By Michael Lloyd The convergence of unique market factors has created an opportunity for owners of home-based care businesses in the lower middle market. The major contributing factors in the market are rising interest rates [ML1], which are causing private equity to delay their exits on platform investments, and a scarcity of quality assets currently on the market. In other words, large private equity-owned businesses cannot fetch the terms and values they want in the 100M+ market due to interest rates, so they are forced to continue investing in their businesses by acquiring assets that fit their strategy. “The top has come off the higher end of the market, forcing private equity portfolio companies to delay their exits for now. In terms of multiples, these larger companies that would have sold a couple years ago in the mid- to high-teens are not commanding that right now. Transactions that size tend to be more highly leveraged, which will ultimately weigh down valuation,” Mertz Taggart Managing Partner Cory Mertz said. “But private equity has a mandate to spend the piles of cash they are sitting on, so that’s what their portfolio companies are doing right now. Or at least they are trying to.” The issue for these strategic buyers and opportunity for owners (sellers) lies in the availability or lack thereof of quality assets currently on the market. Although home-based care M&A ticked up in Q2(see report) , Q1(see report) recorded near-historic lows for completed transactions, and it appears Q3 will follow suit. “Transaction volume right now is, for the most part, a function of quality opportunities in the marketplace,” Mertz added. Healthy businesses with EBITDA numbers between $1 million-$10 million have benefited from these conditions. In a market where assets are more readily available, these companies may not garner the same level of interest or demand as they are currently getting. Consistently, in a competitive process, owners are capitalizing on this demand by exceeding valuation expectations. While values hold firm, the buyers are increasingly disciplined in diligence due to the general sense of uncertainty and historically high values. It is essential that owners are stringent with compliance and manage margins to capitalize on the values being offered. “We will almost always recommend our clients perform some level of a compliance audit and quality of earnings before going to market,” Mertz said. “It costs money, so it can be a tough pill to swallow for owners, but it will give them insight into how the buyer will ultimately size up the company. It’s better to know that before jumping into a months-long sale process.”

I get asked all the time…’what kind of multiple would my home care agency command?’ ‘Not So Fast’…There’s No Straight Answer. I would go as irresponsible to give guidance simply in the form of a multiple without knowing the other half of the valuation equation – Adjusted EBITDA .s far as saying it’ The Adjusted EBITDA can be dramatically different depending on whether it is based on a trailing twelve-month (TTM) period, calendar year, annualized pro- forma, or some other formulation. It can also vary significantly based on the buyer and which adjustments will be considered. The question should be, ‘what kind of VALUE would my home care agency command?’ which is more complicated. Let’s take a step back and explain the value equation that is commonly used in the home care industry. Value = (Adjusted EBITDA) x (the Multiple), whereby: Adjusted EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a proxy for “normalized” cash flow (normalizing for typical variations in a company’s revenue cycle). The Multiple is the inverse of the go-forward risk of that cash flow continuing after the transaction is complete. The lower the risk of cash flow deterioration, the higher the multiple. For example, a 7x multiple implies a 14.3% return and a 5x implies a 20% return, so the 5x multiple is viewed as a riskier investment for the buyer, therefore he/she requires a higher rate of return. Pretty straightforward, right? Well, not always. And here’s why …Adjusted EBITDA is in the eye of the beholder. Consider three case studies to illustrate: The Growing Agency I represented the seller of a home care agency with the following value drivers: Trailing 12 months (TTM) revenue of $12,o00,000 Trailing 12 months adjusted EBITDA of $2,200,000 (~18% of revenue) Strong growth Multiple locations Strong clinical and compliance program Non-CON state Virtually no seasonality After receiving multiple bids, and after negotiations, the successful buyer (a large private equity fund) came in with a valuation of $17,600,000. Clearly a healthy multiple of 8x ($17,600,000/$2,200,000), right? I can assure you the buyer was looking at this differently. Remember, this was a fast growing company that had no seasonality. Trailing 12 months (TTM) Last 6 months, annualized Revenue $12,000,000 $14,400,000 Adjusted EBITDA $2,200,000 $2,880,000 Multiple 7.3 5.6 So, what was the multiple? Depends on who you ask. The buyer was telling their board that they got this company for a steal – a multiple of 5.6 My client, the seller, was telling his golf buddies he sold for a multiple of 7.3x… EBITDA & multiples are in the eye of the beholder. Corporate Overhead and Synergies Here’s an example of a hospice we represented: Trailing 12 months revenue: $5,600,000 Trailing 12 months adjusted EBITDA: $800,000 Modest growth Strong clinical and compliance program Non-CON state After running a competitive bid process, the buyer agreed to pay $5,600,000 (or about 1x revenue). This company commanded a multiple of 7, ($5,600,000/$800,000) right? Maybe/Maybe not… In this case, the seller was paying an annual salary of $200,000 to a high-priced CFO who was not an owner of the company. Although he was instrumental in the success of the company, he was not needed by the buyer. This is typical, as nearly all strategic buyers have their own CFO who can take on these responsibilities. So the buyer would enjoy an immediate $200,000 bump in EBITDA on day one – to $1,000,000. To the buyer, this company was purchased for a multiple of 5.6x ($5,600,000/$1,000,000). The Low Margin Business Another example: Trailing 12 months revenue: $4,800,000 Absentee owner, not involved in the business Trailing 12 months EBITDA: $150,000 The sale price was $2,400,000, or a multiple of 16 ($4,800,000/$150,000). Clearly not a standard industry multiple for a privately held home care agency, but it was a competitive process and the company had a high strategic geographical interest to the industry buyer. In this case, the buyer saw some “low hanging fruit” in the seller’s cost structure and knew it could bring its EBITDA up to 12% (or about $600,000) very quickly. This included $220,000 in salary and “home office” expense enjoyed by the absentee owner who was not involved in the day to day operation of the business. In the eyes of the buyer, the multiple was a conservative 4x (or $2,400,000/$600,000). So that begs the question…what is the multiple of a break-even (or money-losing) agency that sells for any price? It’s all about the value.

Treatment Center Value Insights: It’s All About the Multiple (…Or Is It?) I get asked all the time…’what kind of multiple would my treatment center command?’ ‘Not So Fast’…There’s No Straight Answer. I would go as far as saying it’s irresponsible to give guidance simply in the form of a multiple without knowing the other half of the valuation equation – Adjusted EBITDA. The Adjusted EBITDA can be dramatically different depending on whether it is based on a trailing twelve-month (TTM) period, calendar year, annualized pro- forma, or some other formulation. It can also vary significantly based on the buyer and which adjustments will be considered. The question should be, ‘what kind of VALUE would my treatment center command?’ which is more complicated. Let’s take a step back and explain the value equation that is commonly used in the industry. Value = (Adjusted EBITDA) x (the Multiple), whereby: Adjusted EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a proxy for “normalized” cash flow (normalizing for typical variations in a company’s revenue cycle). The Multiple is the inverse of the go-forward risk of that cash flow continuing after the transaction is complete. The lower the risk of cash flow deterioration, the higher the multiple. For example, a 7x multiple implies a 14.3% return and a 5x implies a 20% return, so the 5x multiple is viewed as a riskier investment for the buyer, therefore he/she requires a higher rate of return. Pretty straightforward, right? Well, not always. And here’s why …Adjusted EBITDA is in the eye of the beholder. Consider three case studies to illustrate: The Fast Growing Company We represented the seller of an opioid treatment program with the following value drivers: Trailing 12 months (TTM) revenue of $9,100,000 Trailing 12 months adjusted EBITDA of $2,400,000 (~26% of revenue) Strong growth Multiple locations Strong clinical and compliance program No seasonality After receiving multiple bids, and after negotiations, the successful buyer (a large private equity fund) came in with a valuation of $34,000,000. Clearly a healthy multiple of 14.2x ($34,000,000/$2,400,000), right? I can assure you the buyer was looking at this differently. Remember, this was a fast growing company that had no seasonality. Trailing 12 months (TTM) Last 3 months, annualized Revenue $9,100,000 $16,800,000 Adjusted EBITDA $2,600,000 $4,500,000 Multiple 14.2 7.6 So, what was the multiple? Depends on who you ask. The buyer was telling their board that they got this company for a fair price – a multiple of 7.6 My client, the seller, was telling his golf buddies he sold for a multiple of 14.2x… EBITDA & multiples are in the eye of the beholder. Corporate Overhead and Synergies Here’s an example of a multi-location residential treatment center we represented: Trailing 12 months revenue: $9,600,000 Trailing 12 months adjusted EBITDA: $1,600,000 Modest growth Strong clinical and compliance program Primarily in-network revenue After running a competitive bid process, the buyer agreed to pay $21,000,000. This company commanded a multiple of 13.1x, ($21,000,000/$1,600,000) right? Maybe/Maybe not… In this case, the seller was paying an annual salary of $500,000 to a high-priced CEO who was not an owner of the company, but a close confidant who had a long business relationship with the seller, and worked part-time in the business. Although he was instrumental in the success of the company, he was not needed by the buyer. The buyer had a regional VP who had the bandwidth to take on these responsibilities. So the buyer would enjoy an immediate $500,000 bump in EBITDA on day one – to $2,100,000. To the buyer, this company was purchased for a multiple of 10x ($21,000,000/$2,100,000). The Low Margin Business Another example: Trailing 12 months revenue: $5,100,000 Absentee owner, not involved in the day-to-day operation Trailing 12 months EBITDA: $300,000 Revenue derived primarily from public funding The sale price was $7,000,000, or a multiple of 23.3x ($7,000,000/$300,000). Clearly not a standard industry multiple for a single-location, privately held treatment center, but it was a competitive process and the company had a high strategic geographical interest to this industry buyer. In this case, the buyer saw opportunity that wasn’t being capitalized by the current owner. This buyer had a very strong marketing group and in-network relationships that could bring the center’s occupancy from 12% to 70% within 12 months. Because of the competitive nature of the offering, they valued the treatment center based on it’s pro-forma financial performance – what they could do with it after the closing. So that begs the question…what is the multiple of a break-even (or money-losing) treatment center that sells for any price? It’s all about the value. -Mertz Taggart

Autism and I/DD Organizations Led the Sector this Quarter Mertz Taggart has just released its quarterly M&A report for the behavioral health sector. According to the report, transaction activity in behavioral health has rebounded in the third quarter of 2020, with a total of 26 transactions. Autism and intellectual/developmental disabilities organizations led the sector, accounting for 13 announcements in Q3. “We anticipate strong demand for behavioral health organizations of all types over the next 12 months,” said Mertz Taggart Managing Partner Kevin Taggart. “The strong demand for specialty care, coupled with the providers’ smart pivot toward telehealth services, creates an attractive landscape for investments and follow-on deals.” Taggart pointed out that private equity buyers are gauging their portfolios against long-term propositions. Yet for now, with uncertainty in market circumstances, many buyers will be hyperfocused on the executive leadership of any potential deal target. Note: The sum of sub-industries (broken down below) does not always equal total sector deal volume, as some transactions include more than one sub-industry. “Several CEOs who have been leading some of the industry’s well-known legacy brands in addiction treatment announced this quarter that they would be retiring or moving on, launching a series of simultaneous succession plans,” Taggart said. “Experienced executives have always been valuable assets in any deal, but that could very well become a top priority if we start to see a trickledown effect that results in up-and-coming leaders shifting between organizations or taking on new roles.” CEOs at Hazelden Betty Ford , Rosecrance, Universal Health Services, and Caron Treatment Centers all announced that they would step down or retire in the coming months. Across behavioral health, sellers should be standing their ground on valuations, according to Taggart. They especially should consider pushing back against any perception that the global coronavirus pandemic has devalued operations. “In fact, history has proven that healthcare is quite resilient, and behavioral health continues to be an attractive buy,” he said. “We often see slow-moving deals suddenly pick up pace in the fall, so sellers would be wise to present solid, reasonably optimistic valuations.” What’s more, the managed care outlook is decidedly bullish for 2021, according to the largest insurance company leaders. That translates into an extra advantage for any behavioral health provider that has in-network contracts and established relationships with payers. In the past five years or so, behavioral health has witnessed not only a flurry of mergers and acquisitions , but organic expansion as well, Taggart said. Combined synergies have created opportunities to enter into new geographic markets and to add new clinical offerings. The industry forecast leans toward plenty of deal volume yet to be realized in 2021. Addiction Treatment New openings continue in the addiction treatment space—an indicator of an optimistic outlook for the long-term rate of service demand. While the Northeast and California have seen the most noteworthy ribbon cuttings, smaller markets are responding to local needs as well. “Service expansion is typically a factor in deal targets,” Taggart said. “Buyers still have their eyes on building the continuum as well as breaking into new markets.” BrightView , an outpatient addiction treatment provider with 18 locations in Ohio, announced that it has acquired Rebound Recovery Centers with multiple locations in Kentucky. The company offers medication-assisted treatment and counseling services. The not-for-profit First Step of Sarasota and Coastal Behavioral Healthcare merged on July 1 and began operating under the First Step brand. With the transaction, First Step brings its number of locations to 33 throughout the Sarasota, Florida, region. It offers residential, crisis, inpatient and outpatient services. Hunter Street Partners and Healy Capital Partners have jointly invested in Ark Behavioral Health in Massachusetts. The provider offers detox, residential, partial hospitalization and intensive outpatient services in four locations. Capital will be dedicated to expanding Ark’s number of treatment centers. Providence Treatment has acquired Main Line Recovery , which will now operate under the Providence Treatment brand. The organization offers outpatient addiction treatment services in Pennsylvania. Pinnacle Treatment Centers announced its acquisition of HealthQwest and the organization’s five outpatient centers in Georgia. It will continue to operate under the HealthQwest brand. Pinnacle operates inpatient and outpatient facilities in eight states. Averhealth , a provider of drug testing services for courts and social programs, has acquired the testing services of Treatment Assessment Screening Center , a private, not-for-profit in Arizona. Private equity firm Five Arrows Capital Partners provided the investment. Outreach Recovery has acquired More With Doc C, LLC , expanding its medication-assisted treatment services in Maryland. The company operates multiple locations in four states. Autism Services & Intellectual/Developmental Disabilities There’s a renewed effort to encourage early diagnosis and intervention for children with autism spectrum disorder. With a higher prevalence rate, the demand for services will continue to grow. Meanwhile, with attention focused on job growth for the balance of 2020, advocates will likely ask for more assistance in care coordination for those with intellectual and developmental disabilities (I/DD). Such services will be an attractive complement to traditional supports among deal targets. Proud Moments ABA in July acquired Autism & Behavior Consulting Services, LLC. Founded in 2014, Proud Moments ABA offers applied behavior analysis (ABA) at 11 locations nationwide. Acorn Health , a national provider of autism services for children, has acquired the ABA therapy assets affiliated with Concord Foundations Network . The deal enables Acorn Health to expand services into Maryland, Pennsylvania, and Tennessee, while increasing capacity in Michigan and Virginia. The Center for Social Dynamics, LLC, a portfolio company of NMS Capital , has acquired Behavior & Development Center, LLC, located in Southern California. The deal marks the portfolio company’s second transaction since June. The Columbus Organization in July announced it had acquired assets of Rendon Support Services , a Florida-based provider of I/DD support services. In September, it also acquired the assets of Advocates in Action , a New Jersey-based care coordination provider. The organization operates under the HealthEdge Investment Partners, LLC portfolio and is CARF-accredited. Texas-based Caregiver Inc. in August closed the deal to acquire Pine Ridge-Pine Village Inc. in Ohio, which provides residential, day treatment and supported living I/DD services. The transaction represents Caregiver’s seventh acquisition in the state. Mental Health Because overall costs are high for individuals with mental health conditions, providers can make an excellent case for payers to continue on with policies that enable access to care, such as telehealth options. In fact, payers report annual costs as much as 3.5 times higher for those with mental health and addiction disorders. A recent survey also found that 81% of behavioral health providers began using telehealth for the first time this year in response to the COVID-19 pandemic. Additionally, 70% said they plan to continue offering telehealth moving forward. Summit BHC in July acquired Highland Hospital in Charleston, West Virginia, marking its first entry into the state. The hospital has 115 beds for acute and residential psychiatric care as well as a 16-bed crisis residential/detox substance use disorder treatment center. The deal was Summit’s second acquisition of the year, and has grown its network to 15 states. Column Health in July announced the acquisition of the Center for Psychiatric Medicine . The organization’s community-based outpatient clinics are located throughout Massachusetts and Connecticut, offering psychiatry, neuropsychiatry and addiction treatment services. The Comprehensive Counseling LCSWs counseling practice in September was acquired by LearnWell , a Massachusetts-based mental health services company, which gains new multilingual virtual counseling capabilities as a result of deal. Eagle Private Capital and 424 Capital provided the investment. Private equity firm Enhanced Healthcare Partners has invested in NeuroPsychiatric Hospitals , an acute care provider with four locations in Indiana. The funding will help scale up services and expand into other geographic areas.

NEW ORLEANS (PRWEB) May 15, 2020 AppleGate Recovery, a BayMark Health Services company, announced this week the acquisition of Medication Assisted Recovery Centers (MARC), an office-based opioid treatment (OBOT) program with two locations near New Orleans, LA. The clinics, situated in Metairie and Slidell, provide medication-assisted treatment (MAT) and recovery services in a physician’s office setting. AppleGate Recovery now operates 8 clinics serving the residents of Louisiana who struggle with opioid use disorder. Our programs provide outpatient MAT with buprenorphine and buprenorphine compounds such as the well-known Suboxone®, as well as Bunavail® and Zubsolv®. These medications, when supported by counseling, provide a comprehensive treatment modality that addresses physical withdrawal symptoms and psychological cravings. AppleGate Recovery is equally pleased that Dan Forman, Co-Founder of the MARC programs, will be joining the AppleGate Recovery team as a Regional Director, Operations. Dan brings 10 years of experience as a health care executive and recovery advocate. Dan’s wealth of knowledge will help AppleGate continue to innovate enhancements to patient care and lead our programs in partnering with their communities to provide treatment to those who need it most. “My founding partner and I have been in the field of addiction treatment for many years. We opened the MARC programs because we saw a great need in the New Orleans area for proven opioid addiction treatment, free of judgement, and knew we had the ability to help,” shared Dan Forman, Co-Founder of MARC. “BayMark has established themselves as the leader in opioid addiction treatment. We feel they have the expertise to not only maintain but grow our ability to serve our patients, and I am thrilled to be joining the AppleGate team who is going to do just that.” In addition to providing MAT services in office, AppleGate will be offering patients flexible telehealth options in all locations, including Metairie and Slidell. This enhancement to the already flexible OBOT treatment model will give our patients the freedom to focus on their recovery and rebuilding their lives. Our programs also provide laboratory services, case management and collaborative treatment during pregnancy. Offering patients access to medical providers, counselors and administrative staff whose focus is to help them rebuild their lives and ensure their overall health is our goal. “We are proud to continue our efforts to support the State of Louisiana and its residents in their fight against the opioid crisis,” shared Mike Saul, BayMark Division President. “We look to work with organizations which have established themselves as quality providers of patient care and MARC has absolutely done that. In addition, we’ve added a strong member to the AppleGate family in Dan Forman and look forward to the positive impact he will have on our team.” This article originally appeared in PRWeb . Trackbacks/Pingbacks Behavioral Health M&A Report: Q2 2020 – Mertz Taggart - […] was a busy quarter for BayMark Health Services. In May, its AppleGate Recovery brand announced the acquisition of Medication… First Step, Coastal Behavioral Healthcare Officially Merge - [...] After a nine-month consolidation process, First Step of Sarasota and Coastal Behavioral Healthcare have officially – as of July 1...

Mertz Taggart and McBee have collaborated on numerous transactions over the years. The following is one example of the many risk areas we uncover during our diligence process. “Knowledge is power” is a universal truth across many settings and industries, including post-acute mergers and acquisitions. Having the most current and accurate information possible is key whether you are evaluating day-to-day operations, preparing to put an organization on the market, or as a buyer evaluating a potential home health acquisition. Confidence in your data and compliance makes the difference between real value and breezing through due diligence, and a long, difficult, and disappointing process. One of the most significant aspects of clinical diligence reviews is technical issues around face-to-face (F2F) requirements, such as the encounter visit completed by the certifying physician. If the F2F visit records are not completed in a timely manner or do not match the reason for service, it can have serious ramifications. Though there have been no changes in F2F regulation, many organizations have F2F elements that do not meet Medicare billing requirements that can put the full reimbursement amount at risk. A weak F2F completion process can be indicative of more significant compliance or performance issues in an agency. Understanding any potential level of risk is a vital part of the clinical due diligence process. Whether determining if you are compliant now, preparing for a sale, or evaluating a potential acquisition, a thorough clinical compliance review will help organizations understand their historical trends, evaluate current risks, as well as identify specific areas for improvement. These diligence assessments provide vital insight into how well an organization is delivering care with complete and compliant documentation to justify that the services provided meet Medicare regulations. This is the first in a series of home health & hospice transaction considerations. Next up will be examples of face-to-face weaknesses and failures that have been encountered. About McBee McBee is a recognized leader in providing financial, clinical and operational strategic advisory services that have addressed the unique needs of more than 3,800 providers across the healthcare industry. Since 1973, McBee has designed services to address challenges and ensure the success of healthcare organizations across the continuum of care by delivering meaningful insights, tailored strategies, and sustainable results. With an average of over 20 years of experience, McBee’s consulting professionals have extensive expertise and in-depth knowledge of healthcare regulations, operations, and policies. Home health, hospice, long-term care, skilled nursing and other healthcare organizations across the nation look to McBee to provide comprehensive services and expert resolution of the various issues they encounter. McBee is a trusted strategic advisor to our clients in their efforts to go to market or conduct buy-side clinical compliance reviews. During the 2020 calendar year, McBee supported our clients in completing 19 publicly reported transactions carrying a purchase price exceeding $1.8 billion *(based on disclosed purchase prices only). Our commitment to our clients, compliance and quality is unmatched in the industry. McBee’s unwavering dedication backed by their industry knowledge has made them one of the largest, well-regarded healthcare consulting firms in the country. They are located in Wayne, Pennsylvania with additional offices around the country. For more information, please visit www.mcbeeassociates.com. About Mertz Taggart Mertz Taggart is an industry-leading mergers and acquisitions firm specializing in home health, home care, hospice, and behavioral health. This focus yields invaluable insight into the challenges and opportunities operators face. The depth of our industry knowledge is garnered by our relationships with industry leaders, knowledge of buyers’ acquisition strategies, and our hands-on experience owning and operating a healthcare company. Our competitive advantages translate to maximizing value for our clients, as proven by over 100 successfully completed healthcare transactions since 2006. www.MertzTaggart.com

On April 27th, shortly after we published this original post, CMS dropped a bombshell proposed rule, which stated, among several objectives, that "At least 80% of all Medicaid payments for specific HCBS — homemaker services, home health aide services, and personal care services — must be spent on compensation for direct care workers to help address the direct care workforce crisis." The intent, experts believe, was to send a message to the states that they need to address the workforce issues and access to care. The markets panicked. With nearly 60% of its revenue comprised of home and community-based services, Addus HomeCare's share price dropped almost 30% on the news. The company has since regained some of its initial losses, a sign that institutional investors believe things aren't quite as bad as they initially seemed. Most private equity-backed strategic acquirers have indicated it is business as usual. "We've spoken with several strategic acquirers since the news broke to gauge their general sentiment," Mertz Taggart Managing Partner Cory Mertz commented. "Most buyers with HCBS as central to their investment thesis continue to show strong interest. Valuations for add-ons in the $3M to $50M range remain robust. Several PE groups seeking platform opportunities at the higher end of the market continue to look for opportunities, although some have hit the pause button until more is known." Do these strategic buyers know something we don't? Or worse, are they so married to their theses that they're convinced they'll 'figure it out'? The consensus among those 'in the know' regarding policy is that the final rule, currently slated to take effect four years after it is finalized, will not be nearly as onerous as it reads now…if it gets finalized at all. CMS welcomes comments through July 3, 2023. "Industry advocates, including several of the big strategic acquirers, are actively feeding back to CMS and educating policymakers, so they're not ignoring the issue," added Mertz, "But they're not overreacting either. They still see the long-term value in HCBS for all stakeholders, including patients and payors. Companies with strong cash flow and a culture of compliance continue to draw strong interest in the marketplace.”

The final three months of 2023 were a relatively quiet period within the behavioral healthcare sector. Just 31 deals were completed—the fewest since the second quarter of 2020 and the onset of the COVID-19 pandemic. Though 2023 was down, all indications point to increased activity in 2024. "We've had the opportunity to speak with industry and financial buyers over the past few weeks," said Mertz Taggart Managing Partner Kevin Taggart. "The consensus today is that we'll have increased activity across the sector. Improved capital markets and quality deal flow will drive the activity, especially in the 2nd half of 2024." However, seed and venture funding accounted for more than a third of those transactions, with 12 such deals representing a total investment of $257.9 million. These investments could be a preview of behavioral healthcare organizations to watch, added Taggart. “Some of these venture back firms will end up being major players in the industry, but I also think that many of them won't make it for a variety of reasons”, he said. Combined, venture capital and private equity firms completed 24 of the 31 transactions in the quarter. One deal alone accounted for nearly half of the VC money that was invested in behavioral healthcare in Q4. In October, Headway, a healthcare tech startup that connects patients and in- network therapists, raised $125 million in Series C funding, according to a Reuters report. The round was led by Spark Capital Partners, with participation from existing investors Thrive Capital, Accel, and Andreessen Horowitz, as well as the insurance company Health Care Service Corporation. While Mertz Taggart analysts don’t expect an immediate jump in dealmaking in 2024, we expect activity could see an increase if widely expected interest rate cuts by the Federal Reserve come to fruition in Q2. “We expect more companies to go to market in 2024, reverting to pre-pandemic levels,” Taggart said. “However, buyers will be more disciplined about the companies they choose to invest in or purchase. Much of that discipline is being imposed by higher interest rates and banks themselves.” To make their organizations more attractive to buyers and investors, Taggart said prospective sellers would be well served to take stock of the state of their operations. Performing some level of clinical, compliance, and quality-of-earnings audits prior to going to market can help mitigate deal risk, he said. Addiction Treatment M&A Although the final three months of 2023 marked the most active quarter of the year for the addiction treatment subsector, with 11 transactions announced, the year-to-date total of 28 deals involving addiction treatment providers solidified 2023 as the least active year in M&A for addiction treatment organizations since the onset of the pandemic. For comparison, 32 deals involving addiction treatment providers were announced in the fourth quarter alone in 2021. Addiction treatment transactions include the following: Abacus Investments acquired Louisiana-based Longbranch Retreat & Recovery Center in a platform deal. Borden Cottage, a luxury residential drug, alcohol, and co-occurring behavioral health treatment program in Camden, Maine, transitioned to independent ownership in October. New Jersey-based outpatient treatment providers BlueCrest Recovery Center, QuickSilver Counseling Center, and Assess With Guidance merged to form BlueCrest Health Group. Defining Wellness Centers, a Jackson, Mississippi-based SUD treatment organization, was acquired by Fulcrum Equity Partners. Also in Mississippi, Vertava Health, a provider of addiction treatment and mental health services in Southaven, was acquired by Bradford Health Services. The Handley Foundation acquired Origins Behavioral HealthCare and its locations across Texas and Florida. Among the transactions completed in the quarter, three providers announced they had secured significant investments: PursueCare, a Connecticut-based virtual substance use disorder (SUD) treatment organization, raised $20 million in a Series B funding round led by T.Rx Capital and Yamaha Motor Ventures, along with participation from Seyen Capital and OCA Ventures. Sunnyside, a digital health company that addresses alcohol addiction, secured $11.5 million in Series A funding, with Motley Fool Ventures leading the round and Will Ventures also participating. You Are Accountable, a New York-based SUD treatment platform, secured $2 million from an undisclosed investor. Mental Health M&A A total of 19 transactions involving mental healthcare providers were announced in Q4, marking the fifth straight quarter in which mental health-related deals declined after a record 39 transactions were announced in the third quarter of 2022. Private equity remains active, accounting for 16 deals, including the following: ARC Health, the Beachwood, Ohio-based mental healthcare practice operator backed by the Thurston Group, acquired three organizations: Exult Healthcare Solutions, Advanced Psychiatric Group, and Mindsoother Therapy Center. Mertz Taggart represented Mindsoother in the transaction. Comprehensive Rehab Consultants received a strategic growth investment from the private equity group of York Capital Management. Integrative Life Network and Integrative Health Centers announced a merger, forming a unified mental and behavioral healthcare company known as Peregrine Health. Partnered Health acquired New View Psychology in a private equity-backed deal. UpLift, a Tampa, Florida-based virtual behavioral healthcare provider, announced in November that it acquired Minded, a psychiatric telehealth organization that focuses on treatment of women. Private equity-backed Kidz Therapy Services acquired Complete Rehabilitation Consultants. Beckley Waves, a venture studio that invests in psychedelics to advance mental health, made a strategic acquisition of Nue Life, a ketamine-assisted therapy provider. The Grunt Style Foundation acquired Irreverent Warriors, uniting a pair of national not-for-profits that specialize in addressing mental health and suicide prevention in the military veteran community. In addition to the $125 million investment in Headway that was led by Spark Capital Partners, the following organizations announced funding rounds in the fourth quarter: Behavioral health urgent care provider Connections Health Solutions announced its intention to expand with a $28 million Series B funding round led by Town Hall Ventures. Digital peer support marketplace startup Forum received $5.3 million in seed funding from NextView Ventures, along with participation from MBX Capital, Cue Ball Capital, Sahil Bloom of SRB Ventures, Romeen Sheth, Shaan Puri, and City Light Capital. BeMe Health, a Miami, Florida-based virtual pediatric care organization, received a $1.5 million investment from Blue Cross and Blue Shield of Kansas. Ciba Health raised just under $7.5 million in a funding round led by DigiTx Partners. Telehealth-based youth therapy startup Joon Care secured $6 million in investments from Pioneer Square Labs Ventures, Route 66 Ventures, and the company’s CEO, Emily Pesce. Clayful, an on-demand coaching company, netted $7 million in seed funding led by Reach Capital, and education technology investment firm. Nema Health, a virtual provider of post-traumatic stress disorder (PTSD) treatment services, secured $4.1 million in seed funding in a round led by Optum Ventures and .406 Ventures, along with participation from Graymatter Capital and other angel investors. Autism and Intellectual/Developmental Disabilities M&A Activity involving providers of autism therapy and intellectual/developmental disabilities treatment services remained light in the fourth quarter, with just 3 deals announced. The year-to-date total for the subsector was 17 transactions, the lowest of any year since the onset of the pandemic. Cortica extended its Series D funding round by $40 million, led by CVS Health Ventures, along with participation from LRVHealth, Ascension Investment Management, and the University of Wisconsin Foundation. Meanwhile, BlueSprig Pediatrics, an autism therapy provider backed by the private equity firm KKR, acquired Trumpet Behavioral Health in Lakewood, Colorado, and New Story, a provider of special education, therapeutic, and mental health services, acquired The Learning Spectrum in a private equity-backed strategic deal. If you are interested, you can also download the Q4 2023 Behavioral Health M&A Report via the following link:

The fourth quarter of 2023 closed with an uptick in home-based care transactions, and while the 25 total wasn’t a staggering number, it does represent a significant increase from the just 16 that took place in the third quarter. It is also more in line with pre-pandemic norms of 25-30 transactions/quarter. For the full year, there were 95 home-based care transactions. That represents a 14% downturn from 2022, and a much more significant dropoff from the frenzy that was 2021. “We are seeing signs of a thaw in dealmaking,” says Cory Mertz, managing partner at Mertz Taggart. “But the first and second quarter of 2024 will be better indicators.” There are various reasons behind the slowdown in 2023, but chief among them was the Federal Reserve’s war on inflation, causing interest rates to rise and debt markets to tighten. This spurred nearly every financial sponsor to re-evaluate their acquisition strategies. In most cases, this included taking a much more disciplined approach to investing and, in some cases, kept would-be buyers on the sidelines completely as they focused on shoring up their internal operations. But there was an increase in deals across home health, home care and hospice in the fourth quarter. And many of those deals were driven by private equity: 18 of the 25 transactions either involved a PE buyer or a PE-backed portfolio company. “Eventually, PE-driven activity will normalize across industries,” Mertz says. “Considering how in-demand quality home-based care agencies remain, the home-based care industry at large is primed to be a beneficiary of that normalization.” A huge jump in activity is not guaranteed in 2024, of course. Much will depend on not only what the Fed does next in terms of interest rates, but also consensus opinion of what the Fed will do in future meetings. “We expect more companies to go to market in 2024 — reverting back to pre-COVID levels — but it will continue to be a bit more of a challenge to get deals across the finish line as buyers will continue to chant the ‘discipline’ mantra,” Mertz says. “That is, of course, imposed on them by higher interest rates and bank covenants themselves. Prospective sellers would be well-served to perform some level of clinical and compliance audit along with some level of a quality of earnings (QoE) prior to going to market to help mitigate deal risk.” Home Health M&A Home health care dealmaking ended on an up-note, with 13 transactions completed, up from just four transactions in Q3. The biggest deal completed was Gentiva’s acquisition of ProMedica’s home health and hospice assets. Worth $710 million, this is Gentiva’s first major deal following its formation out of the divested assets of Kindred at Home. Humana Inc. (NYSE: HUM) formed CenterWell Home Health out of Kindred, and did away with the home care and hospice service lines in the process. What Gentiva decides to do with the home health piece remains to be seen, though they’ve given us no indication they are interested in looking at future home health opportunities. In late December, Brookdale Senior Living (NYSE: BKD) sold the remaining 20% stake it had in its home health JV with HCA Healthcare (NYSE: HCA). In early 2021, during the tumultuous COVID-19 period, Brookdale offloaded 80% of its home health segment to HCA Healthcare for $400 million, implying an enterprise value of $500 million at the time. Later in 2021, some of those assets were then sold to LHC Group, for $197 million. It sold its remaining 20% stake for $27 million, which has an implied enterprise value of about $135 million. The proceeds were used to refinance Brookdale’s debt obligations. “Based on the transaction timeline for the original Brookdale assets, and taking into account the earlier LHC transaction, it’s probably safe to assume the JV didn’t create a lot of enterprise value for the agency,” Mertz says. Among the other notable home health deals in the fourth quarter: ● Blue Wolf Capital-backed Elara Carings’ acquisition of American Family Home Health Services, further increasing its Illinois presence. ● New Day Healthcare remained acquisitive, closing on Pathfinder Home Health, with four locations in south Texas. The deal was New Day’s eighth transaction since its inception in 2020. ● Two PE-funded private-duty nursing transactions: InTandem Capital’s Pediatric Home Respiratory Services’ acquisition of All About Pediatrics in Jacksonville, FL, and Care Options for Kids’ acquisition of Preferred Home Health Care, with 12 locations throughout New Jersey, Pennsylvania and Delaware. Home Care M&A Non-medical home care transactions were a major bright spot for dealmaking in the fourth quarter, with 13 transactions reported. The 80/20 rule — which has still not been finalized, and would force providers to direct 80% of all Medicaid dollars toward caregiver compensation — does not seem to be deterring investment in home- and community-based services. Of the 13 home care transactions that took place in the fourth quarter, nine involved HCBS sellers. Sodexo also completed its sale of Comfort Keepers — one of the nation’s largest home care franchises — to The Halifax Group. The transaction was part of Sodexo’s divestiture of its Worldwide Home Care Operations, with subsidiaries in Europe and South America. Searchlight Capital Partners-backed Care Advantage acquired Nova Home Health Care, based in Northern Virginia. The deal builds density in the northern Virginia Marketplace. “Northern Virginia is one of the more populated areas across the state,” Care Advantage CEO Tim Hanold told Home Health Care News. “We’ve done numerous acquisitions there over a period of time. We continue to build out our density, and also the diversity of both payer source and the communities that we serve within that area.” The deal was Care Advantage’s 18th since 2018. New England-based Best of Care acquired Barton’s Angels in November. Best in Western Massachusetts, Barton’s provides both state-funded and private pay services to clients in Western Massachusetts. Finally, Tygon Peak Capital pulled off a rare feat with its five-way merger of agencies in South Texas.  The deal included A Plus Family Care, Axiom Home Health, Bee First Primary Home Care, Elder Homecare and Starr Home Care. Hospice M&A Hospice saw an uptick to nine (9) total transactions in Q4. This followed a record low two transactions in Q3. The Pennant Group (Nasdaq: PNTG) led the way with hospice transactions in the fourth quarter. An aggressive acquirer, Pennant completed two deals in Q4. Acquiring Arizona-based Southwestern Palliative Care Associates and Guardian Hospice, with locations in Texas and Oklahoma. Other notable hospice deals in the quarter include: ● Trive Capital-backed Choice Health at Home’s acquisition of Lumicare Hospice in Colorado ● Graham Healthcare Group-owned Residential Healthcare Group’s acquisition of Safe Haven Hospice in Illinois ● The aforementioned Gentiva/Promedica deal, which included substantial hospice assets. Healthcare services M&A is hard to predict due to both economic and regulatory uncertainty, and 2024 presents its fair share of challenges on both fronts. Healthcare-savvy investors who are used to navigating these obstacles are chomping at the bit for quality opportunities. Finding and closing those deals will be the bottleneck for activity in 2024. If you are interested, you can also download the Q4 2023 Home-Based Care M&A Report via the following link:

By: Michael Lloyd The home-based care M&A marketplace is ever-evolving and looks different than it did 24 months ago. Many owners have trepidation around today’s values and how the current financial climate affects the enterprise value of their business. Fortunately, the demand for quality home-based care agencies remains exceptionally high. This has kept values higher than historical norms, despite the general perception. However, buyers have become more disciplined. They need businesses to “check all the boxes” to pay a premium in today’s market. Below are some areas agency owners should consider to best position themselves and their business for a successful sale in 2024. Financials While keeping organized financial records is usually directly correlated with successful agencies, owners should know how buyers will look at their financials during a sale process. Buyers all have their own valuation models but have much in common. One of the main adjustments will be a conversion from cash basis to accrual. In order to remove revenue cycle lumpiness and match revenue with its corresponding expense, buyers will want to account for revenue and payroll expenses based on the date of service (vs the date of payment). This exercise will smooth out the monthly numbers to reflect payments and costs more accurately. “If I could give owners one piece of advice on the financial side, be sure to have accrual-based numbers, broken out by month, before going into any kind of negotiation with a buyer,” Mertz Taggart Managing Partner Cory Mertz said. “Signing a letter of intent with a buyer based on cash financials is a no-win situation for a seller. If the accrual numbers come back and they are worse than the cash-basis numbers, the buyer may want to renegotiate, which is not what you want to hear halfway through diligence. On the other hand, if the accrual numbers come in better than the cash numbers, you won’t hear anything from the buyer, but more likely will leave money on the table, which can be considerable.” The ultimate goal is to present an Adjusted EBITDA that will serve as a proxy for normalized cash flow to interested acquirers of the agency and minimize any surprises during due diligence. Accomplishing this is both an art and a science. A competent M&A firm will ensure this is handled correctly. Transition Risk Beyond regulatory and reimbursement risks that affect every healthcare company in some way, the biggest driver of the multiple is transition risk. To command a premium value for your agency, transition risk must be low in the eyes of your ideal buyer. This is the risk that the business (and its cash flow) will deteriorate after closing, usually due to the transaction itself, and it’s often a function of the owner’s role before the transaction, especially around leadership and business development. When exit planning, an owner should work towards removing themselves from these functions. This is easier said than done, but will help alleviate transition risk for the buyer and make them comfortable with current staff’s ability to continue operations without significant disruption, and grow the company after a short transition period. This is often referred to as “bench strength” and is correlated with premium valuations. “The first question strategic and financial buyers will ask, after they’ve read and understood the financial statements, is ‘Who’s on the bench?’ Who can run the business in the owner’s absence,” Mertz stated. “As an owner who is considering an exit, hiring or promoting quality leaders is an investment in the business that results in premium valuations when it’s time to exit.” Valuation A current valuation will help any business owner understand the value of the business today and the delta between the current value and their goal for an eventual exit. The valuation exercise from a trusted third-party M&A Advisor allows owners to set realistic expectations for their business's purchase price or enterprise value. In today’s M&A environment, premiums will lie in the details, so putting in the work beforehand will give the seller leverage and confidence entering into what can be an emotional process. Compliance Across the industry, compliance issues slowed deal volume in 2023. As buyers have become more disciplined, compliance around home-based care agencies is a significant factor in the success of a transaction. The service line will dictate the focus from a compliance standpoint. Hospice, of late, has been under a microscope from ADRs, compliance reviews from CMS, and enhanced oversight in certain states. Quality hospice opportunities are still in high demand, but compliance and legacy liabilities will remain factors for buyers. Identifying and addressing potential issues with the right experts and often having outside guidance and legal opinions will comfort buyers. For home health and hospice providers alike, buyers will look at both conditions of participation and conditions of payment. This is very different from a survey. We encourage owners to hire a 3rd party consultant to perform a billing audit on a small sample of the agency’s current and historical census. This can be accomplished with a relatively small investment, saving would-be sellers' heartache during diligence. It also signals to the buyer community that the agency is prepared for diligence, which adds value. For non-medical home care agencies, the compliance priorities are different and generally focused on caregivers employed by the agency. Every state has its own requirements for caregiver employment, but generally speaking, wage and hour compliance, ACA (Affordable Care Act) requirements, and other caregiver benefits must align with local, state and federal mandates. “If you look at home-based care valuations over the past 20 years, they remain historically high. How do they stack up to 2021 and 2022 valuations? For premium agencies, values have held up very well. However, not all agencies are considered premium in the eyes of today’s buyers,” Mertz added. “Preparation is key. And as self-serving as it sounds, having an experienced advisor who is well-versed in the rigors of diligence, can help mitigate potential surprises, and is respected by the buyer universe can make the difference between a successful transaction and a failed process.” Contact us to arrange a confidential discussion.

The third quarter of 2023 was another slow quarter for home-based care M&A, with only 18 reported deals. “Two factors drove the low deal volume,” Mertz Taggart Managing Partner Cory Mertz commented, “We saw a spike in deal count in Q2, but some of those transactions could just as easily have closed in Q1 or Q3, which would have smoothed out the lumpiness in deal volume. On the home health side, CMS’ proposed rule certainly delayed some deals. The final rule, published November 1, wasn’t a negative surprise, and will give Q4 a lift. Barring anything unforeseen, we will likely end 2023 with just short of 100 transactions. Still down ~10-15% from pre-pandemic norms of 110-120 deals a year.” On the supply side of the M&A world, the industry is still reverting to the mean in terms of agencies going to market. Agency owners rushed to the exits during the 2021 boom due to concerns around the capital gains tax rate and burnout, meaning sellers that would have exited in 2022 or 2023 were gone sooner, leaving fewer agencies going to market this year. This dynamic is not unique to home-based care. Additionally, many owners believe they have missed their window to sell for a premium, and have instead opted to hold and grow. That is likely the best decision for many owners. For others, there may be a little bit of a misunderstanding of the current M&A climate. “While the valuation curve has shifted a bit, a clean, lower middle market agency with strong cash flow will still command premium multiples, in line with 2021 numbers,” according to Mertz Taggart Managing Partner Cory Mertz, “For the agencies that have some work to do to command a premium in today’s environment, this is an opportunity to take stock. How would a critical buyer view the company in terms of valuation and its drivers? The answers to these questions should feed into a seller’s ultimate exit strategy.” Some transactions were in ‘wait and see mode’ regarding the final rule, which was released November 1. That will be a catalyst to more activity in the fourth quarter of this year or the first quarter of 2024. The other proposed rule that has changed the dynamics is the home- and community-based services (HCBS) proposal from CMS that would mandate that 80% of reimbursement be put toward caregiver salaries. “Industry buyers we’ve had conversations with vary in how they are factoring the proposed rule into their models going forward,” Mertz said,” Everyone in the industry is curious to see how this develops, but at the moment there is quite a bit of variation in how buyers are modelling HCBS businesses.” Home Health M&A While the hospice sector had just two transactions in the third quarter, skilled home health only had four — also a new record low. As always, quality small- to mid-sized home health agencies remain in high demand. “The proposed rule put a temporary delay on some deals,” says Mertz. “Given the final rule, I expect we’ll see those transactions those transactions close in Q4, providing some lift.” Among the home health deals in the third quarter: New Day Healthcare’s acquisition of Advantage Care Home Health Amber Personal Care’s acquisition of Healing Hearts Home Health Intermountain Health’s acquisition of Advent Home Health Home Care Home care deals led the way in the third quarter. There were 12, seven of which were of the HCBS variety. The aforementioned proposed Medicaid rule — with the mandated 80% of reimbursement going to caregivers — doesn’t seem to be significantly slowing buyer interest. There are likely a few reasons for that. To start, the rule is still just proposed, and it’s difficult to predict what a final version will look like. Most industry leaders, while concerned about the proposal, expect to see a final version that won’t be as draconian. Finally, rates for HCBS are far better than they were prior to the pandemic. Even private-pay home care providers are beginning to diversify into Medicaid, especially as billing rates rise. “Despite the proposed 80/20 rule, there is still strong demand, and transactions are happening across the map,” says Mertz. Among the notable home care deals in the quarter: Martis Capital-backed Community Based Care acquired Mertz Taggart client, Your Home Court Advantage, which illustrated the strong demand for Veteran Affairs (VA) as a HCBS payer source. New Day Healthcare acquired three Texas providers as it continued to build out its presence in the state. Vistria-backed Help at Home, the largest in-home personal care provider in the country, continued to execute on its growth strategy, with two transactions, Berkshire Home Care and My Care at Home. Help at Home Chief Development Officer Rich Tinsley told Mertz Taggart, “We’re continuing to identify small, medium and large-scale home care partners that can add to our differentiated value proposition for our caregivers, clients, partners and payers. Adding scale and density deepens our ability to connect home care to the health care ecosystem and provide innovative programs and services that can positively impact cost and quality.” Hospice Hospice saw a record low two transactions. That has to do less with demand and more with a lack of quality agencies going to market, Mertz says. “There just are not a lot of squeaky-clean, profitable hospices going to market,” he says. “Those that do will still attract strong attention. Buyers have gotten much more disciplined, and the increased regulatory scrutiny is causing more deals to fail diligence. For a hospice agency to transact today, it really needs to be buttoned up, especially on the clinical and compliance fronts.” Stricter buyer discipline In the end, buyers, especially on the hospice side, are becoming more disciplined around the following: Narrow acquisition criteria. Buyers are tightening their acquisition criteria, with harder rules around geography, payer mix/service line and profitability, to name a few. Stricter due diligence. Buyers are exhibiting stricter diligence, which is eliminating more deals. A clinical issue or earnings shortfall that would have previously been swept under the rug or worked around will now cause the deal to not close. We are now seeing this more on the hospice side than anything, given the increased regulatory scrutiny in general. Tighter economics. Banks have tightened their lending standards, which then causes buyers to tighten their standards. Meanwhile, many newer PE-backed platforms are feeling the weight of their debt service and are not as able to pay a premium. Buyers that are more established platforms with plenty of cash and little or no debt are still able to pay a premium for the right opportunity. However, they are also aware that there will be less competition for deals. In the hospice world specifically, hospices with poor cash flow that would have previously commanded premium valuations based on ADC and admission trends, no longer command those premiums. “Buyers are having a harder time justifying paying for a hospice based on average daily census, and what they think they will do with the agency in the twelve-month period post-close,” Mertz says. “Their PE investors and the debt providers won’t let them. So, those transactions have slowed significantly.”

By: Bruce Vanderlaan While this has been a pretty volatile year in the M&A world, demand for small- to mid-sized home-based care agencies remains high. You can tell by the sheer volume of calls and emails you have been getting from “advisors” who tell you they have a buyer for you, or they can get you what looks like a very attractive multiple. In this environment, potential sellers need to be keenly aware of the “broker bait-and-switch” that is becoming more common in the home health, home care, and hospice industries. At the very least, those reaching out to you with promises of “interested buyers” or high multiples (all without knowing anything more than your website) should, at the very least, be cautiously received. Here is how the broker bait-and-switch usually goes: ● An M&A ‘broker’ approaches a seller with the promise of an interested buyer, multiple interested buyers, or even a specific buyer looking to pay a steep price for that seller’s agency ● To find out who the buyer is, the broker forces the seller to enter into an agreement of some kind ● After the seller enters that agreement, they will likely be forced to pay a fee to that broker down the line when an acquisition takes place with whomever they bring to the table There are multiple problems with this process. First, it’s highly unlikely the broker actually has a specific buyer who has already made contact. In this equation, the promise of that specific buyer is the “bait.” Once the seller has entered into the agreement, the broker can turn around and play the same game with potential buyers. That’s the “switch". The broker will notify a group of buyers that it has an interested seller, blasting out an advertisement of sorts of an interested seller. Sellers — and buyers, for that matter — are likely to find this sort of process expensive, confusing, burdensome, and unprofessional. It leaves owners dissatisfied and fatigued after selling their agency, a chance they may only get once. Essentially, the broker is intent on making a fee, regardless of who pays it. Many of these brokers are simply “transaction” brokers. Meaning, they represent the transaction, not you, and not the buyer. A legitimate M&A advisory firm will put significant effort into maximizing value for the seller, and the results can be significant. There is a lot of work that goes into going to market the right way, ensuring that the agency is ready for due diligence and that the transaction has a high likelihood of closing. Finding Buyers is the Easy Part To avoid succumbing to this trick, the first thing that sellers need to understand is that the pressure is not nearly as high as the broker makes it seem. After all, there is always strong interest in the M&A marketplace for quality agencies. There are plenty of strategic buyers and PE firms regularly looking for quality home health, home care, and hospice assets. The allure of an “interested buyer” should generally be ignored when no details are given. In fact, having “one” interested buyer is almost never in a seller’s best interest. When an owner is looking to sell, they should expect a transparent and competitive process from the outset. An experienced M&A advisory firm or investment banker should lead that process and engage with multiple buyers in order to get the best price and terms for the agency at the end of negotiations. That also allows the seller — and not the broker, who may just be looking for a fee via the broker bait-and-switch — to choose the best buyer. That choice will involve price, cultural alignment, certainty to close, post-closing obligations, and a host of other factors. Without backup offers, buyers are hardly likely to raise their offers or make compromises on other seller wishes. They are also more likely to negotiate on the basis of what is ‘reasonable’ versus what is ‘market’, determined by a professional, competitive, process. How to navigate the process Sellers should not enter into vague agreements, no matter how eager they are to negotiate with so-called “interested buyers.” In order to ensure the process goes smoothly, they need to ask the right questions to the broker: ● Who is the buyer? ● Did the buyer ask you to contact us, specifically? ● Why is my company strategically interesting to them? ● How did the buyer determine the price or multiple? ● Is the buyer paying your fee? If the broker cannot or will not answer the above questions, sellers should reevaluate the situation before agreeing to anything. If it seems too good to be true… The vast majority of the time, a respectable M&A advisor should not have any problem answering those questions from the start. If they do, they likely do not have the sellers’ best interests in mind. Instead, they are likely looking to capitalize on their fees, and not much else. This is likely going to be one of the most major life decisions an agency owner makes, and it usually only happens once. It makes sense to be cautious and informed. My rule, that it took me a lot of pain to learn, is that if I am being pressured to make a decision, the answer has to be “no.”