As the demand for in-home services continues to rise, agency owners need to understand the key factors that appeal to investors to position themselves successfully for acquisition opportunities.

While the home health care sector offers significant investment prospects, not all agencies will attract every investor. Agency owners can enhance their appeal by focusing on firm financial performance, operational excellence and a clear growth strategy. Investors are not just interested in good numbers; they also seek potential, credibility and a commitment to providing high-quality care for the communities surrounding the organization.

Financial performance

A company’s financial health is fundamental to any investment decision. Investors closely examine financial statements for consistent revenue growth, profitability margins and effective cash flow management. Agencies that demonstrate strong financial performance are more likely to attract investors, which indicates stability and potential for future growth.

Forecasting future performance has become essential in the era of artificial intelligence (AI) and advanced analytics. Investors are increasingly interested in agencies that use sophisticated forecasting tools, allowing for informed projections about growth and revenue streams. A robust forecasting model conveys the agency’s confidence in its business strategy and operational capabilities, which is particularly appealing to investors.

“In the age of AI, the variety of forecasting tools available to operators is remarkable,” said Jarrett Bauer, CEO of Montauk AI, during the Home Health Care News Capital+Strategy conference on April 10. “These advanced models, which include best-case scenarios, were previously accessible only to Fortune 500 companies. Now, home care agencies with revenue ranging from $5 million to $50 million can project their position three years into the future based on these assumptions.”

Montauk, New York-based Montauk AI offers AI-driven solutions that provide greater access to best-in-class banking services for mid-market companies. These solutions help owners understand their company’s maximum value, navigate complex exit strategies and connect with the right investors.

A clear growth strategy is also vital for attracting investment. Investors want to understand how an agency plans to scale its services, whether through geographic expansion, new service offerings or strategic partnerships. A history of organic growth, coupled with a well-articulated plan for future expansion, reassures potential investors that the agency has the vision and capabilities to succeed.

Making organizations stand out

Quality is a key factor for investors when evaluating home care organizations. David DeGumbia, senior vice president and chief development officer at Compassus, emphasized the importance of quality and reputation when considering potential acquisitions.

“When we’re acquiring a home health agency, we conduct a chart audit to ensure compliance is in order. If it isn’t, it will delay the process, or we may walk away from the deal,” DeGumbia stated.

Compassus performs a quality of earnings report to ensure financial stability, and sellers consider a simplified version of this report before pursuing an acquisition to understand their market position better, he said.

Based in Brentwood, Tennessee, Compassus offers a comprehensive range of home-based care services, including home health care, home infusion therapy, palliative care, hospice care and high-acuity home-based care. It has more than 270 locations across 30 states.

Additionally, DeGumbia expressed a desire to understand the agency’s reputation within the community. He highlighted several key factors, including the agency’s capacity for business growth and its history of organic expansion. While technology is a consideration, he is equally interested in leadership and their efforts to build a strong team.

“We’re all in this together, and our strategy is to enhance integrated home-based care,” he said.

An agency’s reputation can significantly influence its attractiveness to investors. Investors tend to prefer supporting organizations with a strong community reputation. Positive feedback from patients and families, endorsements from health care professionals and a track record of high-quality care all contribute to an agency’s credibility. Consequently, investors are more inclined to back organizations with strong community ties and a positive public image.

The quality of the leadership team is also crucial in the investor decision-making process. Investors seek agencies with experienced leaders who have a proven track record of making informed business decisions and driving growth. Understanding the leadership’s vision, experience and approach to challenges gives investors confidence in the agency’s future direction.

DeGumbia mentioned that when he approaches an acquisition, he hopes the seller will inquire about their employees and their future within the company.

“Sometimes the seller asks, and sometimes they don’t,” he noted. “I look for questions about employee opportunities and their potential for growth and development. I want to hear what they’ve done to build an exceptional team.”

Investors also seek home health care agencies that emphasize operational efficiency and excellence. Agencies that demonstrate streamlined workflows, effective resource management and high-quality patient outcomes indicate operational health. Agencies that use technology to enhance their operations, such as telehealth platforms, electronic health records and patient management systems, often stand out to investors.

“When I’m looking to acquire a provider, I seek innovation,” DeGumbia said. “I’m interested in what unique approaches providers are implementing and how they are simplifying life for their caregivers.”

All of these characteristics contribute to operational excellence, which Bauer noted must be a priority for those looking to acquire an agency.

“When you’re in talks with an organization that has five-star ratings, that’s an indicator of operational excellence,” Bauer observed. “Then consider the financial metrics, how to automate them and how they align with the strategic vision of the acquiring company.”

Bauer pointed out that understanding what the organization will look like after the transaction is often overlooked and should be addressed early in the acquisition process.

A robust exit strategy

David Bell, CEO of GrandCare Health Services, has been working on an exit strategy for his organization over the past few years. He emphasized that one key step GrandCare took to prepare for this was to better understand how to maximize the company’s value before seeking a buyer.

“We leaned heavily into the idea that the world doesn’t need just another generic provider; they need excellence,” Bell stated. “We focused on achieving clinical, operational and financial excellence, and leveraged technology to accomplish that. We tested software designed to streamline and optimize various sections of our workflow. As a result, we experienced growth of 30% to 35% in the last 12 months and doubled our profit.”

Serving Southern California, GrandCare provides post-surgical rehabilitation care at home, including home health care, orthopedic rehabilitation, cardiac surgery recovery, outpatient therapy and wound care.

Additionally, Bell explained that the company aimed to deliver excellence alongside growth and profitability in a manner that would appeal to larger buyers. To achieve this, GrandCare collaborated with partners who helped them understand how to present a comprehensive package that would make for a desirable acquisition.

“I spoke with buyers who were primarily concerned with whether our EBITDA would be accretive to their bottom line,” Bell elaborated. “They showed little interest in buyer-based virtual scores, quality scores or anything else, which made for unproductive conversations. In contrast, other buyers were more interested in whether our technology stack would integrate well with theirs and if our pursuit of excellence would enhance their network. Over the next five years, home health is expected to handle double the volume of patients but receive only half the revenue from Medicare. Organizations need to become more efficient and some buyers might not fully grasp this reality.”