Mergers and acquisitions grew last year for health care staffing firms

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Health care staffing firm business activity grew from 2021 to 2022, even as the industry remains short-staffed in some sectors.

Capstone Partners’ Healthcare Group examined the market in the report, “Labor Shortages and Optimized Solutions Drive Consolidation Activity,” by Eric Williams, managing director and head of healthcare investment banking. Capstone Partners is a subsidiary of Huntington Bancshares Inc.

The first key sector takeaway: “Health care delivery organizations from hospitals to skilled nursing facilities continue to be challenged by an acute shortage of qualified health care professionals.”

There were 40 deals announced or completed last year, surpassing the 38 deals of 2021 and more than doubling the 19 deal of 2020, when the market slumped due to the COVID-19 pandemic.

The health care staffing sector included four deals that publicly disclosed valuation details. They combined for more than $1.5 billion in value, averaging $394.1 million, and The Pritzker Organization’s April 2022 acquisition of Epic Staffing Group was valued at $675 million. Epic Staffing’s services include travel nursing, interim executive placement, and international clinician placement.

Despite the growth, the 2022 deals did not resemble the “M&A frenzy seen across the broader M&A market,” the report said. Travel nursing played a role in that, according to Capstone.

“In a number of discussions between private equity groups and Capstone bankers during 2020 and 2021, financial sponsors expressed strong interest in investing in the travel nursing sector based on favorable short-term as well as long-term dynamics, but were perplexed by how to properly value companies that were experiencing such dramatic increases in demand and spikes in billings rates,” the Capstone report said.
“As buyers and sellers struggled to reach a consensus on what normalized EBITDA would look like post-pandemic, deals were postponed or shelved altogether,” the report said. EBITDA is earnings before interest, taxes, depreciation, and amortization and is used as a measure of business financial performance.

“With that said, there is no question that the COVID-19 pandemic highlighted the critical role of health care workers,” the report said.

Average bill rates for travel nursing have seen a 20% quarter over quarter decline since the peak in the first quarter of 2020 and it appeared billing rates are stabilizing. Even with that decline, bill rates for travel nurses are about 34.5% greater than pre-pandemic levels, the report said.

AMN Healthcare Services and Cross Country Healthcare, two public companies active in travel nursing, continue to report double-digit year-on-year revenue growth from travel nursing, despite the quarterly declining rates.

The current workforce shortage includes therapists, licensed clinical social workers, psychiatrists, speech pathologists, applied behavior analysis therapists, and psychologists, the report said. Adding telehealth to the mix, behavioral health staffing is poised for growth due to demand.