Readying your agency when an acquisition is underway.
The COVID-19 public health emergency has had a profound impact on the health care sector, particularly in post-acute care. As home-based care providers experienced a range of disruptions, including census dips, and as banks paused on financing new deals to assess the impact of the pandemic, M&A activity cooled off.
During the second quarter of 2020, for instance, there were only 18 transactions across home health, hospice, and home care, according to Mertz Taggart statistics. That’s a substantial drop compared to the 26 transactions that took place during the same period a year prior.
But don’t let the somewhat depressed M&A numbers fool you. There is still money to be made during the pandemic — as long as buyers and sellers stick to the M&A playbook. And the demand for quality agencies is on the rise.
“We might not be seeing as many deals materialize, but that interest in quality assets is still out there,” Mertz Taggart Managing Partner Cory Mertz says. “The entire U.S. health care system, and everybody associated with it, are looking for ways to shift care into the home and away from facilities. Interest in home-based care has probably never been higher.”
For home health, hospice and home care agencies exploring a sale in the current preparation is paramount to a successful transaction.
Here are three tips for streamlining the process.
1. Approach the sale before you’ve decided to take the “plunge”
Agencies should begin readying themselves for a sale long before they officially take the “plunge” and initiate the sales process.
An important part of that is identifying key employees and management members — the influencers and decision-makers who make your operating model tick. In many cases, buyers aren’t just interested in acquiring scale and market share; they’re interested in acquiring new voices, ideas, and systems.
The identification of key employees and management members should be made prior to starting the process. After pinpointing cornerstone leaders, sellers should make sure those individuals are willing to stay on board during a transition. How and when that should occur can vary, however.
That might even extend to the agency owner. Take, for example, PE-backed Caring People’s acquisitions of Acappella In Home Care, Aging Care LLC and AMR Care Group.
“With these three acquisitions, what was attractive to us was that they had very like-minded owners, who all stayed on with the organization in different roles,” Caring People CEO Steven East told Home Health Care News on Aug. 20. “We felt that we could continue working with them and growing what they built.”
The big question agency leaders need to think about: When should I tell my employees a sale is coming?
“Sellers need to make sure their team is ready to lead during a transition, but they don’t want to tip their hand too early,” Mertz says. “To wait or not to wait? It’s an extremely delicate question that we will typically pose early with our clients early in the engagement process.”
2. Communication is king — but be strategic
After you reveal plans to your key team members that you’re considering a transaction, you will eventually need to communicate with all levels of employees. This should be done as late in the process as possible, certainly after the purchase agreement and confidentiality agreements are signed. Until then, only key players involved in due diligence should be informed. Additionally, make sure there aren’t any outstanding issues when it comes to HR, accounting, or other departments.
“Owners often feel compelled to tell their employees early on, out of loyalty, which is both understandable and admirable,” Mertz says. “But letting them know too early can actually create more uncertainty in-house, and hard-to-control speculation, both internally and in the markets they service.”
Once the purchase agreement is signed, it’s time to communicate the sale with the rest of your employees. This should be a well-coordinated communication plan. Change comes with many unknowns, which often leads to anxiety for employees. Let them know exactly what the sale means to them. This opens up the opportunity for them to be introduced to the buyer, put a face to the name, and the buyer can then communicate their plans for the company. This introduction will also open the floor to the employees to ask the difficult questions that are on their minds.
“Let your team know their day-to-day will not change,” Mertz says. “Employees dread change, but less fear usually means smoother integration and lower odds of information being leaked outside your organization.”
Once workers know their day-to-day roles won’t drastically change, assure them that you have a strong transition plan in place. As you share that transition plan, have other agency leaders back you up, demonstrating that the entire leadership team is pulling from the same end of the rope.
Prior to commencing any communications with employees, it’s vital to make sure paperwork is organized and free of inaccuracies or inconsistencies, particularly regarding accounting and financial documents. In the age of COVID-19, that preparation is even more important than usual, with Provider Relief Funds, advanced payments from the U.S. Centers for Medicare & Medicaid Services (CMS) and Paycheck Protection Program (PPP) loans.
3. Utilizing change management
Effective preparation and communication both fall under the “change management” umbrella. Broadly, change management is the collective term describing philosophies associated with leading individuals and organizations during times of change.
Before, during and after any transactions, it’s always good for both buying and selling parties to keep best change management practices in mind.
Here’s what Encompass Health Home Health & Hospice CEO April Anthony had to say on the topic: “I think successful change management starts with a strong culture. If you create the kind of environment where people say, ‘You know what? We’re on the same team. I know my leadership cares about me. I believe in the mission we’re pursuing’ — that aligns any organization with being prepared to deal with big, transformative change in processes.”
So remember:
Whatever the external market factors, there are key areas to prepare any time a sale will be taking place. When it comes to readying an agency for sale, advance preparation, thorough and appropriately timed communication, and a planned change management strategy will help set the stage for a smooth change in ownership. To learn more about the sales process when selling your home health, home care, or hospice agency, visit Our Process Page.