The category of home health, long-term care and hospice services holds high interest for more than one-third of corporate or private equity executives planning to make an acquisition in the next 12 to 18 months, according to the latest healthcare merger and acquisitions study from business / technology consulting firm West Monroe Partners.

A total of 38% of respondents to a telephone survey conducted in the first quarter said that the sector was among their top three choices as far as acquisition targets, with 16% identifying the sector as their first choice, 14% saying it was their second choice and 8% indicating that it was their third choice.

The sector is appealing to both corporate and private equity buyers, Brad Haller, director in West Monroe Partners’ mergers and acquisitions practice, told McKnight’s Senior Living.

“For strategic (or corporate) buyers, long-term residential settings represent an important part of the care continuum,” he said. “Seniors typically require more care than other populations. Healthcare organizations that have one part of their business portfolio referring business to another part of their asset portfolio, such as primary care and hospitals, makes good business sense. Long-term care settings themselves can also bring in revenue that would otherwise go to an outside facility.”

Private equity buyers, on the other hand, “are equally interested in long-term care settings, mostly because they represent recurring revenue, and the demographic needs of healthcare are shifting toward the home-based setting – this is where the money in healthcare is headed,” Haller said. “They also have high reimbursement rates, the regulatory requirements are low compared to other healthcare sectors, and the cost of labor is relatively inexpensive. With around-the-clock care required in many of these settings, a lot of cash can be generated, and the growth trajectory is high.”

The sector ranked beneath the two sectors of digital health / healthcare IT companies and biotech and pharmaceutical companies. It ranked above the five sectors of medical devices and equipment, multi-site ancillary practices (such as dental and dermatology), non-hospital provider facilities (such as acute care centers, clinics, nursing centers and surgery centers), contract research organizations and biotech services firms, and hospitals, however.

The non-hospital provider facilities sector was ranked as the top choice as far as acquisition targets by 10% of respondents, as No. 2 by 12% and as No. 3 by 8%.

The survey included 100 senior executives for whom the appetite, strategy and processes for healthcare M&A transactions were gauged, according to the report. All respondents were based in the United States and were either private equity executives (67%) or corporate executives (33%).

All firms represented had completed at least one healthcare deal in the past two years and plan to target healthcare companies for acquisition in the coming 12 to 18 months. Forty-three percent of corporate respondents had up to $250 million in annual revenue, 27% had $251 million to $500 million, 24% had $501 million to $1 billion, and 6% had $1 billion to $1.5 billion.