Small Home Health Agencies Prefer Cash to Legacy

The family-owned business, passed on from generation to generation, is an archetype of American commerce. In practice, however, most “mom-and-pop” home care and home health agencies are content to take the money and run when it comes time to pass the business into new hands.

“It’s rare to have a child to take over, rare to have an associate [take over],” Mark Kulik, managing director at Pittsburgh-based health care M&A advisory firm The Braff Group, told Home Health Care News. “Most often the owners want to liquidate their ownership.”

In addition, home care valuations are currently high, many experts agree, providing additional incentives for owners thinking about selling.

Legacy-passing a rarity

Of course there are more ways to change leadership than a direct exit, and passing down the torch to the next generation isn’t unheard of. Bayada Home Health Care, a privately-owned home health care company based in Pennsylvania, started the process of becoming a nonprofit, aimed at ensuring the organization will last for several generations. David Baiada took over as president and CEO on August 17 from his father, Bayada founder Mark Baiada, who started the company in 1975.

But this kind of intergenerational move is the exception, rather than the rule, especially for smaller, non-public home health companies, Kulik said. Most owners—understandably—want to get the best possible price for their business.

“This is their whole asset, typically the majority of their family wealth,” Rich Tinsley, president and CEO of Louisville, Kentucky-based health care M&A advisory firm Stoneridge Partners, told HHCN. “They typically don’t have another $5 million in their portfolio, so the liquidation of that is very important to them for how they live out their retirement years.”

Life changes

Hitting retirement age is a major reason mom-and-pop home health and home care businesses—which Kulik defined as generally below $15 million to $20 million businesses—look to sell.

In fact, this actually can close off passing on the business to another associate in the firm, as subordinates of a mom-and-pop agency can be near the same age as the owner, Kulik noted. It’s yet another reason selling the business is attractive for owners looking to exit.

Another common cause, though, is a major event in the owners’ lives, Tinsley and Kulik both said. These could include children graduating college, illness, or the illness or death of a spouse.

Cory Mertz, managing partner of Fort Myers, Florida-based health care M&A firm Mertz Taggart, has also seen this phenomenon, but for home care and home health business owners in this position, he added that this isn’t necessarily a downside.

“I think many folks have this perception that an external event as a catalyst for sale will somehow weaken their negotiating position,” he told HHCN in an email. “In my experience, this is not necessarily the case, unless you’re dealing exclusively with one potential buyer.”

Prepare ahead

A major life event may be the catalyst that makes an owner decide to sell, but this shouldn’t put home care or home health agencies on the back foot for the selling process, Jim Moskal of Chicago-based M&A firm Livingstone Partners argued. He serves as partner and global health care practice leader at the firm.

Billing, compliance, patient outcomes and star ratings are all key parts of making a home health business shine, and those should be built up for any business, regardless of whether the owners are looking to sell. Capturing data is also important, due to the rise of value-based reimbursement, and providing the best care shouldn’t be overlooked either, Moskal added.

All of those fundamental elements take time. For this reason, the owners of mom-and-pop agencies would do well to move intentionally into their exit. Many owners underestimate the amount of time it takes to prepare for a sale, Kulik said. A year or two to prepare to make sure the company is being presented in the best light is ideal, he said.

Moskal echoed the need for time.

“If you’re really positioning your agency for sale, that’s something that should be years in the making,” he said.

Written by Maggie Flynn