Dealmaking momentum is expected to continue in the new year after a banner 2021 for private equity. In our outlook for 2022, we see several themes that are expected to play a significant role in PE investments: workforce management, infrastructure, ESG, home healthcare, business travel and new technologies, like cryptocurrency. We also predict that supply chain disruptions will continue to provide PE with opportunities. See below for a sector deep-dive on healthcare.

As the pandemic forced people to stay home, it also spurred growth for businesses built on healthcare administered in the home, such as telemedicine companies and providers of in-home nurses. Middle-market private equity firms are searching for niches where they can capitalize on these trends.

Yash Kandoi, Principal, VSS

Healthcare administered at home can fit into an attractive business model because of the cost benefits, says Daniel Florian, managing director at Sun Capital Partners in Boca Raton, Florida.

“There’s been a huge trend of the care setting shifting away from the hospital, just given how expensive everything is there,” Florian says. “And Covid really just expedited that in many, many ways.”

The home healthcare space does have a drawback: It’s overcrowded with potential buyers, says Yash Kandoi, principal at VSS Capital Partners in New York. VSS is looking for targets with some regional density in their business, the right management team and good patient outcomes, as measured by patient success and reviews.

“In healthcare, it’s all about providing high-level, experienced and true premium services to patients to make sure the patients are happy and the patients are seeing better outcomes,” Kandoi says. “If you can provide that and scale that, then you’re creating value across all stakeholders: patients, providers, payers.”

Dan Florian, Managing Director, Sun Capital

Florian’s firm is searching for targets in infusion care—therapies where drugs are delivered intravenously, typically for several hours at a time—that could grow with the shift to home care. Infusions have traditionally been administered in hospitals, but more and more providers are delivering the therapy in small centers outside the hospitals, or in the home setting, or in combination of the two. “The costs are significantly different, and it’s much cheaper outside the hospital,” he says.

Florian says he’s looking for companies with strong management teams that understand the infusion business, a strong customer base and established relationships with healthcare payers. “There’s a lot of white space out there,” he says. “Infusion is growing in general, but then when you add the growth of the shift outside the hospital, it really juices the organic growth rate.”

One long-term trend driving the increase home healthcare is the lack of growth in nursing home numbers in the last 50 years, says Gregory Moerschel, managing partner at BPOC in Chicago. According to statistics compiled by the Centers for Disease Control, the total number of nursing homes in the U.S. has only increased by about 800 since the 1970s. That means the nursing homes are filling with the most severely affected patients and the less acute patients are pushed into home care.

Gregory Moerschel, Managing partner, BPOC

“I think home health is a great investment opportunity if you get it right,” he says. “The demand is going to be there for many, many years.”

The best strategy, Moerschel says, would be to acquire a nursing agency with access to discharge planners and hospitals, where most of the customers come from, and build it out with a locally owned franchise model while maintaining high quality of care. Nursing agencies typically offer either skilled nurses, who provide a high level of care, typically in daily visits to the home, or Certified Nurse Assistants (CNAs)—entry-level workers who provide companion care, but who are forbidden from administering medication in any form. CNA coverage is the most rapidly growing area.

Telemedicine technologies no longer offer enough room for growth to foster M&A deals, Moerschel says, but home healthcare providers could augment their services with health monitoring and communication technologies to give themselves a competitive advantage: better quality of care. Such technologies, for example, could allow a remotely working skilled nurse to monitor an in-home patient or advise the in-home CNA, or a physical therapist could remotely offer therapy sessions to the in-home patient.

For more in Mergers & Acquisitions’ M&A Outlook 2022 series read: