, these procedures would resume. With states lifting restrictions and vaccination rates increasing, providers and health systems have allowed additional procedures to commence with medical imaging and medical devices becoming increasingly prevalent in monitoring COVID-19 patients and assisting with elective procedures. It is expected that 99% of delayed prodcedures will be rescheduled across all procedure lines, and the resulting need for more advanced medical imaging equipment and medical devices has contributed to an acceleration of M&A activity across these two areas - a trend expected to continue as hospitals and health systems work through a backlog of procedures throughout the remainder of the year.
- Significant Consolidation Continuing in the Hospice Market: The consolidation of the US hospice market is a trend that has been prevalent through 2021 and has continued through June. What once was a highly fragmented hospice industry has transitioned to being dominated by large players that are growing with strategic tuck-in M&A opportunities. The US hospice market size is expected to increase 8% per year through 2026. This growth, driven by increased demand due to aging populations and demographic tailwinds, has been on the radar of private equity buyers, who are providing the capital needed to fuel the largest hospice provider’s inorganic growth opportunities. Smaller hospices in high-value geographic areas are being aggressively sought after as major providers look to expand their reach. While hospice market growth in 2020 was slowed due to lower utilization and high-risk patients resisting hospice services, June of this year marks the continuation of strong market tailwinds, and major hospice providers are anticipating an even stronger 2H 2021.
Several transactions announced in June align with the above themes:
- BayMark Health Services, a provider of medication-assisted treatment of SUD to 67,000+ patients, has announced the acquisition of New Day Recovery, a residential and office-based opioid treatment (OBOT) company based in West Monroe, LA. BayMark has recently focused efforts on growing its footprint in the Residential Treatment space.
- Bicycle Health, a Boston, MA-based virtual care provider of evidence-based treatment for opioid use disorder, announced a $27M Series A investment led by Questa Capital with participation from City Light Capital, Emily Melton and previous investor SignalFire.
- NMS Capital, has partnered with company management in the recapitalization of DirectMed Parts & Service, the largest independent source for service and supply of medical imaging parts for MRI and CT machines.
- Enterprise imaging software developer Intelerad Medical Systems has acquired Heart Imaging Technologies (HeartIT), a developer of clinical workflow automation software based in the Raleigh-Durham area of North Carolina, and it develops web-based image management software utilized by both clinicians and researchers in clinical trials of drugs and devices.
- Encompass Health Corp. (NYSE: EHC), a national leader in integrated healthcare services, announced it has completed its acquisition of Frontier Home Health and Hospice. This acquisition adds 11 hospice locations to the Company's footprint, allowing the Company to serve markets in Alaska, Montana and Washington, three new states for the Company, and expand its existing presence in Colorado and Wyoming.
- Choice Health at Home, LLC announced the acquisitions of Home Therapy of Austin and Restore Home Health, growing Choice’s already strong presence in Texas and continuing to expand their footprint in Oklahoma. This series of acquisitions illustrates Choice’s continued expansion in the home health and hospice markets, and leadership expressed that the company would continue with this M&A initiative through 2021.
TripleTree and TT Capital Partners continuously monitor the market to identify the forces and themes impacting the healthcare industry. Thanks for reading and, as always, let us know what you think!