Impact of the April 2025 U.S. Tariff War on Health Services M&A

The April 2025 U.S. tariff war has emerged as a pivotal factor reshaping the home health M&A market. Prior to the tariff announcement, home health dealmaking was on a recovery path – with strong strategic rationale underpinned by demographic trends, value-based care initiatives, and ample investor capital fueling consolidation. Now, the introduction of steep tariffs and the ensuing trade uncertainty threaten to cool that momentum, at least in the short term, by raising costs and undermining confidence.

Pre-Tariff M&A Trajectory in Home Health

Deal Volume Trends: The home health and broader home-based care M&A market experienced a boom in 2021 followed by a notable slowdown through 2023-2024. Deal volume peaked at 183 transactions in 2021, then fell to 110 in 2023, and hit a pandemic-era low of 72 deals in 2024. In fact, only 14 home-based care M&A transactions closed in Q4 2024, marking one of the weakest quarters since the COVID-19 lockdown period. This decline reflected market headwinds such as rising interest rates (which raised financing costs and lowered valuations) and regulatory uncertainties (e.g. Medicare reimbursement changes).

Key Players and Recent Deals: Despite the slowdown in volume, the home health sector saw several transformative deals in 2021-2023 driven by both strategic acquirers and private equity:

• Strategic Buyers (Payors & Health Systems): UnitedHealth Group’s Optum division has been especially active. It acquired LHC Group in 2022 for a rich ~25× EBITDA (22× forward EBITDA), and in mid-2023 Optum announced a $3.3B all-cash deal to acquire Amedisys (a leading home health and hospice provider). Humana, another insurance giant, fully acquired Kindred at Home (rebranding it as CenterWell Home Health) by 2022, after initially buying a stake in 2018. CVS Health moved into home care by buying Signify Health for ~31× forward EBITDA, illustrating how payors/pharmacies are integrating home health for value-based care synergies. Health systems have also pursued partnerships – for example, in early 2025 Providence formed a joint venture with Compassus (hospice provider) to expand home-based services.
• Private Equity: Financial sponsors have long seen home health as a fragmentation play with opportunities to consolidate locally-owned agencies. Mid-sized PE firms built regional platforms (e.g., Martis Capital’s acquisitions in hospice). In Q1 2025, Peak Rock Capital acquired BrightStar Care (a large home care franchisor), and other PE-backed companies like Help at Home made bolt-on acquisitions. Dry powder remains abundant – many PE funds raised capital in 2021-22 and have been seeking deals, albeit more selectively.

Strategic Drivers Pre-Tariffs: Several tailwinds fueled home health M&A prior to the tariff announcement:

• Demographics & Demand: An aging U.S. population and patient preference for aging-in-place have sustained high demand for home health and hospice services. Home health keeps patients out of costlier settings (hospitals, nursing homes), which is attractive under value-based care models. This has motivated insurers and health systems to acquire home health capabilities as part of a continuum of care strategy.
• Value-Based Care & Scale: The shift to value-based reimbursement (e.g. Medicare Advantage, ACOs) rewards coordination and efficiency. Larger providers can invest in technology, data, and care management to succeed under these models​. This created pressure for consolidation – smaller agencies sought larger partners to gain scale, and big players paid high multiples expecting to realize synergies (e.g. cross-referrals, centralized admin). Notably, many recent big deals (Optum/LHC, CVS/Signify) baked in synergy value to justify valuations.
• Regulatory and Reimbursement Climate: Despite strong demand, policy factors have been mixed. Medicare home health payment updates were modest (+0.8% for 2024) even as costs rose, squeezing margins. In hospice, stricter compliance enforcement added risk. These headwinds in 2022-2024 tempered some buyers’ enthusiasm​. However, with a new administration in 2025, deregulation efforts were expected – the Trump administration signaled a rollback of certain healthcare regulations, aiming to streamline deals and reduce providers’ compliance burden. This bolstered optimism among investors that 2025 would bring a rebound in transactions.

Early 2025 Momentum: Indeed, prior to the tariff news, M&A activity was rebounding. In Q1 2025, home-based care deal volume jumped to 29 announced deals – the most active quarter in two years. All sub-sectors (personal care, home health, hospice) saw an uptick, with home health logging 8 deals in Q1 (vs. only 2 in Q4 2024). As one industry advisor noted, “deals are finally getting across the finish line… Buyers are hungry, but remain disciplined”​. This cautiously positive dealmaking environment set the stage just as the April 2025 tariff war began.

How the New Tariff War Alters the M&A Environment

The sudden escalation of U.S. tariffs in April 2025 – and retaliatory measures abroad – is injecting new uncertainties and costs into the home health M&A landscape. Key areas of impact include:

• Supply Chain Costs & Medical Inputs: Home health providers rely on a variety of medical supplies and equipment – from wound care products and durable medical equipment (hospital beds, infusion pumps, oxygen concentrators) to pharmaceuticals and personal protective gear. Many of these items are imported or contain components from overseas. President Trump’s April 2025 tariffs imposed sweeping import taxes (a base 10% on all imports, with much higher rates on certain countries, such as 34% on Chinese goods). Additionally, new 25% tariffs targeted key healthcare-related categories like pharmaceuticals and medical devices. These tariffs are expected to drive up the cost of imported medical equipment and supplies, directly impacting home health operators’ expense lines. For example, if the cost of a remote patient monitoring device or wound dressing rises 20-30% due to tariffs, an agency’s supply costs per patient will increase – squeezing margins unless reimbursement or pricing adjusts. Higher equipment costs could also reduce providers’ appetite to invest in new technology (like remote vitals monitoring or telehealth kits), at least in the short term.
• Inflationary Pressures: Trade wars tend to be inflationary – tariffs on goods act like a tax that often gets passed to U.S. buyers. The new tariffs risk rekindling inflation in healthcare inputs. Beyond supplies, general inflation erodes operating margins for home health companies by raising fuel prices (for nurses driving to home visits), utilities, and most significantly, labor costs. The home health industry is labor-intensive, employing nurses, therapists, and home care aides. If inflation accelerates, workers may demand higher wages to keep up with cost of living. Labor was already a pain point – post-pandemic staffing shortages had driven wage growth in 2022-2024. Another bout of inflation could further increase caregiver wages or require use of expensive contract/travel nurses. This dynamic would pressure EBITDA margins, making targets less profitable and thus less valuable unless they can pass on costs (which is difficult in Medicare/Medicaid-reimbursed segments). Moreover, the Federal Reserve might respond to a tariff-driven inflation uptick by keeping interest rates higher for longer, which feeds into higher cost of capital (discussed below). Overall, acquirers will be factoring in more conservative margin projections in their valuation models, given these cost uncertainties.
• Cost of Capital and Financing Conditions: The trade war news has already jolted financial markets. Equity indices saw their worst losses since 2020 in early April 2025, and bankers warn that debt costs will rise amid the volatility​. For M&A, this means financing acquisitions becomes more expensive and harder to secure. High-yield debt investors and banks may pull back or charge wider credit spreads, anticipating recession risks. Notably, even before the latest tariffs, U.S. M&A activity in Q1 2025 was down year-over-year in part due to concerns over trade policy and rising debt costs. If tariffs push interest rates or credit spreads upward, leveraged buyouts and highly leveraged strategic deals in home health will face a squeeze: private equity buyers might have to put in more equity (reducing leveraged returns), and strategic buyers may see their borrowing costs and hurdle rates increase. Furthermore, public companies may find their stock price depressed by a broader market sell-off, weakening their equity “currency” for stock-based deals. The net effect is a potential capital constraint on M&A: fewer dollars available and at a higher cost, leading to more modest deal sizes or a preference for partnering/joint ventures over outright acquisitions until markets stabilize.
• Cross-Border Investment & Sentiment: The tariff war directly chills cross-border dealmaking sentiment. Foreign investors considering entry into U.S. healthcare (for instance, a European health services firm eyeing a U.S. home care platform) will become more cautious. The new trade tensions come alongside stricter U.S. government scrutiny on foreign deals via CFIUS – especially involving Chinese investors or any deals touching sensitive technology. A U.S.-China tariff crossfire could deter Chinese capital from U.S. healthcare deals entirely. Even investors from allied countries may pause to assess how far the protectionist policies go. According to Foley & Lardner’s analysis, the “recent imposition of new U.S. tariffs is likely to reshape global supply chains and disrupt operations relying on them”, which means acquirers from abroad must carefully evaluate a target’s supplier base and exposure to tariffs. In practice, cross-border M&A may slow in 2025 for home health, with deals that do proceed likely structured to mitigate risk (e.g., minority investments or heavy contractual protections). Conversely, U.S. home health companies that had been expanding internationally might delay those plans, and U.S. sellers may favor domestic buyers less encumbered by national security review.
• Regulatory and Reimbursement Environment: Aside from tariffs, the policy backdrop in 2025 presents mixed influences on M&A. On one hand, the administration’s deregulatory stance (e.g. streamlining healthcare rules) could lower compliance costs and barriers to consolidation. This is a positive for dealmaking – for instance, easing restrictions on home health agency ownership or certificate-of-need laws in some states could invite new acquisitions. On the other hand, antitrust scrutiny remains a concern: the DOJ was already investigating UnitedHealth’s series of acquisitions (including Amedisys), and any large combinations in home health will need to prove they don’t harm competition or drive up patient costs. Additionally, looming Medicare/Medicaid reimbursement changes pose a risk. For example, industry experts have pointed to the threat of Medicaid rate cuts as a factor that “may make investors wary to transact”. If tariffs strain state and federal budgets or spur inflation, reimbursement rates might not keep up with provider costs, a downside scenario for the home care business model. Acquirers in 2025 will therefore conduct even deeper diligence on regulatory risk – ensuring targets can remain profitable under various reimbursement and tariff scenarios.

Scenarios for M&A in Late 2025

Given these new uncertainties, the trajectory of home health M&A through the remainder of 2025 could follow a few different paths. It’s useful to envision a range of scenarios – from an optimistic case where momentum continues, to a cautious or even pessimistic case of retrenchment:

• 1. Continued Deal Momentum: In this more optimistic scenario, the tariff war’s worst impacts are short-lived. For instance, if by mid-2025 the U.S. and its trading partners reach compromises or exemptions (avoiding a full-fledged trade recession), markets could stabilize. Combined with the possibility of interest rates leveling off or even declining later in 2025 (as inflation gets under control), dealmaking conditions could improve. Under this scenario, the strong demand fundamentals for home health (aging population, cost advantages) still rule the day, and buyers move forward after a brief pause. We would likely see M&A volumes resume at a healthy clip in Q3 and Q4 2025, perhaps even exceeding 2022 levels. Private equity “dry powder” would be deployed aggressively – many funds have mandates to invest in healthcare, and they won’t sit on the sidelines if financing markets reopen. Strategic acquirers (insurers, health systems) with ample cash might even view the tariff-induced dip in valuations as a buying opportunity. For example, if publicly traded home health companies’ stocks fell in Q2 due to market volatility, a cash-rich buyer could swoop in at a relative discount. Cross-border deals could also resume if clarity emerges on trade policy – European or Canadian firms might take advantage of less competition for U.S. assets. In summary, this scenario envisions a rebound in M&A activity in late 2025, driven by pent-up demand and slightly lower valuations, with deal structures returning to normal (limited seller concessions).
• 2. Cautious Recovery (Base Case): In a middle-ground scenario, uncertainty persists through much of 2025, keeping deal pace moderate. The Q1 rebound might be followed by a quieter Q2 and Q3 as buyers take a “wait-and-see” approach on the macroeconomy. Some deals will still get done – especially those that are strategically essential (for example, a regional home health chain that a health system must acquire to fill a market gap) or too good to pass up (distressed sales or uniquely attractive tech-enabled providers). However, overall volume could stay below pre-2021 averages. Importantly, deals that do happen in this scenario may reflect adjusted terms: valuations slightly lower to account for higher costs, more earnouts or performance-based payments to bridge valuation gaps, and perhaps smaller deal sizes (fewer mega-deals) as firms focus on tuck-in acquisitions. By Q4 2025, if economic clouds start to clear (e.g. the tariff situation resolves or the presidential administration offers new healthcare incentives), we could then see a pickup heading into 2026. But for most of 2025, strategic discipline would be the mantra – buyers proceed, but carefully, and sellers engage in more extensive negotiations.
• 3. Strategic Retrenchment: In a downside scenario, the tariff war escalates or drags on, seriously hampering the economic environment. If new rounds of tariffs hit additional categories, supply chain disruptions intensify, and inflation forces interest rates higher, M&A activity could slow to a trickle. Companies may prioritize shoring up their operations (supply contracts, cost-cutting) over pursuing acquisitions. The risk of a mild recession (or at least a growth slowdown) would make boards and private equity investment committees more risk-averse. Deal volume could resemble the lows of 2024 – or even dip further if credit markets tighten severely. We might see some deals put on hold or canceled due to financing falling through or valuation disagreements (similar to how one London PE firm pulled out of a tech acquisition at the last minute in early April when the tariff news hit). In home health specifically, strategic acquirers like large insurers might pause integration moves until there’s clarity on reimbursement and costs. Private equity might focus on supporting their portfolio companies (ensuring existing investments weather the storm) rather than making new acquisitions. However, even in this retrenchment scenario, a few areas could still see action: distressed M&A (if smaller home care agencies falter under cost pressures, they might sell cheaply) and defensive mergers (two mid-sized providers merging to gain scale and survive the tough climate). Overall, though, this scenario means fewer deals, lower multiples, and higher required risk premiums in late 2025.

Implications for Acquirers

For those looking to buy in the home health sector, the tariff war era demands careful strategy adjustments. The outlook and priorities can differ for strategic acquirers vs. private equity acquirers, but both face a higher-cost, higher-risk environment:

• Strategic Buyers (Healthcare Operators & Insurers): Strategic acquirers – such as home health corporations, hospitals/health systems, managed care organizations, and other healthcare service companies – will be re-evaluating their M&A game plans:
  • Cost of Capital & Budgeting: Many strategic buyers fund deals through a mix of cash, debt, and (if public) stock. With borrowing costs rising and stock prices potentially volatile, these buyers may scale back the size or number of acquisitions they pursue in 2025. Large public buyers might conserve cash and hold off on mega-deals until markets stabilize. For example, if an insurer’s stock is down 15% due to tariff-driven market dips, using stock as currency is less appealing – we might see more all-cash deals or smaller equity checks. Companies will also be more rigorous in internal capital allocation, ensuring any acquisition meets higher hurdle rates now that the risk-free rate and cost of debt are up.
  • Diligence Priorities: A key shift will be heightened diligence on supply chain and cost structure of targets. Acquirers will scrutinize where a home health provider sources its medical supplies, equipment, and even tech hardware. Does the target rely heavily on imported items subject to tariffs (e.g., foreign-made glucose monitors or wound dressings)? If so, can they switch to domestic suppliers or will they need price concessions from payors? Buyers will also model scenarios of wage inflation and test the target’s ability to flex labor models (e.g., can they use more part-time staff or tech substitutes if caregiver wages spike?). Essentially, operational resilience to inflationary and supply shocks will be a make-or-break diligence item. Expect strategic buyers to also focus on integration synergies that can offset rising costs – for instance, if a health system acquires a home health agency, can they bulk-purchase supplies at lower cost, or cross-train staff to improve productivity?
  • Deal Structure and Valuations: Strategics may seek to de-risk deals through structure. We could see more use of earn-outs (contingent payments tied to future performance) or phased acquisitions (initial minority stake with option to buy remaining later). This protects buyers from overpaying if 2025-2026 performance is weaker due to macro factors. In negotiations, strategic acquirers might assert that valuation multiples from 2021-2022 are no longer justified under current conditions. They will likely push for valuation discounts unless a target can demonstrate immunity to tariff effects. However, niche strategically critical targets (e.g., a home health platform in a region a payor needs coverage) may still command premium pricing; strategics will pay up if an acquisition is central to their long-term strategy (for example, UnitedHealth still appears committed to the Amedisys deal despite headwinds, given its value for Optum’s care continuum).
  • Strategic Focus: Some strategics might shift M&A focus in light of tariffs – for instance, rather than acquiring companies heavily dependent on hardware/devices (which face tariff costs), they might favor targets focused on software, care management, or staffing services. Additionally, vertical integration plays (insurers buying providers, hospitals buying post-acute assets) could intensify as organizations seek more control over the full care cycle to manage costs. Conversely, purely cross-border strategic acquisitions (like a foreign company buying a U.S. home health firm) will be rarer due to political scrutiny and cultural risk in a volatile trade environment.
• Private Equity Buyers: PE firms and their portfolio companies approach the tariff turbulence with a slightly different lens:
  • Deal Financing: Higher interest rates and nervous lenders directly affect leveraged buyouts. PE firms in 2025 may need to reduce leverage levels in deals, using more equity capital. While many PE funds have record levels of committed capital (dry powder) available, deploying it at scale means ensuring the return profile can still pencil out with maybe only 4×-5× debt/EBITDA rather than 6×-7× as in cheap money days. Some PE groups might team up with co-investors or use alternative financing (private credit funds) if banks pull back. The net result: fewer debt-funded big buyouts, more focus on mid-sized deals or add-ons that can be financed conservatively.
  • Valuation Discipline: Private equity by nature is valuation-sensitive, and in uncertain times this discipline sharpens. If tariff-related costs threaten to erode a target’s EBITDA margins, PE bidders will adjust their bids downward. We are likely to see valuation multiples for average home health assets stay subdued relative to 2021 peaks. For context, smaller home health agencies had been trading around 4×–8× EBITDA, and larger platforms in the mid-teens (with exceptional strategic deals hitting 20×+ in 2021)​. In 2025, PE buyers may try to pay toward the lower end of these ranges unless competition forces otherwise. They will also structure deals with protections: seller financing notes, earnouts, or EBITDA-based price adjustments are tools to bridge gaps in expectations.
  • Diligence and Value Creation Plans: Just like strategics, PE firms will rigorously diligence cost exposure. A typical playbook for a PE acquiring a home care business includes plans to improve margins by optimizing procurement and labor utilization. Tariffs complicate this – PE sponsors must identify if a target can pass increased supply costs to payors (perhaps via annual contract escalators with managed care) or if they have room to cut other expenses to offset tariffs. Firms might also place greater value on targets that have unique defensibilities: for example, a home health company that developed its own proprietary remote patient monitoring device (thus lessening reliance on imported devices) or one that has a domestic supplier network for medical goods will be seen as lower risk. Additionally, labor strategy will be part of the value creation plan – firms will want to know the target’s pipeline for recruiting clinicians (to avoid overpaying for scarce labor). Expect post-close strategies to include tightening working capital (to conserve cash in case of rising costs) and actively lobbying for favorable regulatory changes (PE firms often engage policy experts if, say, tariffs on certain medical goods could be lifted or mitigated).
  • Exit Horizon Considerations: PE buyers in 2025 will also think about their future exit in 3-5+ years. They’ll consider: will the tariff war have lasting effects or be a short-term blip? If they believe it’s short-term, they might tolerate a rough 2025-2026 with the aim to grow the company and sell in a friendlier environment later. If not, they might demand a “tariff risk discount” upfront. Moreover, if cross-border exits (selling to an overseas buyer) are constrained, PE will assume their most likely exit is to another U.S. strategic or sponsor, which can influence how they structure governance and growth strategy (e.g. aligning with what large U.S. health systems would value in a target).

In summary, acquirers of all types will be more cautious and creative. They will still pursue acquisitions that fit long-term strategies, but they’ll structure them to mitigate near-term risks. Both strategic and PE buyers are expected to incorporate more downside analysis – ensuring that if tariffs drive up costs by X% or if a recession hits, the deal still makes sense. Those acquirers with strong balance sheets or cash reserves might actually benefit by picking up assets when others hesitate, but only with thorough risk mitigation.

Implications for Acquirees (Targets/Sellers)

From the perspective of companies being acquired (or seeking to be acquired) in the home health sector, the tariff war and resulting environment also demand adjustments in strategy and expectations:

• Positioning for Sale: Home health agencies or related companies aiming to attract buyers in 2025 need to proactively address the risks of the day. This means demonstrating to potential acquirers that the business is resilient to supply chain disruptions and inflation. For example, a sell-side management team should highlight any steps taken to diversify suppliers or stock critical inventory ahead of tariff implementation. They might also emphasize contracts with group purchasing organizations (GPOs) that lock in pricing for supplies, insulating from sudden cost spikes. Technology enablement can be a selling point too – if the company has invested in remote monitoring or telehealth, it might rely less on physical supplies or can reduce labor needs (one nurse monitoring 10 patients remotely vs. 10 separate visits). Essentially, targets will shape their narrative around operational resilience and flexibility, to give buyers comfort that the business can thrive even in choppy economic waters.
• Valuation Expectations: Sellers will likely need to reset their price expectations to the new market reality. During the 2021 peak, many home health businesses commanded very high multiples (driven by bidding wars and optimistic growth assumptions). By 2024, valuations had moderated, and 2025 buyers, facing higher costs of capital and uncertainty, are not inclined to pay 2021 prices. Savvy sellers will understand that their company might be valued on current, perhaps lower, EBITDA or with risk-adjusted multiples. For instance, if a home health agency was hoping for a 12× EBITDA multiple based on precedent transactions, they may find offers coming in at 8–10× unless they have truly exceptional qualities. One way sellers are dealing with this is showing improved EBITDA margins through cost controls – if they can boost profitability now, they mitigate some valuation compression. Nonetheless, some deals may include structures like earnouts which essentially say: “If the company hits X performance (EBITDA, revenue) in a year or two – i.e., if these macro worries don’t hurt us – then you’ll get an extra payment.” Sellers might accept this as a compromise to reach their desired headline price, while buyers get protection if performance falters.
• Operational Improvements and Resilience: Because deals are taking longer and due diligence is more exhaustive, acquirees need to ensure their house is in order. Conducting a pre-sale checkup is prudent – for example, as one advisor noted, home care and hospice sellers should do internal billing audits to make sure there are no compliance red flags that could derail a deal. In a tariff-inflated cost environment, buyers will be ultra-sensitive to any weaknesses. So sellers are focusing on cleaning up financial reporting, tightening supply contracts, and even securing key staff with stay bonuses or non-competes to assure continuity post-transaction. Resilience is a key theme: how did the business handle past shocks (like COVID supply shortages or 2021 inflation)? That track record can be a proof point. Additionally, some acquirees are diversifying their service mix – for instance, adding more personal care services (which might have lower equipment cost exposure) alongside skilled home health. This diversification can appeal to buyers looking for stability.
• Deal Process Adjustments: In the current climate, sellers may find that M&A processes take longer and require more flexibility. They should be prepared for extended management presentations focusing on tariff and cost-related Q&A. Some deals may involve more indications of interest and revised offers as conditions change (e.g., if tariffs unexpectedly increase mid-process, buyers might reprice; sellers should be ready to justify their numbers or perhaps concede some value). Also, where there might have been many bidders a year ago, there could be fewer now – so sellers might engage in more one-on-one negotiations (proprietary deals) rather than broad auctions, especially with strategic buyers that can move decisively. In terms of who is buying, sellers might notice a tilt: strategics could have an edge for high-quality assets because they can justify deals with synergy and long-term strategy (and often pay a bit more than pure financial buyers), whereas private equity might be more selective unless the asset fits perfectly into an existing portfolio platform. Therefore, a seller should consider both routes and perhaps run dual-track discussions to maximize chances of a good outcome.
• Public vs. Private Targets: The implications differ slightly for publicly traded home health companies versus private (often founder-owned or PE-owned) agencies:
  • Public Companies: Publicly traded home health providers (e.g., Addus HomeCare, Aveanna Healthcare, LHC Group before its sale, etc.) are constantly evaluated by the market. In a volatile tariff environment, their stock prices might swing significantly. If a public company’s stock falls to what it sees as undervalued levels, it might put shareholder pressure on the board to consider strategic alternatives (including a sale) while valuations are low. Conversely, if the stock holds up, public home health firms might become acquirers themselves, using stock (if not too depressed) or cash to buy smaller agencies at bargain prices. Going-private deals are also possible if private equity sees an opportunity – for instance, a well-run public company whose stock is down due to broader market fear could be taken private at a premium that is still attractive. Public companies also have to be mindful of activist investors in uncertain times; an activist could push for a merger or divestiture if they believe management isn’t navigating the tariff challenges effectively.
  • Private Companies: Private operators (from small family-owned agencies to PE-backed platforms) do not have a daily stock price, but they feel the effects in their financial performance and the appetite of buyers. Founders who were on the fence about selling might delay bringing their business to market, hoping that by 2026 conditions improve (assuming they can sustain in the meantime). PE-owned companies approaching the typical 5-year hold period may also extend their timeline – or, if they must exit, perhaps roll over equity to a new PE sponsor rather than sell outright at a lower valuation. Private companies have the advantage of confidentiality; they can quietly shop the business to select buyers who understand the context, rather than dealing with public speculation. However, they also face the challenge that lenders may be less willing to finance acquisitions of private targets without the transparency of public financials – making some buyers stick to known quantities. Therefore, private targets will work extra hard to package their financials and story in a reliable, transparent way to win buyer confidence.

Public vs. Private Home Health Companies: Market Considerations

Both public and private players in home health are grappling with the tariff war impacts, albeit with some different considerations and tools:

• Public Companies: Publicly traded home health companies have seen their share prices react in real-time to tariff news and market volatility. For example, home health stocks (and healthcare stocks broadly) fell alongside the S&P 500’s decline in early April 2025. This can directly impact M&A:
  • A depressed share price makes public companies more vulnerable to hostile takeovers or activist campaigns, but it also means any stock-for-stock acquisitions they attempt become more dilutive (since their currency is weaker). As a result, public acquirers might stick to cash deals or smaller equity components until their stocks recover.
  • Public companies also have to maintain quarterly guidance. If tariffs are raising their costs, they might guide lower earnings – which in turn affects how much they can pay for acquisitions without upsetting their own shareholders. Their boards will be balancing growth via M&A with the imperative of financial discipline in an uncertain environment.
  • Some public home health firms may choose to streamline or divest non-core lines to focus on core strengths during turbulence. These divestitures could become opportunities for others to acquire those assets. For instance, if a public company has a medical equipment division hit hard by tariffs, they might sell it off and stick to services.
  • Transparency: Public companies’ financials give a window into industry health. Metrics like EBITDA margins (often mid-teens for efficient operators) will be watched each quarter for signs of tariff impact (e.g., a drop in gross margin due to higher supply costs). This real data will inform valuations for private deals too. Public comparables’ trading multiples (EV/EBITDA) have a direct influence on what private companies can ask for in a sale.
• Private Companies: Private home health agencies and networks, while not subjected to the whims of the stock market, face their own challenges:
  • Many private operators are smaller and less capitalized, meaning a hit to costs can quickly stress their finances. They may lack the cushion to absorb 20% higher equipment costs or to pay staff more if inflation surges. This could actually increase the supply of willing sellers: owners who see a storm coming might prefer to sell to a larger entity that has the scale to weather it. In other words, the tariff war might convince some independents that it’s time to partner up or be acquired for safety.
  • On the flip side, well-capitalized private companies (often PE-backed) could play offense. They are not accountable to public investors quarter by quarter, so they could take a short-term earnings hit in exchange for long-term market share by doing acquisitions. For example, a PE-backed platform might acquire smaller competitors at lower prices in 2025, even if integration in the near term is challenging, to position for a strong post-tariff upswing.
  • Private companies must also consider their financing for growth. If they are not being acquired but still want to expand, they might tap private debt or equity. Tariff-induced market stress can make debt financing more expensive or harder to find for smaller companies, potentially slowing their organic growth or ability to open new locations. This might indirectly push them toward M&A – either as a seller or to merge with peers – to gain access to capital through a larger combined balance sheet.
  • Regulatory nimbleness: Private companies, especially smaller ones, can sometimes pivot faster in response to policy. For instance, if tariffs make certain medical supplies too costly, a private home care business might quickly switch to a different supplier or substitute product without the red tape a larger public company might face with procurement rules. This adaptability could make some private targets surprisingly resilient and attractive to buyers who do their homework.

Key Metrics and Risk Factors for M&A Decision-Making

When evaluating M&A opportunities in home health under the cloud of a tariff war, stakeholders are paying close attention to core financial metrics and risk indicators:

• Valuation Multiples: As noted, transaction EBITDA multiples have come off their highs. At the height of the market, large strategic deals in home health/hospice reached well above 20× EBITDA (Optum’s 2022 purchase of LHC Group was ~25×, and CVS’s 2022 buy of Signify Health was ~31× forward EBITDA). Those were outliers involving synergies and growth expectations. By 2023, typical deals were in the mid-to-high single digits for smaller agencies, and low double-digits for larger ones​. In 2025, buyers and sellers will negotiate multiples against the backdrop of tariff-related cost pressures. If a target’s margins are expected to shrink due to higher costs, buyers will argue for a lower multiple on lower EBITDA. A critical metric here is the multiple of EBITDA minus CapEx (since equipment costs might rise, effective cash flow is lower). Both sides also consider the projected (forward) multiple – if a buyer believes they can restore margins or achieve synergies, they might pay a higher current multiple knowing the forward multiple (post-improvement) is reasonable. Nevertheless, uncertainty usually compresses multiples, and dealmakers will be keeping a close watch on comparable transactions and public company trading multiples to benchmark fair valuation.
• EBITDA Margins and Growth: EBITDA margin is a key indicator of a home health provider’s efficiency and buffer against cost increases. Pre-tariff, many home health companies operated with EBITDA margins in the 10-15% range (varying by payor mix and service type; hospice often has higher margins, personal care lower). Risk factor analysis will focus on how much margin compression might occur from tariffs/inflation. For example, if a target’s supplies and labor costs make up 70% of revenue and those costs could rise by (say) 5% due to tariffs/wage inflation, a buyer might model a margin dropping several points. Growth rate is equally important – companies with strong volume growth (e.g., expanding patient census 10%+ per year) can better offset margin pressure with scale. Acquirers will favor targets that still have revenue growth drivers (new contracts, expanding referral networks) rather than those stagnant and facing rising costs. In diligence, the quality of earnings (QoE) analysis will test EBITDA add-backs and normalize for any one-time impacts. If a target had a temporary boost or hit due to, say, pre-tariff inventory stockpiling or COVID-related grants, those will be stripped out to gauge true sustainable EBITDA.
• Debt Financing Conditions: The feasibility of an M&A deal often hinges on debt market conditions, especially for PE-led transactions or any highly leveraged buyout. In 2025, credit market sentiment is a key risk factor. Metrics like the interest coverage ratio (EBITDA to interest expense) for the pro-forma combined company will be scrutinized under higher interest rate assumptions. Lenders are likely stress-testing deals for a scenario of continued high rates or economic slowdown. The leverage ratio (Debt/EBITDA) that lenders will tolerate may decline by half to a full turn in a risk-off environment. For instance, where a 5.5× leverage might have been acceptable in 2021, lenders might cap at 4.5× in 2025 for a home health deal, especially if the company has Medicare reimbursement exposure or tariff risk on supplies. Deals might include covenants requiring the company to maintain certain liquidity or performance, which if too tight, add risk that a buyer must consider (breaching covenants could force a costly debt restructuring). Availability of debt financing is also a go/no-go factor – if arranged financing falls through (which can happen in volatile markets), deals may die or need repricing. To hedge this, some buyers might secure financing commitments with wider flex terms (allowing interest rates to adjust upward to get it done) or have alternative financing ready. Private debt funds have been very active in middle-market healthcare financing and might step in as banks pull back, but at a higher cost. So, when making decisions, buyers will weigh the certainty and cost of financing – a slightly lower price or different structure might be chosen to ensure the deal can be funded even in choppy conditions.
• Regulatory/Policy Factors: The M&A calculus must factor in regulatory risk, which is multi-faceted for home health:
  • Trade Policy Risk: Given the tariff war, one risk factor is if future rounds of tariffs could hit the target’s cost structure even harder. Buyers might ask: “What if tariffs expand to, say, all imported pharmaceuticals or to other countries? How exposed is this business?” If a target relies on a category that could be targeted (for example, a lot of medical gloves and PPE come from Asia – if tariffs extended there, that’s a risk), it will be reflected as a deal risk, possibly mitigated by contractual price adjustment clauses for extreme scenarios.
  • Antitrust and Concentration: For large deals, especially involving public companies or large chains, antitrust review is a gating factor. The Biden administration (2021-2024) was fairly strict on healthcare consolidation; with Trump in office in 2025, there may be a somewhat more lenient view on vertical integration but it’s not a free pass (the Optum-Amedisys deal is under DOJ review). If an acquirer already has a significant presence in a state or region, acquiring another big provider there could raise flags. Dealmakers will assess the likelihood of deal approval vs. legal challenges, and this can influence which deals are pursued or how they’re structured (e.g., maybe carving out overlapping markets to a third party to appease regulators).
  • Healthcare Regulations: Ongoing healthcare-specific regulations also weigh on M&A. In home health, things like the Home Health Prospective Payment System (PPS) updates, the new Patient-Driven Groupings Model (PDGM) for Medicare (launched in 2020), and any proposed Medicare rate cuts or increases all directly impact revenue projections. For example, if Medicare margins are thin, a 1-2% rate change can tilt the scales. Similarly, state-level Medicaid reimbursement changes or the status of Hospital-At-Home waivers (which allow more home-based care) can either create opportunities or risks. Buyers will factor in a “regulatory environment” score: states or business lines with favorable trends (like expansion of home care benefits, certificate-of-need repeals allowing expansion) will get higher valuations; those with reimbursement cuts looming (like the mention of possible Medicaid cuts) will be discounted.
  • Quality and Compliance Metrics: Lastly, both public and private acquirers are keenly aware of quality metrics (star ratings, patient outcomes) and compliance (any history of fraud or penalties). In a sector under government payor scrutiny, a target with stellar quality scores and no compliance issues is a lower risk to buy. Conversely, any red flags (like poor star ratings or a Corporate Integrity Agreement with regulators) could kill a deal in this fragile environment – nobody wants extra regulatory hassle when the macro issues are already significant.

In sum, the decision to pursue and price an M&A deal in home health during 2025 will be a complex balancing act. It requires blending market trends data (like recent deal comps and public valuations) with stress-tested financial models that account for tariffs, inflation, and policy shifts. Both quantitative metrics (multiples, margins, leverage ratios) and qualitative risk factors (regulatory climate, operational resilience) feed into whether a deal makes sense and at what price.

What to Expect?

For the remainder of 2025, we can expect a more cautious M&A climate in home health. Acquirers will tread carefully, factoring in higher supply and labor costs, while still keeping an eye out for strategic acquisitions that bolster long-term positioning in a healthcare system steadily moving more care into the home. Acquirees, on their side, must demonstrate stability and be flexible on deal terms to get transactions over the finish line. Both public and private companies will navigate this period by focusing on core strengths and efficiency: public companies managing shareholder expectations and possibly divesting non-core units, and private companies potentially banding together to gain scale and insulation from external shocks.

Crucially, this turbulent period also highlights the resilience and adaptability of the home health sector. Even amid trade wars and economic fluctuations, the fundamental need for home-based care services is growing. That means any pause in M&A is likely to be temporary. Indeed, industry experts note that many deals delayed in late 2024 spilled into early 2025, and buyers “remained very disciplined” but ultimately hungry for quality assets. The same could happen after a tariff-induced lull – resulting in a flurry of deals once clarity returns.

The tariff war is imposing some short-term headwinds on home health M&A by inflating costs, spooking capital markets, and injecting uncertainty. This will lead to more careful dealmaking, possible valuation resets, and creative structures in 2025. Yet, the medium to long-term drivers for M&A in home health – the push for integrated care, the cost advantages of treating patients at home, and investor appetite for healthcare opportunities – remain intact. Savvy acquirers and sellers who navigate the current risks and position themselves well could emerge in a strong position, ready to capitalize on a resurgence of M&A activity once the storm of tariffs and uncertainty begins to clear.

Sources:

• Reuters – “Tariff turmoil puts a freeze on global M&A dealmaking”, April 7, 2025 (noting tariffs of 10–50% sparking recession fears and a 13% drop in U.S. M&A in Q1).
• McKnight’s Home Care – “Home care M&A remains low, but experts predict boom ahead”, Jan. 28, 2025 (reporting only 14 home-based care deals in Q4 2024 and 72 total in 2024, a record low).
• McKnight’s Home Care – “Home care M&A rebounds in Q1, marking return to pre-pandemic levels”, Apr. 9, 2025 (noting 29 home-based care deals in Q1 2025, highest quarterly volume since 2023).
• HealthCare Appraisers – “2024 Outlook: Home Health, Hospice and Personal Care” (reviewing M&A trends: peak activity in 2021, subsequent normalization; typical valuation multiples ranging from 4–8× EBITDA for small agencies to mid-teens for larger ones, with 2021 deals exceeding 20×)​.
• Foley & Lardner – “Weathering the Storm: Key M&A Considerations for Foreign Investors Entering the U.S.”, Mar. 24, 2025 (discussing how new U.S. tariffs and trade wars add complexity for cross-border deals and supply chains).
• McKnight’s Home Care – Q1 2025 M&A report coverage with commentary from Mertz Taggart (highlighting private equity dry powder, deregulation tailwinds, and the need for sellers to ensure clean operations).