Industry experts suggest that home care companies will expand into new areas of service by acquiring other companies with complementary products. As this trend towards future acquisitions continues to grow, certain factors often make a company more attractive target.
Financial Performance and Stability
When looking at companies for potential acquisitions, investors analyze financial statements for consistent revenue growth, strong profitability margins, and effective cash flow management. Institutions with solid economic performance show stability and growth potential, making them attractive to investors.
Furthermore, companies seeking to acquire other companies focus primarily on financially healthy organizations that demonstrate stable revenue growth and profitability. According to Forbes Partners, organizations with high EBITDA and robust referral sources are considered desirable targets.
“(Investors) are looking for a strong set of referral source relationships, which could mean a diverse set of referral sources, strategic partnerships with referral sources, or a more formal and deeper relationship.” “Burning the top of the funnel to promote referral transformation is one area that is a priority for a solid acquisition goal.”
For home healthcare institutions, relying on a single payer source is risky. If the payer cuts fees, reduces profits and terminates the contract, it could have a significant impact on the agency's finances. Thus, a diverse combination of payers, including commercial insurers, Medicare, Medicaid and self-paid patients, is a sign of a more stable revenue stream and a better refund rate, which is attractive to buyers, Widmar said.
Jennifer Lenz, CEO of Home Health, said diversifying payer is a priority for her business. The company has been active in mergers and acquisitions, and completed multiple transactions in 2023.
“We spent a lot of time with operators and said, “You're about 85% Medicaid and 15% contracts. Let's talk about how to grow your private wages in your market. Let's talk about where you can see traction and different referral sources,” she told HHCN at the Capital+Strategy Conference in 2024.
Avid Health At Home is a home care platform supported by Havencrest Capital. The organization serves more than 103 counties in three states.
Reputation and growth potential
While profit is a key factor, investors are increasingly looking beyond financial metrics to assess leadership vision, brand reputation and consumer loyalty. Being a market leader in a particular region or segment with a strong brand presence makes your organization particularly attractive. Factors such as high demand in service areas, their ability to expand their efficiency and organic growth potential, and other factors are indicators of the company's lifespan, according to WIDMAR.
“When I look at home healthcare, I want to know about their reputation within the community,” Compassus Senior Vice President and Chief Development Officer David Degumbia said at the Capital+ Strategy Meeting on April 10.
Based in Brentwood, Tennessee, Compassus offers a comprehensive range of home care services including home health services, including home healthcare, home infusion therapy, palliative care, hospice care, and Hieijuti-based care. There are over 270 locations in 30 states.
A strong reputation reflects consistent, high quality care, not only attracting clients, but also keeping staff, boosting referrals and increasing visibility. A highly skilled workforce, including registered nurses, licensed practical nurses, and professional caregivers, is particularly important for investors. Furthermore, effective management teams are essential as they ensure smooth operation, promote strong personal relationships, and lead to high retention.
Buyers also assess operational efficiency through metrics such as patient outcomes, customer satisfaction, and retention. Efficiently operated agencies can order a higher rating.
“It's very rare to have a clear work structure or career path within the organization for these roles that can demonstrate above-average retention rates in the industry — especially for field staff and direct care workers,” he said. “When such companies exist, they stand out because they often experience sub-average attrition. It's a key advantage to be carers with the opportunity to move to branch management or ultimately move on to local leadership. Given the workforce dynamics in these industries, a track record of nurturing employees along this career path is essential.”
Technological advances
According to WIDMAR, it's not just the basic infrastructure and security measures, but also the health of the target technology environment, as well as how technology can be used to enable operations. This distinguishes between acquisition targets that may provide a competitive advantage or serve as a model for further expansion and excellent acquisition targets.
When preparing for the sale of GrandCare Health Services, CEO David Bell said his team focused on achieving clinical, operational and financial excellence, leveraging the technology as investors didn't need a “another generic provider.”
“We tested software designed to streamline and optimize different parts of our workflow,” Bell said at the Capital+Strategy Conference. “As a result, we have grown from 30 to 35% in 12 months, doubling our profits.”
This kind of streamlined operation is what investors want. However, Widmar pointed out that different states can create the challenges of technology integration.
“As the average company expands into new states, the consolidation challenges become very important,” he said. “They need to incorporate new operational systems to achieve some degree of standardization, as well as consider differences between states and states in reimbursements and regulations. This complexity makes it more difficult to configure the technology that supports day-to-day operations.”
