Why Enhabit Is Poised to Become A Major Acquirer

Ahoy! Spring is upon us, and that means it’s fire spinning season! This is always a highlight of the year. I do a kind of performance art involving fire, both with flaming poi and with a Scottish Claymore broadsword that I have wrapped in kevlar and ignite. It’s super good fun. One of my favorite parts is the “WHOOSH” sound as I swing them around. I just need to renew my fire safety training for the year, and I am good to go.

But back to business …

I published an interview on Hospice News a couple of days ago with Dale Clift, the newly appointed CEO of Enhabit Inc., and I would like to expound on that here. In particular, I want to talk about the company’s future in terms of M&A.

Since its inception as a spinoff from Encompass Health (NYSE: EHC), Enhabit has relied largely on a de novo strategy with a goal of opening 10 new locations annually. Now, I believe, the company will step into the M&A market in a big way.

Part of the impetus behind this is the company’s recent acquisition by the private equity firm Kinderhook Industries for $1.1 billion.

Clift has a longstanding relationship with Kinderhook. According to his LinkedIn profile, Clift served nearly 10 years as CEO of Trilogy Home Healthcare and almost 11 years as president and CEO of Nurse On Call, both Medicare-certified home health agencies. Nurse On Call and Trilogy were both Kinderhook-backed investments that exited in 2012 and 2023, respectively.

Typically, PE firms try to grow their assets through “roll up” acquisitions designed to build value in their portfolio companies for an eventual sale. This is likely to occur with Enhabit.

Secondly, the current six-month moratorium on Medicare enrollments for hospices and home health agencies could make it more complicated to launch de novos. Clift said as much during our interview.

“[The moratorium] would slow down opening brand new branches for a while. It doesn’t necessarily stop you from buying something if you see some right opportunities,” Clift told me. “So I think you have to just do a reallocation. Before, we had people planning all the new branches we wanted to open up. Now we take those people and help them find some more opportunity to buy some mom-and-pops, or maybe some medium-sized ones.”

Clift said that Enhabit plans to “aggressively” grow its hospice business, with greater emphasis than its home health side. Currently, the company’s home health segment is much larger in terms of revenue than its hospice operations, and they want to reduce that differential.

I think in the coming years we will be reporting on a slew of Enhabit transactions.

Question: Is your organization considering buying or selling a hospice this year? What’s the market looking like to you?