Is your business ripe for a buyout?
April 1, 1997 4 minutes read
Is your business ripe for a buyout?
Private duty agencies remain a popular acquisition
With industry consolidation not expected to slow down in 1997, many private duty agencies will find themselves snatched up by a larger company. What makes private duty home health agencies so attractive to potential buyers?
Private duty has always been a popular acquisition, says Joel Wittman, vice president of Telesis, Franklin Lakes, NJ. Telesis is a mergers and acquisitions firm specializing in home health care and supplemental staffing firms. "Low-tech services, meaning private duty paraprofessional services, are like the Eveready Bunny; they keep going and going," he explains. "They are easy to manage, and they are less reliant on complex reimbursement. They are also less subject to changes in the types of services that are provided. You don’t have to go back to school and learn how to put in a catheter. That’s why I think it is attractive."
Here are other reasons private duty might appeal to potential buyers:
• Diversifying referral sources.
Private duty agencies with a strong private payer base might be attractive to health care companies that rely on government revenues, Wittman says. A health care company, for example, might purchase a private duty agency to cushion the blow in case of cuts in Medicare reimbursement.
• Adding new components to their service mix.
Certified home health agencies may purchase a private duty agency to allow them to go into continuous care services services that can be billed on an hourly, rather than on visit basis, he adds.
Potential buyers also are looking to serve other specialty client populations such as high-tech pediatrics, making private duty agencies that provide this service an attractive purchase.
Expanding into these niche or specialty services can increase buyers ability to contract with managed care companies, Wittman says. If they are only providing skilled services on an intermittent basis, their chances of getting managed care contracts are less than it would be if they are providing a whole host of services, he says.
• Expanding the geographic reach of their delivery.
Purchasing an already-existing agency is a way for health care companies to move into a specific geographic market, Wittman says.
Although financially healthy private duty agencies may seem the most attractive to buyers, this is not always the case.
"What is most attractive about an agency depends on the potential buyer’s goal," says Robert Brock, executive vice president of At Home Health Care in Redwood City, CA. "This goal can be either financial or strategic," he explains.
If buyers are looking at agencies for financial reasons, they will examine financial data, such as aging of receivables and gross profit margins, he says. But if buyers are looking to expand their business into a particular state or geographic area, the financial health may not be terribly significant.
"If your agency has a niche that you’re following or a specialty, and that’s the area [the buyers] would like to get in, the financial health is secondary to getting into an already existing organization," Brock says.
Financial health or instability especially may not be important to a company with deep pockets if the agency offers an expansion of services or service area, he adds. "They all believe they have the magic clue to successful management, and whatever failing this organization has, they think they can straighten it out."
It comes down to investment value as opposed to fair market value, says Wittman. A private duty agency that is losing money but that offers a niche service may be worth something more to a company that wants to get into that area than a company that doesn’t.
Still, financials are important, he adds. "People are more attracted to a company that’s profitable as opposed to one that is not. To make even more confusion, you have some scavengers out there that want companies that are downtrodden because they can get them cheaper, and they believe they have the ability to turn them around."
What to expect from a potential buyer
Potential buyers will want an array of information from a private duty agency. Here is some of what they might request:
• proof of licensure;
• wage and hour rates;
• accounts receivable and aging figures;
• budgets;
• profitability figures;
• policies and procedures;
• employee screening and training activities;
• workers’ compensation liability;
• quality improvement activities;
• pending legal actions.
If the agency is required to have a license, then some buyers might conduct a mock survey to see if the agency is following the regulations, says Ruth Hill, BSN, MA, PHN, health care consultant for Rugin Consultants in San Clemente, CA. "I have seen some private duty agencies that don’t have medical records with charts."
"If the agency fails the mock survey, the purchase price may go down or the buyer may decide not to continue negotiations."
You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
- Award-winning Medical Content
- Latest Advances & Development in Medicine
- Unbiased Content