Similar to how hospitals have different arms able to treat patients with changing needs and a variety of conditions, a new private equity partnership is aiming to create a multisite, multidisciplinary system of community care services.
Led by former Addus HomeCare Corporation (Nasdaq: ADUS) CEO Mark Heaney, the PE partnership is particularly interested in adult day center opportunities, which it sees as more cost effective than the one-to-one approach offered by personal home care services.
New York-based private equity firm Post Capital Partners recently announced the partnership with Heaney, who says he met with about 50 PE groups over the past two years before deciding to pair up with Post Capital.
“The partners themselves share my values, and they want to do the right thing,” Heaney said, noting that another selling point of the firm was that it has experience with lower-revenue investments, as Heaney says the platform will be smaller at first.
Historically, Post Capital has focused on lower-middle-market companies with revenue of $10 million to $150 million and EBITDA of $2 million to $20 million.
The PE firm chose Heaney, a 35-year home care veteran, as part of the firm’s “executive-first strategy,” in which it partners with industry leaders to better identify attractive investments.
Its decision to invest in home- and community-based care platform comes intentionally as the country continues to shift away from institutional care, Mitch Davidson, co-founder and managing director of Post Capital Partners, told HHCN in an email.
“We believe that the 40-year history of health care shifting from an institutional to a home-based model of care is perhaps 30% along its journey with years of innovation to come,” Davidson said. “We believe the industry will continue to evolve away from the fragmented, siloed approach we see today and that managed care will increasingly ‘manage care’ continuously modulating care based on changing need.”
By building a system of community care services, Post Capital hopes to be at the forefront of that evolution.
“In the end, our goal is to develop a fully integrated system of care allowing the consumer to remain in our system regardless of their changing need,” Davidson said.
In general, Post Capital’s interest in home- and community-based care businesses mirrors broader private equity trends. Overall, there were at least 715 health care PE deals in 2018 that closed by the end of December, including several multibillion-dollar mega deals.
Attractive targets
For its first acquisition, Post Capital is looking for a home care platform business with a leading position in an urban market that has a large, stable patient population and pool of referral sources.
“Payors could include Medicaid, Medicare, Medicare Advantage, managed care organizations, long-term care insurers, commercial insurers, Veterans Administration and private pay,” Davidson said.
The firm is also open to a variety of different business types.
“We could lead with a sizeable personal care business,” Heaney said. “We could lead with a sizeable pediatric medicine business. We could begin with a medical transportation or a meal program of some size in a community. We could lead with a home health business. Then with that being our platform business, we’ll begin to add the verticals over time.”
One area of interest includes adult day care and other forms of group care, demand for which Davidson predicts will outpace one-to-one care in the years to come.
“We think that personal care — one-to-one care — is vital, but we believe that one-to-one care is becoming increasingly expensive, and we think the solution over the long term is group care,” Heaney added.
As of 2016, there were at least 4,600 of adult day services centers in the United States serving more than 286,000 individuals, according to the National Center for Health Statistics. More than 44% of those centers were under nonprofit ownership.
The national median cost for one day of adult day health care is about $72, according to the most recent Cost of Care Survey from Richmond, Virginia-based insurer Genworth Financial (NYSE: GNW). The national median costs for one day of homemaker and home health aide services, in comparison, is about $132 and $138, respectively.
Regardless of business type, current operators of acquisition targets will be instrumental in helping develop Post Capital’s system of community care services.
“In the companies we acquire, we really want the leaders to stay with the business to the extent that they can because they created the quality business that is attractive enough to acquire,” Heaney said. “They don’t have to, but if they were going to stay with the business, that makes the opportunity even more attractive to us.”
Post Capital doesn’t have a timeline for when its first acquisition will occur.
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