An anticipated acquisition boom for in-home care companies in early 2025 could be sputtering, as private equity investors worry about the economy and federal policy.
Uncertainty over interest rates, as well as Medicaid reimbursement and immigration policy, are prompting some private equity investors to delay investments in companies that provide skilled and nonmedical care in the home. Still, attorneys and advisors who help broker home care deals said the highly fragmented sector could remain a long-term sweet spot for investment as an aging population pushes more care to where patients live.
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Private equity firms have been among the biggest investors in companies that provide care in the home, spending nearly $70 billion over the past five years, according to PitchBook which tracks the private equity market. Those investors also own some of the largest companies in the home care industry, including Senior Helpers, Compassus and AccentCare.
A dealmaking pause may be in store for the sector. Jordan Cohen, an attorney at Akerman, LLP who specializes in healthcare acquisitions, said his private equity clients are being cautious due to uncertainty over whether Trump administration policies could make buying and operating in-home care businesses more expensive.
“They are putting feelers out and I think they have acquisition targets in mind,” Cohen said. “But I think the administration is so new that it could take a few months for them to get comfortable with what might be on the landscape.”
Two interest rate cuts by the Federal Reserve last fall and the possibility of additional cuts this year set the stage for a rebound in home care deals in early 2025 after a two-year buying lull. Executives at home health and home care companies, including Aveanna, Addus HomeCare and Pennant Group, said during earnings calls last fall that lower borrowing costs were encouraging them to ratchet up acquisitions in 2025. Private equity firms also were expected to be in the market.
PitchBook said 14 home care acquisitions were completed in 2025 as of Feb. 3. Most of those deals likely started last year. However, new mergers and acquisitions have been slower to come this year than some industry watchers expected.
Cohen said investors are less certain about the direction interest rates might head if President Donald Trump follows through on tariffs and inflation heats up. Federal Reserve Chairman Jerome Powell told the Senate Banking Committee this week the agency should not be in a hurry to cut interest rates because inflation is still too high.
Cohen said most private equity purchases of home care companies are highly leveraged, so higher interest rates could make deals much more expensive.
The potential for Medicaid reimbursement cuts adds another wrinkle, according to Joe Widmar, senior manager of West Monroe Partners’ healthcare unit. Medicaid is the primary payer for nonmedical home-based services for low-income older adults.
Widmar said he is working with two clients interested in buying home care companies and they are concerned that potential federal cuts to Medicaid could prompt states to reduce reimbursements to those providers.
Tougher immigration policies are another worry. About one-third of home care and home health workers are foreign-born, according to PHI National, which tracks direct care workers. If home care companies have trouble hiring foreign-born workers, they might have to spend more on initiatives to attract native-born workers, Widmar said.
“Staffing and staff retention in this space is a perennial issue,” Widmar said. “With some of these more macro-level things happening, it places greater emphasis on the need for strong hiring practices, the ability to retain field staff, and give them a compelling career path within the organization. This is something that a lot of the [home care companies] have underinvested in.”
Apprehension about higher interest rates, Medicaid cuts and immigration are also roiling home care companies that want to sell their businesses or grow them through private investment, according to Holland and Knight attorney Brent Hill, who counsels home care buyers and sellers.
“[The companies] need a private equity investor who can take them to the next level. That might mean [expanding] to a different geography or another line of service or getting more involved in value-based care, so they can take on risk,” Hill said.
But Hill said those providers are sitting on the sidelines for the moment because they are concerned about the valuations of their home care businesses and their ability to raise capital for expansions.
