Your Company Might Be Great. That Doesn’t Mean It’s Valuable.
- 1 day ago
- 7 min read
By Cory Mertz, Managing Partner | Mertz Taggart
Adapted from a conversation on the Home Care Strategy Lab podcast with Miriam Allred
I’ve been doing healthcare M&A since 2006. In that time, I’ve worked with hundreds of home care, home health, and hospice companies. Big ones, small ones, great ones, struggling ones.
And one of the things that still surprises people when we sit down together is this: you can have a really nice company that’s not very valuable in the marketplace.
That’s not a criticism. It’s just reality. What makes a company great to run and what makes a company attractive to a buyer are two different things. A lot of owners do not realize that until they are much closer to a transition than they should be.
That was one of the themes I recently discussed with Miriam Allred on the Home Care Strategy Lab podcast. We covered valuation, market trends, transition risk, and the blind spots owners often miss until a sale feels real. And if there is one point worth emphasizing, it is this: some of the best transactions do not start when an owner decides to sell. They start years earlier.
Every business will transition.
Every owner is going to transition out of their business at some point. How that happens could be a lot of different ways. It could be a sale. It could be a family succession. It could be a merger. But it’s going to happen.
What tends to drive those decisions is not always strategy. More often, it is life.
Burnout. Health issues. A child who was excited about taking over the business five years ago but isn’t anymore. The market peaking and an owner thinking, “maybe now’s the time.” We see all of it.
The owners who end up in the best position aren’t the ones who scramble when a life event hits. They’re the ones who’ve been paying attention to what their company is worth in the market long before they’re ready to do anything about it.
The most common blind spot
I’d say the most common blind spot is owners not understanding how the M&A market would actually look at their company. Not how they see it. How buyers see it.
Buyers are evaluating how sustainable the cash flow is, how transferable the business will be after a sale, how it fits into the broader market, and how much risk they believe they are taking on.
Take niche businesses as an example. Maybe you serve a very specific patient population and you have built something unique around that. That may be great for your operation. But from a buyer’s perspective, they need to know two things: is it sustainable, and when they eventually exit, is that uniqueness going to be marketable to the next buyer?
The biggest acquirers in the market tend to do business in fairly similar ways. Similar margin profiles. Similar technology adoption. Similar structures. If your company is an outlier, even a high-quality outlier, it may not command the value you expect.
The Diversification Myth
The impact of diversification on company valuation can be uncertain. It may limit the pool of potential buyers. Similarly, when business owners hear about diversification, they often feel compelled to expand their offerings by adding more payers, service lines, and geographic locations. However, if your organization is already providing a range of services such as private duty, Medicaid, VA, and skilled work all under one roof, you may find that there are few buyers who excel in all these areas. Excessive diversification can complicate a company's evaluation process and make it more challenging to sell. You want diversity, but you want it in the right way.
Multiples are the most misunderstood concept in M&A
People love to talk about multiples. What’s the going rate? What are companies selling for? The problem is, the multiple isn’t an absolute number. It’s subjective. For any given deal, you can calculate a handful of different multiples, and they can vary quite a bit depending on what earnings figure you are using and what time period you are looking at.
Here is a simple example. A $20 million company with an average EBITDA of $2 million over the last three years is a 10x multiple. But if the last four months show a $4 million run rate, now that same deal looks like a 5x. Same company. Different lens.
That is one reason owners can get misled when they hear that another company sold at a certain number. Without understanding the details behind the deal, the number by itself does not tell you much.
At its core, the multiple is about risk. The higher the multiple, the lower the perceived risk that cash flow will hold up after closing. The lower the multiple, the more risk the buyer is absorbing.
That risk comes from everywhere: geography, reimbursement exposure, the strength of the management team, whether the company is growing or declining, whether the owner does everything themselves or has a team that can stand on its own, culture, technology, timing.
Two companies that look similar on paper can command very different multiples once you drill into the specifics. That’s why comparables only tell you so much.
The risk factor buyers fixate on most
If there is one risk factor buyers consistently focus on, it is transition risk.
How involved is the owner in the day-to-day? If they’re doing everything, the transition risk is high. What does the first layer of management look like? How likely are those key people to stick around after a sale?
We recently took a hospice company to market. Great business. Strong management team. We went through six management discussions with buyers, the kind of multi-hour meetings where they really get to know the people, the culture, and how the company operates. Our client did a terrific job.
Even so, two buyers dropped out.
Why? They saw risk factors the other buyers did not.
That is how subjective this process can be. What is a dealbreaker for one buyer may be a non-issue for another.
It’s also why you want multiple buyers at the table. It is hard to gauge the market by talking to one buyer, or even a few. In home-based care alone, we track roughly 140 strategic acquirers, and they do not all see the same company the same way.
The three things you can actually manage
When we sit down with an owner, we break valuation into three manageable pieces: revenue, margin, and the multiple.
Revenue is straightforward — every agency has to grow if they want to command a higher value. We help owners put a plan together and connect them with the right people to get there.
Margin is where it gets more nuanced. If your margin is too thin, you may be leaving money on the table. But if it’s too high, that can also raise concerns. A 30% or 40% adjusted EBITDA margin may look great from the owner’s perspective, but to a buyer, it can signal risk. They may wonder whether the business is underinvesting, whether the margins are sustainable, or whether growth has been sacrificed in the process.
Sometimes it makes more sense to reinvest part of that margin into growth.
The multiple is really about de-risking the business. Strengthening your management team. Diversifying your referral base the right way. Putting systems and processes in place. Reducing owner dependence. Making the company more transferable.
Once you understand where you are across all three, you can start to see the gap between what your company is worth today and what you’d want to sell for. And you can start closing that gap.
Start the conversation early
When we look back at our best transactions, the smooth ones, the ones where sellers walked away feeling good about the outcome, there’s usually a pattern.
We were talking with those owners three, five, sometimes ten years before they went to market.
They’d come to us and ask, “what’s my company worth today?” We’d tell them. Then they’d say, “I wouldn’t sell for less than $10 million.” We then identify the gap and advise on how to close it. That thinking is what led us to formalize our Value Accelerator Program.
In truth, we have been doing this kind of work for years. We just recently gave it more structure.
The process is simple. We assess where the company stands today. We set a target, both a number and a timeline. Then we break the path forward into revenue, margin, and multiple. From there, we build an action plan and check in periodically, quarterly or annually depending on the situation, to measure progress and adjust course.
And candidly, the owners who go through that process tend to be in a much better position when they are ready to exit.
Where the market stands right now
We’re not at the 2021 peak. That was a frenzy; the publicly traded companies were trading in the high 20s, money was cheap, and everybody was rushing to the exits.
But we’re still in a better market than anything we saw from 2007 to 2020. Companies are generally trading for higher multiples today than they were before the pandemic. The publicly traded companies are still in the mid-teens, which sets the benchmark.
The broader tailwinds are still there too.
When I first got into this business, people were talking about the baby boomers who were about to turn 65. Now many of those same people are turning 80. That is when demand for home-based care really accelerates.
So from a market standpoint, the fundamentals remain strong.
What that means for owners is this: the market is solid, the long-term demand outlook is favorable, and the opportunity to build value ahead of a future transition is still very much there. But you have to be intentional about it.
Want to know where your company stands?
If you own a home care, home health, or hospice company and you’re curious about what the market would say about your business today, we’re happy to have that conversation.
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