Who’s buying? A quick guide to buyers in the home health and hospice space

Is the thought of all the work required to fetch a premium value keeping you from moving forward with plans to sell your hospice or home health agency?

The process could be somewhat easier than you think, according to the SimiTree experts in mergers and acquisitions.

Prospective buyers in the home health and hospice space vary widely, and so do the expectations they bring to the negotiating table. Although performance and profitability sweeten a deal, not every buyer is looking for a turnkey, shipshape operation.

“Depending on their strategic goals, some buyers may be less exacting than others, willing to come in and do some work,” said SimiTree Principal Mark Romano.

Romano has shepherded numerous targeted acquisitions involving buyers looking for specifics beyond profitability and agencies operating at less-than-peak performance.

“It’s generally a good idea for sellers to put the best foot forward, and some minimal financial housekeeping is going to be required, including getting your accounting in order,” Romano said. “But the buyer who is looking at expanding into a specific geographical area is not going to be turned away by cash flow issues or a problematic revenue cycle. They know those issues are fixable.”

The one exception that universally drives away buyers is compliance risk, Romano said.

Read more about The No. 1 Deal Killer here.

“Buyers don’t want to owe Medicare money, and they sure don’t want to be at risk for investigation of billing aberrancies or fraudulent practices,” he said. “They may not care about leadership issues, poor management, or underperformance, but they will immediately walk away from risk.”

Types of buyers, expectations

There are many different types of buyers in the home health and hospice space, all with different goals. “Whatever the motivation, buying and selling is largely a matter of finding the right matches,” Romano said.

The M&A experts at SimiTree offer a quick guide with examples of three common types of buyers who might be interested in acquiring an agency, and how their expectations may vary:

The territorial buyer. These buyers may be geographically motivated, interested in expanding into a particular location, and/or usurping competition. They may also believe the acquisition of a home health agency or hospice makes sense for providing a continuum of care aligned with other healthcare investments in the community. In such cases, the buyer may enter the transaction intending to make significant leadership and operational changes, and may not be deterred by performance issues.
The portfolio owner. Often buyers have an existing portfolio of agencies. Like the territorial buyer, the portfolio buyer may wish to add another agency in the targeted location to align with strategic goals and may value location over performance. But the portfolio owner may also be interested in the acquisition for reasons other than geography, and look for an agency with an established market presence, strong margins, and optimal performance.
Minority stakeholders. In these types of acquisitions, an investing company often expects a nice return on its investment. The buyer generally expects that the target company will be well managed and profitable, operating at acceptable performance levels and adhering to best practices for the industry, or capable of quickly achieving those accomplishments with knowledgeable guidance. Most minority interests hold at least 20 percent of the company, but any ownership stake under 50 percent qualifies.

SimiTree can help

Whether you’re buying or selling, SimiTree’s M&A team offers a full range of professional services to assist home health and hospice providers in each phase of a successful transition, from business valuation and diligence to post-close integration.

We bring a unique understanding of market dynamics and the complexities of our industry to every transaction, providing a detailed picture for buyers and sellers to move forward with confidence.

Use the form below to reach out to us today for more information about our extensive, industry-specific M&A services.

Are you an Insider?

Our free monthly report offers industry insight and analysis from SimiTree experts. Sign up here to get helpful articles like this one in your inbox each month.