Understanding the Market for Home Health and Hospice Agencies

The home health and hospice sectors attract a diverse range of buyers, each with unique goals and strategies for acquiring businesses. Whether it’s an individual entrepreneur entering the industry for the first time, a strategic buyer expanding operations, or a private equity group seeking portfolio growth, these buyers all share a common objective: enhancing the value of their acquisitions and driving profitability over time.

Understanding the different types of buyers is crucial for sellers looking to find the best fit for their business. By identifying how each type of buyer aligns with their goals, sellers can position their business effectively, ensuring a smoother transaction process and maximizing value. This article will explore the main categories of buyers in healthcare mergers and acquisitions (M&A) and explain how transaction advisors, like those at Stoneridge Partners, play a vital role in connecting sellers with the right opportunities and facilitating the sales process.

Strategic Buyers

Strategic buyers are usually larger, well-established healthcare providers that operate on a statewide, regional, or national scale. These organizations can be privately owned or publicly traded businesses seeking acquisitions to expand their geographical footprint, enhance their service offerings, or strengthen their current market position. Strategic buyers leverage synergies to offer higher prices than individual buyers. For instance, they often have established billing, IT, or clinical teams that can absorb the acquired business’s functions, reducing operational costs and creating efficiencies. These synergies, which vary widely by the specific buyer, allow them to pay higher premiums for businesses that align with their goals.

Strategic buyers typically fund acquisitions using internal reserves or external financing, and they rarely face financing contingencies. This contrasts with individual buyers, who often rely on SBA loans. Strategic buyers’ familiarity with the industry means sellers aren’t teaching them the business, reducing the risk of cold feet as they learn more during diligence. These buyers have expertise in continuing operations post-acquisition and are less likely to be derailed by unexpected challenges. Furthermore, strategic buyers often have extensive M&A experience and dedicated teams in place to handle transactions efficiently. These teams often include in-house or third-party diligence experts, legal advisors, and integration specialists, helping to facilitate a smooth process for sellers. By integrating new acquisitions, strategic buyers aim to achieve operational efficiencies, increase revenue streams, or dominate specific service areas. For sellers, working with strategic buyers often means higher valuation multiples due to the buyer’s ability to pay premiums for businesses that align with their expansion plans.

Over time, financial buyers—like private equity groups—often begin to resemble strategic buyers after acquiring a platform company. These platforms serve as a foundation for smaller “tuck-in” acquisitions, which are integrated at lower multiples. This strategy enables financial buyers to grow the entity’s size, improve operational efficiencies, and enhance profitability, eventually commanding higher multiples when exiting.

Financial & Private Equity Buyers

Private equity (PE) groups, also known as financial buyers, play a significant role in the home health and hospice M&A landscape. These firms range from family offices to investors managing smaller funds to large-scale organizations that raise significant capital for healthcare investments. PE groups often acquire a “platform” company with substantial size and scale to serve as a foundation for future growth. They then pursue “tuck-ins” or “add-ons”—smaller businesses that complement the platform company—to expand their geographic footprint or service offerings. These tuck-ins are acquired at lower multiples and integrated into the platform to create larger, more valuable entities.

PE firms typically operate on a defined investment timeline, often seeking to exit their investments within 3 – 5 years of acquiring the initial platform business. While the majority of PE firms adhere to this 3 – 5 year exit strategy, a minority may hold onto their investments beyond 5 years or even indefinitely, depending on their specific goals and strategies.

PE groups typically finance acquisitions through private capital contributions and institutional investments. Large-scale firms often secure capital from pension funds, endowments, and insurance companies, while smaller firms rely on contributions from high-net-worth individuals or family offices. While private equity buyers may initially lack deep industry knowledge, they often engage healthcare experts to guide their initial acquisitions and operations, mitigating potential gaps in expertise.

Individual Buyers

Individual buyers, often entrepreneurs or small partnerships, typically seek initial entry into the healthcare industry. These buyers tend to target smaller entities, often relying on SBA loans for financing. Financing contingencies often dictate the pace of these transactions, with SBA approval being a critical factor in determining whether a deal closes. In contrast, diligence—particularly clinical and financial—plays a more significant role in transactions with financial or strategic buyers.

Individual buyers often look for businesses with revenues between a few hundred thousand and several million dollars. They are also more likely to pursue both non-franchise and franchise opportunities than a strategic or financial buyer that will solely pursue non-franchise entities. Franchises can offer attractive opportunities to individual buyers that seek the support and brand recognition of a franchisor. Strategic and financial buyers, however, are unable to accommodate the restrictions, operational constraints, and oversight of franchisors.

While individual buyers can bring passion and focus to their new ventures, their lack of experience in healthcare M&A and reliance on SBA funding can often make the process more complex and less predictable for sellers.

The Broker Advantage: Navigating Sales with M&A Advisors

Selling a home health or hospice agency requires a deep understanding of the healthcare industry and the unique complexities of the M&A process. Having a representative familiar with this world and the right industry contacts is crucial to finding the right buyer, maximizing valuation and deal terms, and ensuring a smooth transaction. Experienced M&A advisors bring invaluable expertise from handling numerous transactions. They maintain a network of strategic, financial, and individual buyers specifically targeting the home health and hospice sectors, create competitive environments that drive up valuation and produce better deal terms. They market each business to the right buyers and navigate speed bumps and roadblocks, ensuring the transaction stays on track.

Through strategic outreach, skilled negotiation, and deep market knowledge, advisors help sellers achieve their financial and strategic goals while minimizing stress and uncertainty.

Conclusion

Selling a home health or hospice agency involves understanding the motivations and approaches of different buyer types. Strategic, financial, and individual buyers each bring distinct goals and strategies to the table, and understanding these differences is vital in aligning the right buyer with the unique attributes of each selling agency.

Partnering with an experienced M&A advisory firm like Stoneridge Partners helps sellers navigate these dynamics, ensuring their business finds the right buyer to maximize value and deal terms and ensure a smooth transaction. By understanding the nuances of each buyer type and the role of skilled advisors, sellers can confidently approach the M&A process and achieve their desired outcomes.

An M&A Guide You Can Trust

Stoneridge Partners is a national healthcare mergers and acquisitions advisory and strategic consulting firm that manages complex transactions for home care, home health, hospice, and behavioral health companies.

We’ve been in business for over 24 years and have assisted owners just like you sell their healthcare-related businesses. We have accumulated a deep network of motivated buyers during our 20+ years, and we have years of experience as operators, attorneys, and development professionals. We’ve been in your shoes, and we know the daily challenges you face.

If the thought of a potential sale is of interest to you, let us help you optimize your prospects for a successful transaction and the highest valuation.

So how do you start? Please visit our website at www.stoneridgepartners.com or contact us at 800-218-3944 for a confidential conversation.

WE CAN HELP!

Ben B

Ben Bogan, J.D., Partner and Managing Director at Stoneridge Partners, has been a leading figure in healthcare M&A since 2014, specializing in home health, home care, and hospice transactions. With over 70 successful closed deals, Ben’s experience and expertise have set him apart as a skilled and invaluable intermediary in the industry.
 
With a law degree from Albany Law School, a BSBA in Economics from the University of Florida, and his background as a former Assistant District Attorney and Assistant District Counsel for the U.S. Army Corps of Engineers, Ben combines his legal background and M&A expertise to deliver exceptional results in every transaction. Available to his clients 24/7, Ben builds strong relationships with his clients and has garnered rave reviews.

For more information, please contact Ben directly at 520-991-4653 or [email protected]. All communications are confidential.