What Makes A PE Firm-Home Care Provider Relationship Successful

In home care, the relationship between the operator and the private equity sponsor can be difficult to manage.

Generally, healthy relationships – ones where there’s “give and take” – lead to growth and success. Poor relationships between those two parties, on the other hand, tend to lead to undesirable outcomes.

“Private equity has a really powerful place within our space to offer some assets to an organization like mine,” Family Resource Home Care CEO Jeff Wiberg said on a panel at Home Health Care News’ FUTURE conference last month. “PE has allowed us to have plenty of dry powder to be able to continue to do what we want to be able to do.”

Backed by Great Point Partners, Family Resource Home Care is one of the largest independent personal care companies in the Pacific Northwest. The company’s services include personal care, medication management, meal preparation, housekeeping, companionship, dementia support and end-of-life, transitional and respite care.

Over the past few years, Family Resource Home Care has continued to expand its geographic footprint across the Pacific Northwest.

Most recently, the company acquired Companion Care Inc., a home care agency that bolstered Family Resource Home Care’s footprint to seven locations in the Puget Sound region and to 29 total across Idaho, Oregon and Washington.

Wiberg has a unique perspective on the relationship between agency and PE firm. He’s worked in PE and is now at the helm of a growing provider.

“My honest experience has been that you’re constantly having to re-educate the private equity team to make sure that they understand that — in spite of the fact that they think they know how to run a business — really the expertise is still with the executive team,” Wiberg said. “So you have to manage through that dynamic a bit.”

Someone else who has toed that line delicately as of late is Jen Lentz, an operating partner of Havencrest Capital Management and the CEO of its new home care platform, Avid Health at Home.

“I’m an operator by trade,” Lentz said during the panel. “When you start thinking about looking at private equity, … it is so important to take a step back, know your own limits and know what you can really offer before finding a true partner.”

Havencrest Capital Management is a health care-focused private equity fund with about $600 million of assets under management. The company’s strategic approach is to partner with founder-owned health care companies with EBITDA between $3 million and $15 million.

Because of her background in home care – she was previously at Premier Home Health Care – Lentz said she has developed a knack for knowing who she wants to be in business with from the jump.

“I had met a lot of folks in that space in my former life and I would know from the start that this was somebody that I could work with,” Lentz said. “It’s not for the faint of heart. It’s very entertaining. And it’s a lot of fun because you do have the ability to have a thesis, have a strategy and then go execute it. Whether that’s through interior investment or an aggressive M&A rollup, it’s a lot of fun.”

Getting PE backing

There’s a push and pull that exists in PE firm-agency relationships. It’s up to both sides to agree on a long-term strategy and to have an open dialogue throughout the process, before and after an investment.

It’s also important for both sides to have realistic expectations.

“Eighteen months ago, we would come into these conversations where maybe someone sold too late or had an inflated view of what we thought they might be,” Will Davis, regional director of origination at The Riverside Company, said during the panel. “If we had proposed things like earnouts, or some sort of a structured scenario which reduced their upfront proceeds, we got thrown out of the room. But the market has moderated a bit and the buyers and sellers are coming a bit closer together.”

Riverside’s portfolio includes Best Life Brands, a holding company for home-based care franchise companies like ComForCare and Boost Home Healthcare.

Davis said Riverside is actively looking for more partners and that it has capital to deploy. Provider leadership being willing to wait on their earnings tends to help the dealmaking process, he said.

“In some cases, the sellers and their advisors are suggesting those structured scenarios before we are, which is good,” Davis said. “I think because of that, we’ll see an uptick in activity, and a steady rate environment is going to help that. I think we have a better sense of rates being in a narrower range, and that will help those using leverage coming in.”

Backended earnings requires a successful relationship while the PE firm is involved, though.

Productive relationships are what gets both parties from the start line to the finish.

“I think the juice is worth the squeeze,” Wiberg said. “There’s a lot of expertise in financial analytics, KPI analytics and so forth. You’re equipping yourself to make more informed choices. I mentioned the dry powder and having the ability to continue to grow — that’s nice to have, but partnering is not for the faint of heart. There’s a lot of rigor involved. If you’re ready for that rigor, then it can be very beneficial. If you’re not, it can drive you insane.”