The private equity firm Coltala Holdings has acquired a stake in Choice Health at Home, a growing home-based care provider based in Texas. Financial details were not disclosed.
The capital and other resources from Coltala will help Choice become a larger home health player across the South. Additional aspects of the deal reflect larger trends in the industry as well.
Coltala’s leaders called themselves “fortunate” to be the investors in Choice, a sentiment that reflects just how red-hot and competitive the current M&A market is in home health.
“We were definitely looking, but we were not optimistic that we would find the right one,” Ralph Manning, the co-founder and CEO of Coltala, told Home Health Care News. “And that’s really because the market has gotten so competitive. To find an entry point, with any kind of momentum and scale — that you can afford — is really hard. I’m not going to say we had given up on it, but we were just hopeful.”
Dallas-based Coltala is a holding company focused on acquiring stakes in businesses that are in health care, manufacturing and business services. Apart from Choice, its investment portfolio includes HVAC services company Trudela and Revere Packaging.
On its end, the Tyler, Texas-based Choice is a provider of home health, hospice and rehabilitation services. It has 40 total locations in Texas, Louisiana and Oklahoma, with over 800 licensed health care employees.
“Coltala concurred with the vision of our management team on development plans for the company to become a leader on the post-acute care continuum,” Choice founder and CEO David Jackson told HHCN. “The partnership provides access to significant capital, but the importance of a shared vision and path was imperative.”
The home health provider acquired Home Therapy of Austin last year and the Shawnee, Oklahoma-based Angelic Hospice in January of 2021. As of June 1, it also acquired Restore Home Health, which provides home health services across Central and Northeast Oklahoma.
Coltala helped provide the funding for Choice’s recent growth and is actively helping Choice expand further. The tandem is currently looking for home health and hospice acquisition opportunities in Texas, New Mexico, Oklahoma, Louisiana and Arkansas.
To get its hands on a provider with Choice’s potential, Coltala knew it would have to pay a steep price. But it was willing to, given the M&A environment and the tailwinds that the home health industry is experiencing right now.
“I think we expected an [inflated price],” Manning said. “We probably invested in Choice earlier than perhaps a lot of firms would.”
Choice was growing quickly enough under founder and Jackson’s leadership, however, that Coltala felt it was the right time to catch the company in its upward trajectory.
“Home health has gotten more expensive than many of the other asset classes that we do look at,” Coltala President and co-founder Edward Crawford told HHCN. “We recognized the opportunity, and we paid a good price for it, but we were still willing to pay the right price for the right opportunity. And we saw this as the right one.”
There are many challenges in home health care. But the opportunities outweigh those challenges for private equity firms and other buyers.
“It’s about finding a business like Choice that has tremendous potential to scale,” Manning said. “[With] market opportunity to really go execute that. With Choice, David Jackson is an incredibly talented entrepreneur. He knows exactly where he wants to go, recognizes what the market opportunity is today, and now has the resources and capabilities that we can bring, so he can get there a lot faster.”
Home-based care transactions were down significantly in Q1 of 2021 compared to Q1 2020, but much of that can be attributed to buyers finalizing deals that were made in the second half of last year, according to the M&A advisory firm Mertz Taggart.
Overall in Q1, there were 23 combined transactions between the home health, hospice and home care segments.
“Demand is at an all-time high,” Mertz Taggart Managing Partner Cory Mertz recently told HHCN. “I’ve been selling in-home care companies for 15 years and have never seen a market quite like this one. Like everything, this too will cycle.”
The opportunity in home health
“Margin and mission” is Coltala’s motto, as both Manning and Crawford — now in private equity — both come from nonprofit, mission-based backgrounds.
Home health represents, to them, a place where growing a great business also means touching more lives in a positive way.
“That approach applies well to any business, but specifically to home health care, where you’re taking care of patients and trying to deliver a higher quality of care,” Crawford said. “You notice that the better businesses are the ones that end up being more profitable, but they’re also the ones that deliver really high quality of care and take the best care of our moms and dads.”
But one of the chief concerns Coltala had when surveying the scene for post-acute care organizations like Choice was staffing.
The two had worked with home health agencies before. They already knew that potential to grow meant nothing without staffing to match.
“They’ve scaled very quickly, they built a finance team, and they’ve really hired some incredible people,” Crawford said. “When we first met Choice, they were in the low double digits for offices. And now they have 40 offices with 800 employees in three different states. And so the fact that they’ve been able to hire the right people and scale this quickly has been great to see.”
Part of Coltala’s confidence in Choice comes from its leaders’ backgrounds. Jackson is a physical therapist by training, and Trina Lanier, the COO, is a licensed nurse.
“Choice has a history of recruitment capabilities exceeding the industry averages,” Jackson said. “The public health emergency also pushed the company to evolve some of our applications with technology and interdisciplinary communication.”
Another reason why Coltala was happy to invest its resources into Choice were those opportunities in technological advances when it comes to home health.
Choice’s remote patient monitoring (RPM) platform allowed it to succeed during the pandemic in ways that other providers could not.
“During COVID, there were doctors who couldn’t see their patients unless they went through Choice,” Crawford said. “So we also see that as a great opportunity to touch more lives and help more people, and also allow more people to be in their homes as opposed to in facilities.”
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