Brad Coppens is a managing director at One Equity Partners, where he helps lead the New York middle-market firm’s healthcare efforts. Coppens holds various board memberships, including at OEP-backed All Metro Health Care, which provides primarily nonmedical home-care services.
How has the home health sector evolved in recent weeks?
There continues to be meaningful change in the home health sector.
First, MedPAC [The Medicare Payment Advisory Commission] continues to push for payment reform in the sector and while HHGM [Home Health Groupings Model] was delayed, home health and many sectors in post-acute continue to be areas of focus for CMS [The Centers for Medicare & Medicaid Services].
Second, and on the heels of payment reform delay, LHC Group and Almost Family announced a merger creating the second largest home health provider nationwide. Attributing the merger to that regulatory delay might overstate its importance, but consolidation and the benefits of scale in the home health and home care markets are things that clearly benefit both large and small companies.
This is where we are focused. It is difficult to control reimbursement trends or labor rates, but the benefits and cost advantage of home-based care continue to drive volumes into the sector and we see the degree of provider fragmentation in this market as a huge opportunity.
So how do you approach M&A at All-Metro, OEP’s home care business?
The bread and butter of our strategy from an M&A standpoint, non-exclusive to All Metro, is to continue to densify in the markets we’re in. This strategy is a little bit different in every market.
For instance, we have over $100 million in revenue in our pipeline in Pennsylvania. We intend to dramatically grow our presence in the state in advance of the Community HealthChoices implementation, Pennsylvania’s MLTSS [Managed Long-Term Services and Supports] program.
On the heels of the recently announced LHC and Almost Family combination, we think there will continue to be large strategic moves in the space, and we intend to participate in those activities.
One of the things that folks are starting to realize as this space is growing is the advent of managed care in this space. With that comes a greater need for outcomes, visibility, improvement in clinical reporting and scale. Managed care payers will want to contract with only the most financially and clinically capable providers in healthcare.
How would you describe the home health landscape from a valuation standpoint, and how does this impact your strategy?
It’s certainly safe to say that today’s environment is very seller-friendly. There’s a lot of larger, well-capitalized buyers that are now consolidators, and we’re no exception. That certainly leads to increasing valuation multiples.
Where you see the biggest disconnect is between what’s happening in a hyper-local way — with agencies that have some $10 million in EBITDA — and where the public companies are trading. That relates to scale, clinical and operational infrastructure and diversification. These are just more valuable companies as they scale.
There is still good value and good buying opportunities if you’re willing to do the hard work to acquire five companies doing $20 million of EBITDA rather than one doing $100 million. And so we have structured our strategy around that. We’ve come to grips with the reality that there are many more smaller opportunities.
What kind of non-traditional strategic buyers might enter the space?
The question is: To what extent do managed-care organizations that have diversified into more integrated offerings decide buying provider assets makes sense? Humana and UnitedHealthcare are great examples. We have enough conversations with all the managed care companies to know they are seriously considering it.
Clearly, opening up a new avenue for buyers is exciting, but whether All Metro ultimately goes to a managed-care company, another provider, or we end up creating a company that’s a good public company, our job is still the same.
What are your goals for All Metro?
All Metro has an opportunity set in front of it that would allow it to become a $1 billion in revenue company. It’s not for lack of opportunity, but it’s a matter of organizing ourselves around those opportunities and making sure we are continuing to devote capital so All Metro can pursue that.
The challenge is not how big we can possibly grow it. It’s determining where to grow — this state or that, this offering or that — and looking at what we’re missing from a technology or operational standpoint. It’s the process of managing all of those things.
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Photo of Brad Coppens courtesy of One Equity Partners