October 3, 2024 • 24 mins
In this episode, healthcare finance expert Mark Patterson shares key insights into the ever-evolving world of mergers and acquisitions in home-based care. Drawing upon his time as CFO for home healthcare companies and more than 30 years of experience, Mark discusses top trends that are reshaping the market, including the growing demand for integrated care models that combine skilled and unskilled services and surging investor interest driving fierce competition among buyers. With interest rates stabilizing and regulatory changes on the horizon, agencies must focus on prioritizing and demonstrating streamlined processes, scalability, and high quality of care to attract potential buyers. Mark emphasizes how leveraging advanced technology and developing strong operational metrics will not only lead agencies to thrive but will also become key capabilities to attract potential buyers in the future.
Related resources:
- Podcast: Mastering the art of home-based care mergers, acquisitions, and integration with Jen Lentz
- Podcast: The business of mergers and acquisitions in home care with Robinson + Cole
- Blog: 4 growth strategies for home care agencies from industry experts
- Blog: Key performance indicators – The power of data in home care
- Blog: 4 ways to improve home care inefficiencies with technology
- AlayaLabs: Transforming healthcare with AI-powered predictive tools
If you liked this episode and want to learn more about all things home-based care, you can explore all our episodes at alayacare.com/homehealth360.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
There's one more thing.
You'll hear the term agencymodel thrown around these days.
I've come from a company thatspecialized in high care where
we had a lot of nurses and thenunskilled care before that
company.
And now investors are lookingfor companies that can combine
the two and that's called theagency model, and those type of
(00:24):
companies are a first interestto investors.
Speaker 2 (00:37):
Welcome to another episode of the Home Health 360
podcast, where we speak tohome-based care professionals
from around the globe.
I'm your host, erin Valliere,and today I am joined by Mark
Patterson, a CPA who brings over35 years of financial expertise
to the table.
He's worked in a variety ofsettings, from startups to IPOs.
(01:00):
His industry expertise includesfulfilling the role of Chief
Financial Officer in healthcaretechnology, real estate and
service companies, and as CFO,mark oversaw multiple
departments in accounting, m&awhich is our topic today human
resources and IT.
Welcome to the show Mark.
Speaker 1 (01:22):
Thank you, Erin.
I'd like to begin just a lookback at 2023, just at the table
for discussions of 2024.
In 2023, there were over 95significant material total
home-based care transactions, a14% decrease from 2022, and a
(01:44):
significant drop from the robustmarket in 2021.
Home-based care M&A volumefinished strong, however, in
2023, with dealmaking led byover a dozen non-medical home
care transactions projectionsthe strong finish in 2024 to
potentially be a more activeyear for buyers and sellers,
(02:09):
assuming improved or steadymacroeconomic level outlooks
before we get too far into theweeds here.
Speaker 2 (02:17):
I appreciate you setting the stage for what's
going on today, but I want toknow a little bit about you
before we dive in.
Can you share with me and theaudience what you're up to these
days, because I understand thatyou might be involved in a new
project that involves a littlebit of M&A action.
Speaker 1 (02:33):
I'm on the board of two healthcare startups Home
Healthcare and we are making ourfirst acquisitions and we were
very hungry.
We want to do at least oneacquisition a quarter for each
specific company and it'sexciting, I think.
I'm glad that interest rateshave leveled off, but it's fun
(02:58):
to be on the board side insteadof the CFO side where you have
to jump and make all the chartsand do the preparation.
Speaker 2 (03:09):
Now you just get to read them and be the one giving
the other person a hard time,instead of vice versa.
I love it.
I recently read an articlewhere Merck's Taggart's new M&A
survey was referenced, and theysaid that buyers this year are
planning to be more acquisitive.
I didn't know that was even aword until I read that article.
Acquisitive, and there'sseveral factors at play.
I think you mentioned a coupleof them in your prelude here.
(03:30):
One of them is qualityinventory.
So I'm curious what othertrends and patterns are you
seeing personally, since you'vegot your sleeves rolled up and
you're in it right now.
So what are you seeing in termsof recent home care M&A
transactions?
And you're in it right now.
So what are you seeing in?
Speaker 1 (03:45):
terms of recent home care M&A transactions.
I would say first, buyercompetition is heating up.
Speaker 2 (03:49):
It's kind of slowed the past couple years but the
ever-increasing demand for homehealth services is creating a
more robust buyer pool who areseeking acquisitions, and I
guess I understand that there'snot quite that many agencies
(04:11):
going for sale this year.
Is that kind of what you'reexperiencing as well?
It's like buying a home now.
It's going to be a seller'smarket.
Speaker 1 (04:22):
It's like sharks.
If an agency puts itself forsale, there's going to be
several sharks swimming aroundcircling.
Most of them are going to bebid up.
You can't go out and just makea simple purchase, as you could
several years ago.
Most of them continue withmultiple buyers and they have at
(04:43):
least a 10 to 12 EBITDApercentage, and that's healthy.
And there's a lot of drycapital on the side, so these
investment companies have to putit to use or give it back.
So it's going to be a much moreaggressive exercise on the
(05:05):
buyer's side.
Speaker 2 (05:07):
And you mentioned something else in your prelude,
which is interest rates.
I'm curious how powerful do youthink interest rates might be
in the space this year?
I know everybody's waiting tosee if the Fed's adjust down,
starting, I think, in June iswhat I heard the feds adjust
down.
Speaker 1 (05:26):
Starting, I think, in June is what I heard.
The fed came out yesterday andsaid they're not planning on any
more interest cuts at this time.
Now they may turn around andchange that in Q late Q3, q4.
But I think the market wasstill glad that the feds have
left it on the table and arestill open to it.
But the feds committed tonothing.
(05:49):
No action, definitive actionthe next six or seven months.
Speaker 2 (05:55):
Okay, so pretty stable, all right.
Where are some of the primarydrivers motivating companies in
the home care space to pursueM&A activities these days?
Speaker 1 (06:07):
One of them is buyers are seeking operational
excellence and efficiency.
In some of my conversation,it's apparent that buyers are
prioritizing home healthagencies demonstrating the
operational excellence andefficiency.
Other qualities that buyers arelooking for are scalability
(06:30):
while maintaining high qualityof care, streamlined processes,
well-defined protocols andoptimized resource allocation.
And then there's a strongpreference for metrics in the
areas such as regulatorycompliance and cost.
Efficiency is important, andtechnology integration and
(06:55):
analytics have taken on greatimportance.
It's increasingly apparent thathome health care agencies
investing in technologyintegration and analytics will
stand out against thecompetition, such as remote
(07:21):
patient monitoring, telehealthplatforms, predictive analytics
and artificial intelligence.
Care coordination tools willenhance any agency's appeal.
Also, continued care continuityand coordination are
prioritized, and by that I meanthe ability to achieve seamless
transactions and strongcommunications between health
(07:42):
care providers, the patient andother health care providers is
becoming increasingly crucialfor home health care agencies.
Speaker 2 (07:54):
If I am an agency thinking about selling, I've got
to have my ducks in a row.
I've got to have the rightpeople in place, the right
processes, the right tools inorder to not only just be
excellent if I'm operating, butbe excellent and attractive to a
buyer.
Did I get that right?
Speaker 1 (08:14):
Correct.
And there's one more thing.
You'll hear the term agencymodel thrown around these days.
I've come from a company thatspecialized in high care where
we had a lot of nurses and thenunskilled care before that
company.
And now investors are lookingfor companies that can combine
(08:34):
the two and that's called theagency model, and those type of
companies are a first interestto investors.
Speaker 2 (08:43):
How have the recent regulatory changes affected M&A
Dynamics and the healthcaresector?
Speaker 1 (08:49):
In 2024,.
The year comes with anestimated aggregate increase to
2024 home health payments of0.8%, or $140 million.
Compare this to the 2023aggregate payments but it
doesn't tell the entire storybecause there's rate cuts that
(09:10):
are going to be finalized.
So they give with one hand andthey take away with another.
$140 million increase, asmentioned in the estimated
payments for 2024, reflects theeffects of a home health payment
update percentage of 3%, or$525 million, and an estimated
(09:32):
2.6% decrease that reflects uponthe permanent behavioral
assumption adjustment.
And then there's a 4% increasein FDL, which is 70 million.
But CMS is finalizing permanentprospective adjustment of minus
(09:53):
almost 3% to home healthpayment rates, which was short
of the 5.1 adjustment proposedin June.
So it was more than that.
But now they're going to cutback in certain home health
specializations.
Speaker 2 (10:08):
So it seems it's just as frustrating this year as it
always is.
They get you excited and say,oh, we're going to increase here
, but then we're going todecrease way over here and it's
going to be more of a decreasethan an increase.
That puts a lot of strain onproviders.
I just don't get it.
You mentioned earlier, in thebuyer's perspective, you're
(10:29):
going to be looking for agenciesthat have really good processes
and really good technology inplace.
Can you expand a little bitmore on the technology piece?
How is that playing a role inshaping M&A strategies?
Speaker 1 (10:44):
Yes, If I say one thing, if the listeners remember
one thing from this podcast,remember the words AI and
digital healthcare tech growthIn 2023,.
Universal Health Servicesannounced that it was a founding
partner in Hippocratic AI3.
(11:07):
This is a tech company buildingthe first language learning
model AI which can safely dealwith administrative applications
unrelated to patient diagnosis.
Investors may benefit fromlooking at these new
technologies arising in mentalhealth care, such Safety First
(11:29):
language learning model tools,as a set for considerable growth
.
Growth in the telehealthindustry, as well as AI-powered
drug discovery platforms, arealso set to become attractive,
and probably the ones you hearmost about are the hospital
mergers and acquisitions andtheir investment in AI
(11:53):
monitoring tools.
Speaker 2 (11:55):
Yeah, you hear a lot about AI for predicting adverse
events in home care, like withthe clients and stuff.
I'm curious to see how that'sgoing to apply to the more
administrative tasks.
I've seen a little bit of thatin play, where they were able to
take the intake process andmake that a lot more streamlined
(12:15):
by using some AI tools, butit's definitely going to be
interesting to see how thatevolves and how attractive that
makes a particular organizationwho's utilizing some of those
tools to the buyers.
What challenges do you seecompanies typically facing when
navigating M&A transactions inthe home care space?
Speaker 1 (12:34):
I can speak from personal experience on this.
No-transcript.
(13:06):
Due to macroeconomic challengeslike the increasing cost of
capital, margin compression frominflation, this caused sellers
to hold off during the firsthalf of 2023.
Because of this, there's nowsomewhat a pent-up demand,
(13:26):
leading to the return of dealactivity in 2024.
Speaker 2 (13:30):
Can you expand a little bit on the lag time?
So there was a delay in peoplewanting to go into the market.
And now how is that hanging upthe M&A activity this year?
Speaker 1 (13:42):
As mentioned, there's a pent-up demand.
All the horses are at thestarting gate waiting for the
bell to sound and there's a lotof dry powder Investment
companies.
Private equity has a lot of drycapital, so they're doing a lot
more research.
They're much more selective inthe companies they want to
(14:03):
invest in.
One of the things that I didn'tmention is those companies that
have taken care of their EBITDA, that have the ad backs, that
have the adjusted EBITDA, thatare ready to be presented to a
buyer, have a unique advantagebecause there's less time up
(14:25):
front spent on due diligence andthe buyers can have more
modeling done, which provides aquicker turn to closing.
Speaker 2 (14:36):
So it's up to the selling or the person who's
wanting to sell their businessto have their own due diligence
ready and to have a reallyattractive package so that you
guys who want to buy can pounceand spend that money that you
have to spend.
Or you said something earlierthat I didn't know is that you
(14:58):
have to get that investmentmoney back if you're not able to
use the capital.
So listen out, there, guys,there's people that has money in
their pockets, it's burning ahole in their pockets and
they're ready to spend it.
Let's shift just a little bit.
Are there any examples of M&Atransactions leading to
improvements or changes in thequality of care?
Speaker 1 (15:16):
Well, I refer back to AI.
There's the larger companies.
The larger home healthproviders are investing in the
AI and you'll hear about somenext month, but most of them are
going to come out around Juneor July.
Some of these are on the QT andI'm not allowed to disclose
(15:38):
them.
But again, with AI, with newregulations, with mitigating
risk, there are companies thatwill make it known in the next
few months.
Speaker 2 (15:52):
Oh cool, very cool.
So there's some insiderinformation that we got to wait.
We gotta wait.
I won't ask you then directly.
So, in terms of what I'm goingto go down this rabbit hole for
just a second, in terms ofimproved outcomes, are you
suggesting that, say, if I'mselling my agency, I need to
(16:14):
have some of these tools inplace?
Or, as a buyer, am I willing toinvest in a company that
doesn't necessarily have some ofthese advanced tools in place,
but they have an environment inwhich the people there are eager
and willing to adopt, in anintegration process, some of
(16:34):
those tools?
What does that look like?
Speaker 1 (16:37):
The companies that already have it as part of their
operating model will be thegirl taken to the prom and those
that are interested.
You may be interested but youmay know nothing about it and
therefore the investor orprivate capital has to
understand your business, workwith management on what type of
(17:01):
tools would fit best, what theirbudgets are, where to go with
their investments.
So those that are already upand running probably have a
six-month advantage a five tosix-month advantage over those
that already have it in place.
Speaker 2 (17:16):
So it really is to the advantage of owners who are
wanting to sell to maybe goahead and invest in some
advanced technology to makeyourself more marketable.
Are there any best practicesthat companies should follow to
ensure a smooth transition andintegration process?
Speaker 1 (17:34):
Yes, and this focuses around due diligence and
integration, focuses around duediligence and integration.
For the companies that I'vebeen associated with, we have
our own due diligence checklist.
Of course, there's going to beoutside partners like lawyers,
bankers, advisors, accountantsand it's important that the
(17:56):
process is smooth as possible.
So we have the skilled talentin-house to do much of the due
diligence up front, and you canget some of these checklists
online Just Google due diligence, home health care and there
should be programs out there foryou to follow.
(18:18):
The second part is I've foundcompanies are all eager and
they're all ready to go to makethe purchase, but they don't
really have an integration planon the back end after the
completion of the transaction.
This is important.
This is burning money if youjust build it after the
(18:40):
transaction.
Consider creating a post-mergerchecklist which looks at a
timeline for public-facingchallenges, human resource
requirements, it systems andthen also accounting systems,
compliance reporting and bankingsystems and I know that's where
(19:02):
your company shines, aaronSenior leadership dynamics,
organizational structure,manager-employee relationships
and that comes from the orgchart, redesigning the org chart
, team dynamics andcommunicating company and brand
culture.
And communicating company andbrand culture the culture.
(19:26):
Not many people know about this, but 60% of integrations and
acquisitions fail because of thelack to integrate culture.
Speaker 2 (19:33):
That's a big number.
So what do you think is a goodstrategy to apply to help
integrate that culture?
Speaker 1 (19:42):
I know in a merger companies go in as equals.
But I have found out, if youmeet beforehand, you understand
what the policies, proceduresand benefits are of the company
being acquired.
You can actually choose betweenthe two companies' benefits and
maybe choose the most optimalone.
(20:04):
If not, you don't want to takeaway benefits without giving
other benefits in their place.
So it's like a swap to thepersonnel of the acquired
company company.
So don't immediately go in andpress down, but there really
needs to be a leader or at leastan agreed upon program before
(20:32):
equals merge so that theemployees don't get screwed and
they can look forward tosomething from a bigger company
and more assets something from abigger company and more assets.
Speaker 2 (20:45):
I think it's important for both sides to take
a really good look at.
Is it a good culture fit?
What do the benefits look like?
Is it caregiver centric?
What are the tools that aregoing to be introduced?
Is it going to make their liveseasier?
Basically, as an owner sellingmy business, I need to make sure
that when I sell my business,not all my people are going to
quit because they don't likewho's taking over.
That makes a lot of sense.
(21:05):
I just have one more questionfor you, because I know we're
running up close to time.
I want to talk about the future.
Now let's just leave it on anote.
Looking into the future of M&A,are there any specific factors
or developments that you believeis going to shape the
trajectory of M&A in theindustry over the next couple of
years?
Speaker 1 (21:24):
I think technology God are the days you can just
issue an accounting reportfinancials at the end of the
month and that meets managementneeds.
They want to know where we'regoing, and that's the FP&A
process.
What are the factors that caninfluence that?
What advantages are there toimplementing AI or finding a
(21:49):
vendor that will provide the AIto help you promote operational
efficiencies and improve theoverall healthcare delivery
service to the patient?
I also think that it's going torequire more evidence of this
efficiency in their cost paymentmodel.
(22:11):
So when regulations come up,then there are going to be more
this year and more next year.
So probably for the next 12, 18months, you'll hear more coming
out.
Those companies that havefocused, that have in their
planning FP&A, ai, digital willbe the ones that are the
(22:37):
favorites, and the others whostraggle, may get left behind
quicker than it did in the past.
Speaker 2 (22:45):
Gotcha.
So I wasn't expecting thatanswer, but coming from a person
who works with a technologycompany, I like to hear that you
think technology is going tocontinue to influence the M&A
market and also care delivery inthe home influence the M&A
market and also care delivery inthe home.
So for all you folks who arestill on paper I know there's a
(23:06):
percentage of you out there Ihope that struck home.
It's time to rethink how you'redoing things, because if you
want to survive and thrive inthe coming years, you got to get
the right technology in placeDrive efficiencies, do more with
less all the stuff you knowWell.
Mark, this has been a reallylovely conversation and very
informative.
I know I've learned a lot andI'm sure the listeners have
(23:30):
learned a lot as well, so reallyappreciate your time this
morning.
Thank you for coming on theshow.
Speaker 1 (23:35):
My pleasure.
Thank you, Erin.
Speaker 2 (23:37):
You're very welcome.
Home Health 360 is presented byAlaya Care and hosted by Aaron
Valliere.
First, we want to thank ouramazing guests and listeners.
Second, new episodes air everymonth, so be sure to subscribe
today so you don't miss anepisode.
And, last but not least, if youlike this episode and want to
learn more about all thingshome-based care, you can explore
(24:00):
all of our episodes ataliacarecom, slash homehealth360
or visit us on your favoritepodcast platform.
There's one more thing.
You'll hear the term agencymodel thrown around these days.
I've come from a company thatspecialized in high care where
we had a lot of nurses and thenunskilled care before that
company.
And now investors are lookingfor companies that can combine
the two and that's called theagency model, and those type of
(00:24):
companies are a first interestto investors.
Speaker 2 (00:37):
Welcome to another episode of the Home Health 360
podcast, where we speak tohome-based care professionals
from around the globe.
I'm your host, erin Valliere,and today I am joined by Mark
Patterson, a CPA who brings over35 years of financial expertise
to the table.
He's worked in a variety ofsettings, from startups to IPOs.
(01:00):
His industry expertise includesfulfilling the role of Chief
Financial Officer in healthcaretechnology, real estate and
service companies, and as CFO,mark oversaw multiple
departments in accounting, m&awhich is our topic today human
resources and IT.
Welcome to the show Mark.
Speaker 1 (01:22):
Thank you, Erin.
I'd like to begin just a lookback at 2023, just at the table
for discussions of 2024.
In 2023, there were over 95significant material total
home-based care transactions, a14% decrease from 2022, and a
(01:44):
significant drop from the robustmarket in 2021.
Home-based care M&A volumefinished strong, however, in
2023, with dealmaking led byover a dozen non-medical home
care transactions projectionsthe strong finish in 2024 to
potentially be a more activeyear for buyers and sellers,
(02:09):
assuming improved or steadymacroeconomic level outlooks
before we get too far into theweeds here.
Speaker 2 (02:17):
I appreciate you setting the stage for what's
going on today, but I want toknow a little bit about you
before we dive in.
Can you share with me and theaudience what you're up to these
days, because I understand thatyou might be involved in a new
project that involves a littlebit of M&A action.
Speaker 1 (02:33):
I'm on the board of two healthcare startups Home
Healthcare and we are making ourfirst acquisitions and we were
very hungry.
We want to do at least oneacquisition a quarter for each
specific company and it'sexciting, I think.
I'm glad that interest rateshave leveled off, but it's fun
(02:58):
to be on the board side insteadof the CFO side where you have
to jump and make all the chartsand do the preparation.
Speaker 2 (03:09):
Now you just get to read them and be the one giving
the other person a hard time,instead of vice versa.
I love it.
I recently read an articlewhere Merck's Taggart's new M&A
survey was referenced, and theysaid that buyers this year are
planning to be more acquisitive.
I didn't know that was even aword until I read that article.
Acquisitive, and there'sseveral factors at play.
I think you mentioned a coupleof them in your prelude here.
(03:30):
One of them is qualityinventory.
So I'm curious what othertrends and patterns are you
seeing personally, since you'vegot your sleeves rolled up and
you're in it right now.
So what are you seeing in termsof recent home care M&A
transactions?
And you're in it right now.
So what are you seeing in?
Speaker 1 (03:45):
terms of recent home care M&A transactions.
I would say first, buyercompetition is heating up.
Speaker 2 (03:49):
It's kind of slowed the past couple years but the
ever-increasing demand for homehealth services is creating a
more robust buyer pool who areseeking acquisitions, and I
guess I understand that there'snot quite that many agencies
(04:11):
going for sale this year.
Is that kind of what you'reexperiencing as well?
It's like buying a home now.
It's going to be a seller'smarket.
Speaker 1 (04:22):
It's like sharks.
If an agency puts itself forsale, there's going to be
several sharks swimming aroundcircling.
Most of them are going to bebid up.
You can't go out and just makea simple purchase, as you could
several years ago.
Most of them continue withmultiple buyers and they have at
(04:43):
least a 10 to 12 EBITDApercentage, and that's healthy.
And there's a lot of drycapital on the side, so these
investment companies have to putit to use or give it back.
So it's going to be a much moreaggressive exercise on the
(05:05):
buyer's side.
Speaker 2 (05:07):
And you mentioned something else in your prelude,
which is interest rates.
I'm curious how powerful do youthink interest rates might be
in the space this year?
I know everybody's waiting tosee if the Fed's adjust down,
starting, I think, in June iswhat I heard the feds adjust
down.
Speaker 1 (05:26):
Starting, I think, in June is what I heard.
The fed came out yesterday andsaid they're not planning on any
more interest cuts at this time.
Now they may turn around andchange that in Q late Q3, q4.
But I think the market wasstill glad that the feds have
left it on the table and arestill open to it.
But the feds committed tonothing.
(05:49):
No action, definitive actionthe next six or seven months.
Speaker 2 (05:55):
Okay, so pretty stable, all right.
Where are some of the primarydrivers motivating companies in
the home care space to pursueM&A activities these days?
Speaker 1 (06:07):
One of them is buyers are seeking operational
excellence and efficiency.
In some of my conversation,it's apparent that buyers are
prioritizing home healthagencies demonstrating the
operational excellence andefficiency.
Other qualities that buyers arelooking for are scalability
(06:30):
while maintaining high qualityof care, streamlined processes,
well-defined protocols andoptimized resource allocation.
And then there's a strongpreference for metrics in the
areas such as regulatorycompliance and cost.
Efficiency is important, andtechnology integration and
(06:55):
analytics have taken on greatimportance.
It's increasingly apparent thathome health care agencies
investing in technologyintegration and analytics will
stand out against thecompetition, such as remote
(07:21):
patient monitoring, telehealthplatforms, predictive analytics
and artificial intelligence.
Care coordination tools willenhance any agency's appeal.
Also, continued care continuityand coordination are
prioritized, and by that I meanthe ability to achieve seamless
transactions and strongcommunications between health
(07:42):
care providers, the patient andother health care providers is
becoming increasingly crucialfor home health care agencies.
Speaker 2 (07:54):
If I am an agency thinking about selling, I've got
to have my ducks in a row.
I've got to have the rightpeople in place, the right
processes, the right tools inorder to not only just be
excellent if I'm operating, butbe excellent and attractive to a
buyer.
Did I get that right?
Speaker 1 (08:14):
Correct.
And there's one more thing.
You'll hear the term agencymodel thrown around these days.
I've come from a company thatspecialized in high care where
we had a lot of nurses and thenunskilled care before that
company.
And now investors are lookingfor companies that can combine
(08:34):
the two and that's called theagency model, and those type of
companies are a first interestto investors.
Speaker 2 (08:43):
How have the recent regulatory changes affected M&A
Dynamics and the healthcaresector?
Speaker 1 (08:49):
In 2024,.
The year comes with anestimated aggregate increase to
2024 home health payments of0.8%, or $140 million.
Compare this to the 2023aggregate payments but it
doesn't tell the entire storybecause there's rate cuts that
(09:10):
are going to be finalized.
So they give with one hand andthey take away with another.
$140 million increase, asmentioned in the estimated
payments for 2024, reflects theeffects of a home health payment
update percentage of 3%, or$525 million, and an estimated
(09:32):
2.6% decrease that reflects uponthe permanent behavioral
assumption adjustment.
And then there's a 4% increasein FDL, which is 70 million.
But CMS is finalizing permanentprospective adjustment of minus
(09:53):
almost 3% to home healthpayment rates, which was short
of the 5.1 adjustment proposedin June.
So it was more than that.
But now they're going to cutback in certain home health
specializations.
Speaker 2 (10:08):
So it seems it's just as frustrating this year as it
always is.
They get you excited and say,oh, we're going to increase here
, but then we're going todecrease way over here and it's
going to be more of a decreasethan an increase.
That puts a lot of strain onproviders.
I just don't get it.
You mentioned earlier, in thebuyer's perspective, you're
(10:29):
going to be looking for agenciesthat have really good processes
and really good technology inplace.
Can you expand a little bitmore on the technology piece?
How is that playing a role inshaping M&A strategies?
Speaker 1 (10:44):
Yes, If I say one thing, if the listeners remember
one thing from this podcast,remember the words AI and
digital healthcare tech growthIn 2023,.
Universal Health Servicesannounced that it was a founding
partner in Hippocratic AI3.
(11:07):
This is a tech company buildingthe first language learning
model AI which can safely dealwith administrative applications
unrelated to patient diagnosis.
Investors may benefit fromlooking at these new
technologies arising in mentalhealth care, such Safety First
(11:29):
language learning model tools,as a set for considerable growth
.
Growth in the telehealthindustry, as well as AI-powered
drug discovery platforms, arealso set to become attractive,
and probably the ones you hearmost about are the hospital
mergers and acquisitions andtheir investment in AI
(11:53):
monitoring tools.
Speaker 2 (11:55):
Yeah, you hear a lot about AI for predicting adverse
events in home care, like withthe clients and stuff.
I'm curious to see how that'sgoing to apply to the more
administrative tasks.
I've seen a little bit of thatin play, where they were able to
take the intake process andmake that a lot more streamlined
(12:15):
by using some AI tools, butit's definitely going to be
interesting to see how thatevolves and how attractive that
makes a particular organizationwho's utilizing some of those
tools to the buyers.
What challenges do you seecompanies typically facing when
navigating M&A transactions inthe home care space?
Speaker 1 (12:34):
I can speak from personal experience on this.
No-transcript.
(13:06):
Due to macroeconomic challengeslike the increasing cost of
capital, margin compression frominflation, this caused sellers
to hold off during the firsthalf of 2023.
Because of this, there's nowsomewhat a pent-up demand,
(13:26):
leading to the return of dealactivity in 2024.
Speaker 2 (13:30):
Can you expand a little bit on the lag time?
So there was a delay in peoplewanting to go into the market.
And now how is that hanging upthe M&A activity this year?
Speaker 1 (13:42):
As mentioned, there's a pent-up demand.
All the horses are at thestarting gate waiting for the
bell to sound and there's a lotof dry powder Investment
companies.
Private equity has a lot of drycapital, so they're doing a lot
more research.
They're much more selective inthe companies they want to
(14:03):
invest in.
One of the things that I didn'tmention is those companies that
have taken care of their EBITDA, that have the ad backs, that
have the adjusted EBITDA, thatare ready to be presented to a
buyer, have a unique advantagebecause there's less time up
(14:25):
front spent on due diligence andthe buyers can have more
modeling done, which provides aquicker turn to closing.
Speaker 2 (14:36):
So it's up to the selling or the person who's
wanting to sell their businessto have their own due diligence
ready and to have a reallyattractive package so that you
guys who want to buy can pounceand spend that money that you
have to spend.
Or you said something earlierthat I didn't know is that you
(14:58):
have to get that investmentmoney back if you're not able to
use the capital.
So listen out, there, guys,there's people that has money in
their pockets, it's burning ahole in their pockets and
they're ready to spend it.
Let's shift just a little bit.
Are there any examples of M&Atransactions leading to
improvements or changes in thequality of care?
Speaker 1 (15:16):
Well, I refer back to AI.
There's the larger companies.
The larger home healthproviders are investing in the
AI and you'll hear about somenext month, but most of them are
going to come out around Juneor July.
Some of these are on the QT andI'm not allowed to disclose
(15:38):
them.
But again, with AI, with newregulations, with mitigating
risk, there are companies thatwill make it known in the next
few months.
Speaker 2 (15:52):
Oh cool, very cool.
So there's some insiderinformation that we got to wait.
We gotta wait.
I won't ask you then directly.
So, in terms of what I'm goingto go down this rabbit hole for
just a second, in terms ofimproved outcomes, are you
suggesting that, say, if I'mselling my agency, I need to
(16:14):
have some of these tools inplace?
Or, as a buyer, am I willing toinvest in a company that
doesn't necessarily have some ofthese advanced tools in place,
but they have an environment inwhich the people there are eager
and willing to adopt, in anintegration process, some of
(16:34):
those tools?
What does that look like?
Speaker 1 (16:37):
The companies that already have it as part of their
operating model will be thegirl taken to the prom and those
that are interested.
You may be interested but youmay know nothing about it and
therefore the investor orprivate capital has to
understand your business, workwith management on what type of
(17:01):
tools would fit best, what theirbudgets are, where to go with
their investments.
So those that are already upand running probably have a
six-month advantage a five tosix-month advantage over those
that already have it in place.
Speaker 2 (17:16):
So it really is to the advantage of owners who are
wanting to sell to maybe goahead and invest in some
advanced technology to makeyourself more marketable.
Are there any best practicesthat companies should follow to
ensure a smooth transition andintegration process?
Speaker 1 (17:34):
Yes, and this focuses around due diligence and
integration, focuses around duediligence and integration.
For the companies that I'vebeen associated with, we have
our own due diligence checklist.
Of course, there's going to beoutside partners like lawyers,
bankers, advisors, accountantsand it's important that the
(17:56):
process is smooth as possible.
So we have the skilled talentin-house to do much of the due
diligence up front, and you canget some of these checklists
online Just Google due diligence, home health care and there
should be programs out there foryou to follow.
(18:18):
The second part is I've foundcompanies are all eager and
they're all ready to go to makethe purchase, but they don't
really have an integration planon the back end after the
completion of the transaction.
This is important.
This is burning money if youjust build it after the
(18:40):
transaction.
Consider creating a post-mergerchecklist which looks at a
timeline for public-facingchallenges, human resource
requirements, it systems andthen also accounting systems,
compliance reporting and bankingsystems and I know that's where
(19:02):
your company shines, aaronSenior leadership dynamics,
organizational structure,manager-employee relationships
and that comes from the orgchart, redesigning the org chart
, team dynamics andcommunicating company and brand
culture.
And communicating company andbrand culture the culture.
(19:26):
Not many people know about this, but 60% of integrations and
acquisitions fail because of thelack to integrate culture.
Speaker 2 (19:33):
That's a big number.
So what do you think is a goodstrategy to apply to help
integrate that culture?
Speaker 1 (19:42):
I know in a merger companies go in as equals.
But I have found out, if youmeet beforehand, you understand
what the policies, proceduresand benefits are of the company
being acquired.
You can actually choose betweenthe two companies' benefits and
maybe choose the most optimalone.
(20:04):
If not, you don't want to takeaway benefits without giving
other benefits in their place.
So it's like a swap to thepersonnel of the acquired
company company.
So don't immediately go in andpress down, but there really
needs to be a leader or at leastan agreed upon program before
(20:32):
equals merge so that theemployees don't get screwed and
they can look forward tosomething from a bigger company
and more assets something from abigger company and more assets.
Speaker 2 (20:45):
I think it's important for both sides to take
a really good look at.
Is it a good culture fit?
What do the benefits look like?
Is it caregiver centric?
What are the tools that aregoing to be introduced?
Is it going to make their liveseasier?
Basically, as an owner sellingmy business, I need to make sure
that when I sell my business,not all my people are going to
quit because they don't likewho's taking over.
That makes a lot of sense.
(21:05):
I just have one more questionfor you, because I know we're
running up close to time.
I want to talk about the future.
Now let's just leave it on anote.
Looking into the future of M&A,are there any specific factors
or developments that you believeis going to shape the
trajectory of M&A in theindustry over the next couple of
years?
Speaker 1 (21:24):
I think technology God are the days you can just
issue an accounting reportfinancials at the end of the
month and that meets managementneeds.
They want to know where we'regoing, and that's the FP&A
process.
What are the factors that caninfluence that?
What advantages are there toimplementing AI or finding a
(21:49):
vendor that will provide the AIto help you promote operational
efficiencies and improve theoverall healthcare delivery
service to the patient?
I also think that it's going torequire more evidence of this
efficiency in their cost paymentmodel.
(22:11):
So when regulations come up,then there are going to be more
this year and more next year.
So probably for the next 12, 18months, you'll hear more coming
out.
Those companies that havefocused, that have in their
planning FP&A, ai, digital willbe the ones that are the
(22:37):
favorites, and the others whostraggle, may get left behind
quicker than it did in the past.
Speaker 2 (22:45):
Gotcha.
So I wasn't expecting thatanswer, but coming from a person
who works with a technologycompany, I like to hear that you
think technology is going tocontinue to influence the M&A
market and also care delivery inthe home influence the M&A
market and also care delivery inthe home.
So for all you folks who arestill on paper I know there's a
(23:06):
percentage of you out there Ihope that struck home.
It's time to rethink how you'redoing things, because if you
want to survive and thrive inthe coming years, you got to get
the right technology in placeDrive efficiencies, do more with
less all the stuff you knowWell.
Mark, this has been a reallylovely conversation and very
informative.
I know I've learned a lot andI'm sure the listeners have
(23:30):
learned a lot as well, so reallyappreciate your time this
morning.
Thank you for coming on theshow.
Speaker 1 (23:35):
My pleasure.
Thank you, Erin.
Speaker 2 (23:37):
You're very welcome.
Home Health 360 is presented byAlaya Care and hosted by Aaron
Valliere.
First, we want to thank ouramazing guests and listeners.
Second, new episodes air everymonth, so be sure to subscribe
today so you don't miss anepisode.
And, last but not least, if youlike this episode and want to
learn more about all thingshome-based care, you can explore
(24:00):
all of our episodes ataliacarecom, slash homehealth360
or visit us on your favoritepodcast platform.
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