Home-based care executives looking to scale their businesses by securing growth-equity investment need to strike while the iron is hot. Right now, that iron arguably couldn’t get any hotter.
Soaring consumer demand, steady nursing home closures and varying degrees of regulatory changes have all made 2020 a launchpad for many in-home care operators. That’s certainly true for Seattle-based Fedelta Home Care, which landed new financial backing from Montlake Capital earlier this month.
Founded in 2004 by CEO Steve Meyer, Fedelta currently operates across the continuum of care, delivering everything from personal care and companionship services to disease-specific nursing care and end-of-life support. Fedelta started with a single location in Bellevue, Washington, but has since grown to three additional offices throughout the state’s Puget Sound region.
“We’re in a good position to take our story and what we’ve achieved over the last 16 years to a broader market,” Meyer, who still serves as CEO, told Home Health Care News. “To do that, we needed the capital to continue investing in the company and hire key personnel.”
Today, Fedelta and its team of about 400 caregivers operate almost exclusively in the Puget Sound region, which encompasses two-thirds of Washington’s total population. Now, with Montlake’s support, Fedelta will look to build density in existing markets while exploring expansion possibilities both inside and outside the Evergreen State.
“We’re evaluating our growth options at this time, but we’re looking at expansion both nationwide and outside the state,” Meyer said.
Locally, the share of seniors in Fedelta’s community is projected to increase to 18% by 2030, when the last baby boomer turns 65, according to state statistics.
Those figures and the clearly rising demand was what initially drew the growth-equity firm Montake to Fedelta. The provider’s high-quality reputation also helped, Montlake Capital Managing Partner Andy Dale told HHCN.
“I think Steve and Fedelta felt that — in terms of industry opportunity — the time is now,” Dale said. “Fedelta has grown to a scale where our kind of support could be useful.”
Montlake Capital — also based in Seattle — invests in private companies based in the Western U.S. with $5 million to $50 million of revenue and $1 million to $10 million of EBITDA. Apart from the health care sector, the firm’s investment areas include construction, banking, technology and more.
“We’re industry agnostic,” Dale said. “We’ve [invested] in several different industries over the course of time, but we also try to be good at what we do and get up to speed in any given area.”
A long-term commitment
Under terms of their investment agreement, Montlake will pursue a majority recapitalization, with Meyer remaining CEO and “a very large shareholder” in Fedelta, according to Dale. Unlike some home-based care backers that look for relatively short exit windows, Montlake considers Fedelta a more long-term commitment.
“We always have our eyes open, but I’d say this is a long-term commitment,” he said. “We’re looking to build a best-in-class business here in our region with Fedelta.”
In addition to non-medical home care and medical home health care, Fedelta also provides care management services. Care management services help consumers navigate long-term services and supports (LTSS) options — and, more broadly, the aging process itself.
With decent margins and a seamless tie-in to home care and home health, many providers are starting to add care management offerings to their service mix. Fedelta has been doing it for about 12 years, Meyer noted.
“We identified early on that we were actually providing a lot of those services already, when other people would normally charge for them,” the CEO said. “We were just really concentrated on the well-being of our clients. But as people started demanding more and more, we realized, ‘Hey, there is a business model here.’”
And the success of that business model helped Fedelta increase its revenue by 40% from 2018 to 2019.
In terms of future business, Montlake plans to work with Fedelta in exploring potential cross-continuum partnerships. The Pacific Northwest has “good DNA” when it comes to senior care, according to Dale, specifically referencing the region’s innovative senior living operators.
The Springs Living is one example of a well-known Pacific Northwest operator. Currently, it has 17 communities in Oregon and Montana, with one in the works in Washington as well.
Portland, Oregon-based Frontier Management, which hit its 100th community last year, is another example.
“We’re definitely hopeful to maybe even work with some of these innovative companies and further break into the great health ecosystem here,” Dale said.
Closing the deal
Private equity groups have plenty of ammo to work with this year, entering 2020 with a reported $1.5 trillion in unspent capital. Many industry insiders expect a sizable chunk of that to go toward home-based care investments.
Still, it’s not always easy for providers and investors to immediately make the stars align. In fact, Montlake’s growth-equity investment in Fedelta was about 10 years in the making.
“We’re excited we finally closed the deal,” Dale said
When Fedelta first started to gain traction years ago, Meyer considered bringing in outside help to further fuel growth. He met with Montlake, got so far as a deal sheet, but ultimately decided Fedelta wasn’t quite ready for rapid expansion.
“There were still new products and services that I wanted to introduce,” Meyer said. “I wanted to continue building our foundation, then go in for investment money when we were better positioned to do so.”
Before launching Fedelta, Meyer worked as an organizational development specialist, helping different Fortune 500 companies identify their strengths and weaknesses. Around 2008, Meyer “hit a reset” and began exploring new business ideas that would bring added meaning to his life.
The CEO quickly landed on in-home care, a decision reinforced by personal experience. When Meyer was younger, he watched his aging grandmother shuttle in and out of assisted living facilities, then various family members’ homes.
“One of the things she told my mother and me was, ‘There has to be a better way. There has to be a better way for people like me to age in place,’” Meyer said. “‘This is not how I intended to live out my life.'”