M&A Activity Poised to Accelerate in the Healthcare Staffing Sector
The COVID-19 pandemic resulted in acute clinician shortages in many areas of the country, and despite a significant decline in COVID-19 related hospitalizations over the past several months, hospitals are still combating workforce constraints. According to Staffing Industry Analysts (SIA), 83% of hospitals and health systems are experiencing nursing shortages.1 Long term, the Healthcare sector will continue to struggle with a supply and demand imbalance due to an aging clinician labor force and U.S. population. With one-third of registered nurses expected to retire in the next 10 years, the Healthcare industry faces a substantial challenge in caring for the 75 million baby boomers aged 50 and over, 80% of which have at least one chronic condition, according to Cross Country Healthcare.2 While traditional staffing providers will continue to remain in high demand, the pandemic has disrupted the healthcare delivery model, with tech-enabled and remote offerings becoming increasingly adopted. Notably, SnapNurse, an online healthcare staffing provider, achieved $350 million in revenue in Q1 and is on pace to record more than $1.5 billion by year end, according to a press release.3 SnapNurse’s strong quarter follows a $15 million investment in December 2020 from Pivotal Group and Diverse Communities Impact Fund.
Healthcare Staffing M&A Volume Surges in Year-to-Date
Heightened merger and acquisition (M&A) activity has been driven by staffing providers increasingly consolidating to better serve healthcare providers. Through YTD 2021, transaction volume has already outpaced total 2020 volume, with 20 deals announced or completed. Concern regarding potential increases in capital gains tax rates are top of mind for business owners, with many reevaluating their exit timeline and choosing to pursue a sale before year end to capitalize on elevated valuations and the possibility to lock in favorable tax rates. The resurgence of the Healthcare Staffing M&A market has also been fueled by a significant level of pent-up demand from both strategic and financial buyers. Private strategics (70% of total transactions) have increasingly pursued acquisitions through YTD to bolster service offerings, penetrate new geographies, and scale operations. Leading healthcare staffing and workforce solutions provider, Health Carousel, has remained an active buyer through 2021 as it continues to enhance its locum tenens offerings, acquiring six companies in the space since 2015, according to a press release.4 Most recently, Health Carousel acquired leading physician workforce management provider MEDPATH in February 2021 for an undisclosed sum. The acquisition follows its January purchase of Vitruvian Medical (undisclosed) and adds to Health Carousel’s Locum Network which includes NEXTLocums, Onyx. M.D., and Lucidity. In addition, leading travel nurse and allied staffing provider Aya Healthcare has remained acquisitive to expand its workforce solutions. In May, Aya announced its acquisition of Dawson Healthcare for an undisclosed sum.
Private equity firms (20% of total transactions) have actively deployed capital to build or enhance sector platforms, attracted to the resilience of the Healthcare Staffing industry, with sponsors targeting providers that have achieved robust performance throughout the pandemic. Notably, Cornell Capital and Trilantic North America have continued to develop their healthcare staffing platform, acquiring Fastaff Travel Nursing and U.S. Nursing in February 2021 (undisclosed). The transaction bolsters its offerings and adds to its recent purchases of tech-enabled staffing providers including truststaff, CardioSolution, and Stella.ai (February 2021, undisclosed). Sponsors, which are armed with an abundance of capital to deploy, are expected to remain active in targeting healthcare staffing providers.
Travel Nursing Drives Significant Industry Revenue Growth
Elevated industry demand through YTD 2021 has been evidenced by substantial revenue increases in staffing specialties, led by the Travel Nurse Skill segment which experienced a 100% year-over-year (YOY) increase in revenue in February, according to SIA.5 The Travel Nursing segment, which has attracted premium bill rates, heightened hours, and increased volume from regional COVID-19 surges, has been a significant driver of sales growth for public staffing providers. Notably, AMN Healthcare (NYSE:AMN) and Cross Country Healthcare (Nasdaq:CCRN) achieved record YOY revenue increases of 47% and 57% in Q1, respectively, according to their most recent earnings releases.6,7 Through Q1, Cross Country experienced a 95% increase in revenue in its travel nurse business YOY, with AMN’s Travel Nursing division capturing a 74% increase YOY. As hospitals have struggled with employee attrition, staffing providers have witnessed substantial increases in demand for temporary and permanent placements.
“Pandemic-related demand peaked in January, and in March travel nurse orders had returned to historically normal levels. Recently, however, we have seen demand move higher again in large part because healthcare organizations are experiencing higher than expected attrition, which they cannot fully offset with permanent hiring,” commented Susan R. Salka, AMN President, CEO & Director in an earnings call.8
Leading Public Companies Experience EBITDA Multiple Expansion
Robust public company performance bodes well for valuations and buyer interest for middle market healthcare staffing providers. Notably, trading metrics have increased substantially through YTD 2021, with EBITDA multiples for AMN and Cross Country standing at 14.5x and 12.4x, respectively. Public companies have also recognized the prevalence of tech-enabled remote capabilities in healthcare delivery. Notably, AMN acquired virtual care management and remote patient monitoring provider Synzi for an enterprise value of $42.5 million in April, diversifying its service offerings by bolstering its telehealth capabilities. Traditional staffing providers with highly demanded specialties and robust client networks are expected to remain attractive M&A targets through 2021. The integration of digital platforms and telehealth capabilities also presents providers with an opportunity to differentiate themselves in the market. As hospital systems continue to scale, staffing will remain a key focus area to ensure optimal patient to clinician ratios, creating a favorable backdrop for robust near-term consolidation among industry participants.
Staffing Industry Analysts, “BURNOUT, DISENGAGEMENT ARE MOST POTENTIALLY DISRUPTIVE FORCES IN HEALTHCARE: AMN,” https://www2.staffingindustry.com/Editorial/Healthcare-Staffing-Report/April-8-2021/Burnout-disengagement-are-most-potentially-disruptive-forces-in-healthcare-AMN, accessed May 12, 2021.
Cross Country Healthcare, “Investor Relations Q1 2021,” https://ir.crosscountryhealthcare.com/events-and-presentations, accessed May 12, 2021.
Staffing Industry Analysts, “HEALTHCARE STAFFING PLATFORM SNAPNURSE REPORTS Q1 REVENUE HITS $350 MILLION,” https://www2.staffingindustry.com/Editorial/Healthcare-Staffing-Report/April-8-2021/Healthcare-staffing-platform-SnapNurse-reports-Q1-revenue-hits-350-million, accessed May 13, 2021.
Health Carousel, “Health Carousel Announces Acquisition of MEDPATH,” https://www.healthcarousel.com/post/health-carousel-announces-acquisition-of-medpath, accessed May 11, 2021.
Staffing Industry Analysts, “TRAVEL NURSE REVENUE DOUBLES YEAR OVER YEAR: PULSE REPORT,” https://www2.staffingindustry.com/Editorial/Healthcare-Staffing-Report/April-8-2021/Travel-nurse-revenue-doubles-year-over-year-Pulse-report, accessed May 13, 2021.
AMN Healthcare, “AMN Healthcare Announces First Quarter 2021 Results,” https://ir.amnhealthcare.com/press-releases/press-releases-details/2021/AMN-Healthcare-Announces-First-Quarter-2021-Results/default.aspx, accessed May 12, 2021.
Cross Country Healthcare, “CROSS COUNTRY HEALTHCARE ANNOUNCES FIRST QUARTER 2021 FINANCIAL RESULTS,” https://ir.crosscountryhealthcare.com/news-releases/news-release-details/cross-country-healthcare-announces-first-quarter-2021-financial, accessed May 13, 2021.
Seeking Alpha, “AMN Healthcare Services, Inc. (AMN) CEO Susan Salka on Q1 2021 Results – Earnings Call Transcript,” https://seekingalpha.com/article/4426614-amn-healthcare-services-inc-amn-ceo-susan-salka-on-q1-2021-results-earnings-call-transcript, accessed May 11, 2021.
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