These days, landing a large personal care services acquisition can often feel like finding a needle in a haystack.
As a result, potential buyers may have to become increasingly more creative to grow their home care footprint, M&A experts say.
The recent agreement between Amedisys Inc. (Nasdaq: AMED) and ClearCare Inc. — which allows Baton Rouge, Louisiana-based Amedisys to grow a personal care network through a partnership model instead of direct acquisition — is the perfect example of that idea.
Broadly, home care acquisitions in 2019 have become fewer and farther in between for a couple of key reasons, including the bigger role non-medical in-home care is playing in the overall health care system and in the world of Medicare Advantage (MA).
The latest data from M&A advisory firm Mertz Taggart shows there were just 13 home care-related transactions during the first two quarters of 2019, a nearly 50% drop compared to the 25 deals that took place in Q1 and Q2 of 2018.
“[Home care’s] impact is much more significant to these traditional home health and hospice providers — like Amedisys — who are expanding their influence with payers and partners in the MA and accountable care organization (ACO) arenas, as these partners start to better understand the value of coordinating care in the home,” Mertz Taggart Managing Partner Cory Mertz told Home Health Care News. “Providers can add a lot of value to these relationships, simply by keeping folks out of the hospital, but often don’t have the personal care piece in place in a specific market to really coordinate that care.”
But another roadblock to home care dealmaking is the highly fragmented nature of the industry.
Depending on which statistics are used, there could be roughly 13,000 home care agencies out there on the U.S. market — or as many as 17,000. It’s difficult to pinpoint an exact number simply due to licensure variations and a dearth of collective home care data.
“So many operators have set their sights on quality personal care acquisitions … ,” Mertz said. “The problem is lack of supply of larger home care providers, both on the market and around the country. There are very few personal care providers out there with scale.”
Honing in on home care
Given the lack of supply of large home care providers on the market, buyers looking to build their personal care capabilities may have to resort to completing several individual transactions, rolling up smaller agencies as part of an ongoing process.
That approach, however, is usually expensive, time-consuming and risky, according to Mertz.
“Without scale and infrastructure, a personal care company can deteriorate fairly quickly after a transaction, especially without significant corporate support,” he said.
For example, many home care agencies are plagued by astronomical turnover rates, a problem that could change the very face of the business — and the quality of its services. In 2018, home care turnover checked in at an all-time high of 82%, according to Home Care Pulse statistics.
Hence the need for potential buyers to get creative.
As part of Amedisys’s agreement with ClearCare, Amedisys is able to establish partnerships between its home health centers and non-Amedisys personal care agencies. ClearCare — a company that provides caregiver scheduling, billing and other software solutions — serves as the bridge between the two.
The agreement was first announced on July 25; by Aug. 5, more than 308 agencies representing 32,000 caregivers in 39 states had joined the Amedisys-ClearCare personal care network.
“It’s not entirely clear to me how this will work out in the long-term, but it’s certainly interesting,” Les Levinson, co-chair of the health care transactions practice at legal firm Robinson & Cole LLP, told HHCN. “This certainly may be an alternative way to sort of get deeper into the personal care space when there’s a lack of acquisition targets out there.”
Generally, the notion of collaborations and partnerships is one that has been used by other providers and acquirers, Levinson noted. One is Lafayette, Louisiana-based LHC Group, he said, which has long been an active acquirer via partnership models.
Another specific creative example of growing a personal care footprint by circumnavigating a direct acquisition includes the Honor Care Network.
Building a personal care network through ClearCare may not just have value for Amedisys, as home care agencies that sign up could also stand to gain.
“It can certainly be viewed as a testament to the quality of care your company is providing, and your ability to coordinate care with a home health provider,” Mertz said. “And of course, I would expect it would increase your top and bottom lines, which enhance the ultimate value [of an agency].”
In other words, joining a partnership system in the present may lead to more dollars when a home care agency is looking to sell in the future.
“But like any referral relationship, I would caution operators to be careful not to put all your eggs in that one basket,” Mertz said.
Additionally, to what extent home care agencies could gain in a future acquisition from participating in the Amedisys-ClearCare partnership likely depends on any terms associated with joining, Levinson pointed out.