Ridgemont Equity Partners bought Agape Care Group from the Vistria Group in October, with Harris Williams advising Agape. We asked James Clark, a managing director with the investment bank, to share his insights on M&A in hospice and palliative care.
What forces are driving M&A in the hospice and palliative care sector?
There’s a fundamental change occurring in the space driving M&A. We’re seeing the integration of traditional fee-for-service models with Medicare Advantage, which rewards larger organizations with more sophisticated technology and value-based care capabilities. The result is a dynamic in which smaller players are at a relative disadvantage and have an imperative to grow via M&A or be acquired by a larger platform. M&A investors love spaces where they can generate real value via aggregation and professionalization, and hospice and palliative care is a great example.
Why is private equity investing in the sector?
Four major drivers are at play. One is a population that continues to age, providing fundamentally strong secular growth. Second is the fact that people generally prefer to be at home to receive care, especially in later stages of life. The third is the increasing diversity and sophistication of services that can be delivered at home, making hospice and palliative care a real alternative to more expensive facility-based settings. Finally, these services typically cost less to provide than traditional in-patient services, saving the ultimate payor— Medicare—a significant amount of money.
What do PE firms look for in targets?
Private equity groups look for great companies that can benefit from additional capital and professionalization. Generally, those companies will have talented management teams, modern and centralized technology infrastructure, and the ability to achieve and demonstrate high-quality clinical outcomes and compliance scores. The most attractive companies also have scale, whether regional or national. Having scale is essential for many reasons: Payors want fewer providers that can serve more patients in more locations, and scale enables providers to operate more cost-effectively and at higher quality levels.
How is the Agape deal emblematic of these trends?
On many levels. Agape Care has a great management team with the skills necessary to continue growing. It is the leading provider in its home state of South Carolina and is growing its presence in Georgia. That scale and coverage make Agape Care a very attractive partner for payors. It has a sophisticated, centralized technology platform that enables the data and reporting that health plans need. It also delivers objectively high-quality care as measured by its leading Star Ratings.
