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Over the past few years, a number of home-based care companies have been able to achieve rapid, inorganic growth.
Due to these organizations’ acquisition prowess, their leaders have become experts in spotting deal landmines and goldmines.
On the home care side, Care Advantage Inc. has become one of these companies.
The Richmond, Virginia-based Care Advantage has 38 locations throughout Virginia, Maryland, Delaware, Washington, D.C., and North Carolina. It’s one of the largest in-home care companies in the Mid-Atlantic region. Home health care is also one of the company’s offerings.
Since 2018, Care Advantage has completed 19 acquisitions, only slowing down in 2020 and early 2021 due to the pandemic. In 2022 alone, the company completed seven acquisitions.
“It’s helping us further build out our coverage in that Northern Virginia area,” Care Advantage CEO Tim Hanold told Home Health Care News. “At this point, we essentially have a blanket coverage of the geography and population throughout Virginia, but … it provides that additional coverage for our payer partners and complements a number of our past – and newer – pay-for-performance programs, especially on the Medicaid side.”
Care Advantage’s status as a prolific acquirer has positioned Hanold to be able to tell when a deal is up to snuff.
When entering a deal, making sure it is a strategic match for the company’s long-term investment goals is top of mind.
“Does it create value for the organization as a whole?” Hanold said. “Obviously, economics needs to make sense, but at the end of the day, both parties need to feel good about the end result, and culture matters.”
Once a buyer decides to enter a deal, it’s paramount for it to have its funding in place — something that has recently become more challenging.
“They need to be able to fund that deal, especially now with the inflationary pressures in the market,” he said. “Whether that’s debt, or you’re working through your equity, you have to be set up for success well before you enter into these deals.”
Hanold also noted that the buyer should create a strong integration game plan.
“It’s not one size fits all,” he said. “There’s certainly templates to success, but also, there’s something bespoke about each deal.”
That game plan is also aided by transparency, which makes the first three months post-deal completion much more smooth.
“It’s important to be transparent and clear about expectations up front, whether that is on the transition [itself], back-office systems, reporting structures or your EMR and case management systems,” Hanold said. “What are those agreed upon synergies and what is that org chart going to look like? What is the agreed-upon timing for getting all those different components [up to speed]? Those first 90 days are really crucial to that ongoing success.”
And perhaps most importantly: Forced deals are not good ones.
“While it’s really unfortunate when this happens — because of the cost of time, energy and resources — you should never feel like you need to force through a deal,” Hanold said. “Some signs that something is wrong are material issues, quality of earnings and significant compliance or quality assurance gaps when we’re doing that due diligence. Also, is there a disconnect between how the team presented culturally initially and in subsequent interactions throughout the rest of the process?”
Addus is opportunistic in M&A
Addus HomeCare Corporation (Nasdaq: ADUS) has also been busy on the M&A trail.
It delivers a variety of home-based care services including home health care, personal care and hospice. Currently, the company provides services to 45,500 consumers through 206 locations across 22 states.
In August, Addus stated that it expected to make larger deals in the back half of last year, as well as in 2023. The company has completed two acquisitions of note since. The most recent one involved the Chicago-based Apple Home Healthcare.
“It met our strategy of growing clinical services in an existing personal care and hospice services market,” Cliff Blessing, executive vice president and chief development officer at Addus, told HHCN.
For Addus, acquisitions will continue to be core to the company’s growth strategy.
“We really want to execute a strategy where we have all three service lines in every market that we serve,” Blessing said. “We also want to be opportunistic, and add those service lines in strategic markets that we’re in today.”
In turn, being aggressive on the M&A front has taught the company many lessons.
“As a serial acquirer, Addus has a structured process ready to roll out upon execution of the letter of intent,” Blessing said. “The letter of intent includes the transaction timeline, a due diligence request list, third-party advisory engagements, and internal departmental working groups, which are all pointed towards the goal of moving efficiently through the diligence process.”
Blessing noted that it’s important to move at a mutually workable pace for both buyer and seller.
As far as dealmaking red flags, one of the biggest is when buyer and seller expectations are no longer aligned.
“This can become evident when something is discovered in due diligence investigations, and there are different points of view on the risk associated with the filings,” Blessing said. “We try to avoid some of these potential landmines by asking key questions prior to submitting a letter of intent, and talking openly about the diligence process and expectations of the buyer.”
This is where having an experienced investment banker involved can also be helpful, according to Blessing.
Ultimately, when it comes to acquisitions, there are a few key attributes that Addus always wants to see in the seller.
“We like to see the ability to provide high-quality care, a capable management team and a strong history of growth,” Blessing said. “We also want to see financial performance continue to improve and be sustainable.”