The home-based care M&A landscape has been very active over the last year. And as long as the publicly traded companies remain in good standing, investment activity from private equity players and others is likely to remain strong.
That’s according to Mertz Taggart Managing Partner Cory Mertz, who said at the Home Health Care News Home Care Conference last week that even if the number of transactions ticks down in 2022, interest and demand is likely to hold steady.
“I don’t see the demand tapering off,” Mertz said. “But we probably will see a little bit of a slowdown in the number of transactions. With this being a record year, I can’t imagine it continuing into next year. Everybody that’s in the deal world is slammed. It’s unsustainable. I think we’ll just see a little bit fewer deals, but probably more high-quality ones.”
Right now, the home care and home health care industries are ripe for transactions.
In home health care, the public companies – minus a few blips from COVID-19 volatility – are performing well.
“They’ve all done very well over the last several years; we’ve seen the trading multiples of those companies in the 30s and the 20s,” Mertz said. “So as long as the public companies are doing well, private equity will continue to invest all the money that they’ve got.”
Part of the reason why transactions have become so common in home-based care over the last couple years is simply the availability of capital, Family Resource Home Care CEO Jeff Wiberg said at the conference.
“Whether it’s a public company, or even private company, the availability of capital is really rich right now,” Wiberg said. “Money is very inexpensive, and in the home care space, we can get a pretty quick return from a cash-on-cash basis. So lenders are wanting to lend money because it’s so readily available at the present time.”
Wiberg has been intimately involved in the M&A space himself.
The Spokane, Washington-based Family Resource Home Care is one of the largest independent home care providers in the Pacific Northwest and has taken part in a slew of deals over the last couple years. The company now has 25 total locations mostly focused in Washington, Oregon and Idaho.
Acquiring makes sense for home-based care providers for a couple reasons. For one, it represents a relatively easy way to add that EBITDA that some of the more heavy-hitting providers desire.
But it also allows for agencies to gain access to more caregivers. One of the only barriers to growth in the space is staffing, so access to more workers is paramount.
“One of the best and quickest ways to add EBITDA to your company is to acquire it,” Bruce Vanderlaan, managing director at Mertz Taggart, said at the conference. “And in today’s marketplace in particular, with our employment situation, one of the best ways to add caregivers to your organization is through acquisition. So I think that’s all working together.”
Unprecedented activity
What made 2021 special from an M&A perspective was the amount of deals that went down in the home care franchise space.
“I would say the biggest, most significant trend that we’ve seen this year is really the franchiser transactions,” Mertz said. “And just to put it into perspective, from 2015 to 2020, there were three franchiser transactions. In 2021, we’ve seen five thus far.”
Mertz also hinted that the dealmaking may not be done just yet.
“And you know, who knows, we may see another one,” he said. “That is something that has definitely been on my radar.”
Here are the transactions that have taken place to date: the PE firm RiverGlade Capital acquired Home Helpers; the investment arm of Advocate Aurora Health acquired Senior Helpers; Honor acquired Home Instead; The Riverside Company invested in Executive Care; and Wellspring Capital Management acquired Interim Healthcare’s parent company, Caring Brands International.
While certain aspects of acquiring franchisers can be confusing, in general, the scale is what grabs investor attention, Wiberg said.
“There’s been a lot of interest within our community from private equity groups because they see all the tailwinds,” he said. “A lot of private equity, when they first come up with an investment thesis, they really want to target a certain amount of EBITDA. And in the home care space, we’re so highly fragmented that there’s just not a lot of agencies out there with $10 million-plus in EBITDA. I think that that’s part of the reason why the investors have really gone after the franchise organizations, because you’re getting more of an economy of scale, and franchisers tend to run a little bit better EBITDA margins than than just an individual operator.”
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