In general terms, 2022 has not been kind to hospice valuations. The historic run-up in valuations ended in late 2021. As we all know, inflation, rising interest rates, supply chain constraints, the aftermath of Covid, and the ramifications of the war in Ukraine have all been detrimental.
However, the primary factor for hospice valuations has been the significant changes in bank lending for Buyers. It's not just the obvious rate increases but the absolute tightening of credit. Buyers are finding the percent equity to debt has changed. While "higher downpayments" may make the investment banks feel better, it changes the math on what a Buyer is willing to pay for the underlying asset which in this case is the hospice agency.
Really good assets are still getting very strong valuations. The only big difference in these transactions has been the length of the due diligence process.
We have strong relationships with Buyers throughout the country. This enables us to properly match our Sellers with the acquisition target that best suits their agency. It's not just the obvious of maximizing the initial Letter of Intent Price. We want our Sellers to close at their LOI price with the best terms and conditions possible for their particular situation. We ensure our Buyers have navigated the changing seas of funding their acquisitions so they do in fact close.
We have seen renewed interest throughout most of 2022 for home health agencies. However, as we enter the final months of the year all eyes are on CMS and the final rule on payments. The proposed cuts in reimbursements are causing all Buyers to be more cautious and some have decided to sit on the sidelines.
Larger stronger assets are still getting acquired. CMS will have a large say according to some experts on the viability of smaller assets. We encourage everyone to advocate for the value that home health provides to those in need of care and the overall healthcare ecosystem.