Has anyone bought a Home Health Agency or Nurse Registry?

June 23, 2021

by a searcher from The Johns Hopkins University in Delray Beach, FL, USA

Does anyone have a valuation framework for the Home Health industry? As a service business it is asset-lite, and every deal I've looked at in the 3-4x SDE multiple range implies a significant amount of Goodwill. If the active client and caregiver roster is large with limited turnover (especially on the client side), can you stretch to those multiples? How do you value those relationships? Besides those relationships you're acquiring brand and operating procedures, but licensure is up to the acquirer through the CHOW process.

I'd love to connect with any searchers who have executed or are focused on the Home Health space.

Thanks!
Morgan

2 Likes

35 Replies

260 Views

Replies

Reply by a searcher
from University of Queensland in Brisbane QLD, Australia

Hi Morgan, valuing a goodwill service like healthcare is a very interesting question. There's unfortunately a lot of guess work. I've found few understand the intricacies enough to educate sellers on realistic expectations. And that's where most of the problem lies with deals. Having said that though, and in relation to your question that multiple of 3-4x EBITDA is realistic for services that have sophisticated structures in place eg head office staffed with marketing experts, Accounts dept, HR dept, have existed for a 5yrs+ and have senior staff who run the clinic without the seller etc. Owner operators who do most of that themselves are likely 2x multiple. If it's exploding in growth ie 20%+ then slightly higher multiples like 3x may be reasonable. Likewise if it's contracting lower multiples of 1.5x may be fairer. If owner operators want to include their own wages in the net profit margins then the multiple should be lower to compensate that. Additionally, given its a goodwill reliant business having collateral against that goodwill makes a lot of sense. This means a significant chunk of seller financing is fair. This is opposite to equipment heavy businesses like manufacturing where you can leverage some of equipment for loans against machinery. So that would be a fair and equitable perspective on accurate valuations. BUT the primary challenge is helping the seller or broker understand those mechanics

Reply by an investor
from Thomas A. Edison State College in San Juan, Puerto Rico

Home Health specifically Medicare agencies are a tough tough business. You're competing with people who have no aversions to illegal kickback arrangements and bribes to get new clients. Enforcement of these rules are minimal at best, any only the large companies ever get caught/prosecuted. I had businesses in the space and would not get back into it unless it was a larger acquisition and/or in a state with much more limited competition. Regulatory headwinds are also not great, changing reimbursement models and continual attempts by insurance companies to claw back payments are other headaches to consider.

+33 more replies.

Join the discussion