Selling a home care company, just like any business, requires a great deal of deliberation. And while the market abounds with hundreds of these types of agencies, there are several key practices companies can employ to better position themselves for sale among their competitors, especially in a landscape where heightened acquisition activity has ripened the market for consolidation.
When a buyer analyzes a prospective company it is looking to acquire, factors such as quality financial reporting, revenue diversification and caregiver retention strategies are the most critical value-adds for sellers, says Scott Osborne, founder and managing principal of Osborne Home Care Group.
To date, Osborne’s company has facilitated more than 50 acquisitions of home care firms totalling more than $75 million in value. The company has a 90% acquisition rate of firms it brings to market with an average of three offers per project, Osborne said Tuesday during an online conference sponsored by Home Care Pulse.
Most of the transactions Osborne Home Care Group sees are owner-operated firms with revenues north of $2 million.
“Many of these companies have not really been involved in a sell transaction before, or don’t have a lot of expertise in planning and implementing that proverbial deal that will be the last and largest payday,” Osborne says.
Valuing a home care company has its challenges, he adds, especially since the sector comprises mainly intangible assets as there is typically no real estate involved, inventory or equipment associated with operations. These drawbacks, however, create other ways for home care firms to find value and buff themselves for sale.
1. Quality reporting
The first and foremost “curb appeal” for an owner-operator selling a home care company relies on both the quality of a firm’s financial reports and the quality of its management reports, Osborne says.
“These must be accurate, updated and recently reviewed typically by a CPA on a quarterly basis. There will be some additional fee investment required, but it will come back in the form of the greater appeal for when you sell your business.”
2. Payer diversification
A company’s revenue source is an integral component for any buyer to consider in its purchase of a prospective company, and the same is equally true for home care.
However, with continued reimbursement pressures from the Centers for Medicare & Medicaid Services (CMS), firms that have diversified payer sources and rely less on federal programs such as Medicare and Medicaid for their funding stand to be more attractive from a buyer’s perspective than companies who rely heavily on these programs for funding.
Home health care industry experts have long touted the need for agencies to diversify their revenue streams in wake of the latest batch of reimbursement cuts from CMS, which currently call for an unprecedented 14% rate reduction, or 3.5% per year, from 2014-2017.
“A healthy revenue and payer source diversification is a very attractive part of what a buyer would evaluate,” says Osborne. “A company who is two-thirds Medicaid, for example, could be scary for a new owner because they don’t know what the rate might be [in the future].”
As critical a role that orderly financial reporting and healthy revenue streams play in providing a prospective buyer insight into the company they’re considering to acquire, the legacy of the former owner or operator of the selling company carries equal weight.
A key value enhancer for a selling company, says Osborne, is a departing owner-operator who has delegated “mission critical” activities to office staff that remain in place following the transaction’s completion.
Such mission critical activities and practices can translate into how a firm has trained its employees and how long staff members stay onboard with the company.
4. Staff experience
Staff experience is pivotal in not simply enabling a buyer to gauge the efficiency, competence and capabilities of its workforce prior to sale, but is also a valuable indicator of potential turnover risk when the new management takes over operations.
Baby boomers and caregivers have become synonymous with one another as the anticipated number of jobs created for this often dubbed “fastest-growing” workforce is projected to swell in conjunction with the aging tidal wave expected to develop over the next decade.
Personal care aides and home health caregivers ranked within the top three fastest growing jobs in America, according to a recent data from the Bureau of Labor Statistics (BLS) and 27/7 Wall St.
Over 580,000 jobs for personal care aides are expected to be created in the decade through 2022, a 49% increase from 2012 and the most out of any of America’s fastest growing jobs, according to the BLS, while home health aides are projected to grow nearly 49% from 2012-2022, a 424,200 job increase.
Despite the heralded growth, retaining this easily qualified and often low paid workforce is challenging.
5. Caregiver retention
There are few job sectors that will grow faster in the next decade than personal care and home health aides, but having a strategy in place to show how the company has managed to retain its caregivers is ideal for prospective buyers, says Osborne.
“The number one deterrent in the selling market is the fear involved of being able to attract enough care aides to keep pace with this unprecedented demand,” Osborne says. “That unprecedented demand gets the buyer to the table, but its the changeability of caregivers is what often times gets them to leave the table.”
Written by Jason Oliva