This article is a part of your HHCN+ Membership
Labor pressures are becoming increasingly central to home-based care M&A strategy.
Workforce-related liabilities, ranging from union agreements to retention risks, can significantly impact the success or failure of a deal. These pressures are shifting what acquirers seek in targets and how labor instability impacts integration and return on investment (ROI).
“Labor continues to be in focus across health care services,” Kristopher Novak, managing director at The Braff Group, told Home Health Care News. “As providers, the clinicians are key to achieving goals in quality and growth. Tenured staff tend to provide higher-quality care, and research has shown that this type of care is associated with higher organic growth rates. The past several quarters have seen better labor markets for home health and hospice providers. However, it is still a challenge given the competition or supply of qualified clinicians in each market.”
The Braff Group is an M&A advisory firm based in Pittsburgh, Pennsylvania.
Approximately 47% of failed deals are caused by inadequate strategic people-risk planning, according to Mercer. Among all the capital and resources a company has, people remain the most valuable asset. The main priorities for dealmakers throughout a transaction’s lifecycle are operational stability, customer and client retention and developing a customized value-creation roadmap for due diligence.
Mercer research further shows clear links between people risks and top business and deal priorities. Leadership, critical talent and organizational culture must be prioritized from the start, during the due diligence process, to help ensure a company achieves its strategic goals.
Labor dynamics have long been a key factor in home and community-based services transactions, according to Ken Benton, director of health care corporate finance at Ziegler. He said this issue has worsened due to wage pressures and labor shortages over the past few years, which have coincided with the peak of the baby boomers turning age 65. He also mentioned that buyers are showing less interest in unionized workforces.
Ziegler is a privately owned investment bank based in Chicago, specializing in capital markets, proprietary investments, and sectors including health care, senior living and education.
Workforce shortages in home health care lower M&A valuations by raising operational costs, restricting growth prospects and making acquisition targets less attractive due to the challenge of scaling operations with a strained workforce, Benton said.
What buyers look for
Buyers, especially private equity firms, focus on a target company’s ability to attract and keep staff, considering a strong workforce culture a key advantage. This emphasis on human resources and operational quality can slow down dealmaking, delay the sale of existing investments or result in fewer M&A deals, according to Benton.
Retention is a key metric that buyers examine to assess an organization’s health, as it reflects the culture, according to Novak. It confirms that management has established a unique work environment.
“Given the connection to quality and growth, a tenured and stable workforce is essential for the organization’s ongoing success,” he said. “It shows stability, as integration risk is always a top concern for a buyer.”
From a seller’s perspective, being able to demonstrate stability is a vital asset, Benton said.
“When one of our sell-side clients can show that they are an employer of choice with manageable turnover and limited wage inflation, this is a major positive that will boost the number of interested parties and the amount they can pay,” Benton told HHCN.
High turnover is always a warning sign, Novak said. A seller with high turnover rates should expect to spend more time and effort answering questions. Buyers will want to know if this turnover is consistent or due to specific reasons, whether internal or external.
Even if the turnover isn’t consistent, it may still be seen as a red flag. A company with clear metrics, including voluntary versus involuntary turnover, tenure, engagement, employee satisfaction and productivity, is better prepared to answer these questions, according to Novak.
Benton observed that companies with high turnover, especially those with 50% or more annual turnover, are likely to be heavily discounted in deal negotiations. However, companies that have managed to succeed despite labor instability and workforce management issues can still command a premium.
“Going back to last year, we have seen premiums paid for businesses that leverage technology, including AI, to mitigate the impacts of workforce challenges,” he noted.
According to Mike Brooks, Vice President of PMCF Investment Banking, buyers are placing premiums on agencies with scalable workforce pipelines and low turnover, as workforce stability directly impacts service delivery and profitability while mitigating immediate labor gaps.
“Specific areas of increased M&A activity include non-medical care due to its ability to scale with lower clinical staffing requirements, and cross-subsector deals between home health and non-medical, allowing acquirers to diversify across services or leverage technology-enabled models to increase existing staff utilization,” Brooks said.
PMCF provides M&A services to companies throughout the Americas, Europe and Asia. The company has offices in Chicago, Detroit and Denver.
Benton said that his company has seen deal volumes stabilize after reaching industry highs in 2021 and 2022, with a decline from 2023 through 2025. While workforce shortages are a factor, legislative and reimbursement changes have also provided support.
“In home health, clearly the proposed 6.4% rate cut following essentially a flat reimbursement growth in 2024 has slowed some health care deal volumes,” he said. “Hospice has had the most positive rate environment and recent discussions have indicated there will be a healthy number of hospice transactions completed toward the end of 2025.”
Workforce optimization may increase valuation
Workforce optimization tools will support digitally enabled home-based care companies’ primary goal of cost-effectively increasing access points for high-quality physical, behavioral and social care, Benton said. Data-driven engagement tools, increasingly enhanced by AI and social determinants data, will continue to promote more efficient use of virtual care solutions in optimal settings, but require robust data management and the production of actionable analytics, he noted.
“We’ve found that businesses that invest in worker education and training and ensure they can be successful in their jobs are the most successful at retention,” Benton said.
Workforce culture is crucial in private equity investment assessments, mainly because only organizations with strong cultures can effectively manage these workforce issues, according to Benton.
“We have completed several home health, hospice and pediatric transactions over the past few years that have attracted significant interest, mainly because their strong culture has helped them stand out from their peer groups during this difficult period,” Benton said.
Companies can proactively assess competitive wage structures and benefits, adopt structured recognition and support programs and develop clear development paths supported by ongoing training to make themselves more attractive to buyers, according to Brooks.
“Firms can adopt AI-driven scheduling tools, telehealth platforms or caregiver training apps to optimize workforce usage and reduce headcount dependency,” he noted. “Standardize and document processes, including onboarding, compliance and care coordination. Agencies with lean cost structures and documented SOPs are more likely to close deals quickly, as buyers see lower integration costs despite workforce constraints.”
Integration
Labor-related risks do affect the integration process and ROI after an acquisition, as caregivers are the “lifeblood” of these organizations, according to Benton. He stated that Ziegler has completed deals where workforce integration was a key factor in choosing a partner and during due diligence. In this context, he emphasized the importance of effective messaging when announcing the transaction to the workforce, as maintaining a strong culture and workforce is crucial to the success of the investment.
Workforce shortages are accelerating M&A activity in the home-based care sector, as agencies seek to consolidate operations, according to Brooks. This enables larger entities to pool their limited resources more efficiently and achieve economies of scale in recruitment and retention.
According to Benchmark International, skilled labor is crucial for a company’s operational success. During shortages, such as those in the health care industry in recent years, recruiting highly skilled workers via traditional methods can be slow and inefficient. This has fueled a trend known as “acquihiring,” which involves acquiring skilled labor from other companies through M&A.
An increasingly important aspect of M&A deals is accessing an immediately available workforce. Talent shortages drive companies to acquire others to gain their existing talent. The ongoing labor shortage is expected to persist, encouraging more business owners to pursue acquisitions.
“Almost all integration risk is linked to labor,” Novak said. “For home care providers, the employees delivering care are their most valuable asset. Sophisticated buyers evaluate this risk and manage it through integration with strong communication, change management, and investing in employees to enhance engagement and satisfaction.”
Companies featured in this article:
