Homecare M&A in the Era of COVID-19
June 17, 2020
In February, I became aware of COVID, a virus we knew very little about except that it can kill. By the end of February, I was canceling travel and starting to do more meetings remotely. By mid-March, California was on full lockdown with only essential employees and services at work. Those of us with businesses and employees immediately jumped into panic mode trying to assess and plan on how to keep our employees safe while at the same time trying to ensure the survival of our companies.
M&A in homecare took a brief pause for the most part, shifting the focus to providing PPE for healthcare workers and adopting new policies to keep employees and patients safe. Now that those protective measures are in place, focus is shifting back to growth and acquisitions. I expect the next couple years will be exceptional for homecare mergers and acquisitions. Below are some the reasons homecare transactions will flourish.
Investors want returns. Certain sectors of the economy are flailing because of COVID. Investors will shift from poor performing sectors like retail, travel and entertainment to healthcare, technology, and consumer staples. They will look to enhance positions in those sectors that can maintain profitability and even grow amidst the crisis.
Low cost of capital drives acquisitions. Money is cheap and abundant. Interest rates are low providing increased returns to investors. Through Congress, the SBA has recently been authorized to approve over $750 Billion in PPP loans. Many PPP loans are not required to be repaid. The SBA is also liberally approving loans for disaster assistance at 3.75%, a low rate for a business loan with a gracious thirty-year term. Many healthcare businesses that took advantage of these programs now have an abundance of cash to invest in growth.
Efficiency enhances profitability. COVID is forcing us to be more efficient. Healthcare is marrying technology like never before. Telehealth is being utilized to avoid personal exposure and the result is greater efficiency. Agencies and practices can see more patients in less time. People working from home can also save companies money. These are trends I think will continue even when the COVID crisis subsides. Homecare companies utilizing highly efficient technologies are desirable to investors.
More workers will become available to work in homecare. It makes sense that high unemployment in retail and leisure industries will push workers to consider other careers such as homecare. Where we have traditionally seen growth hindered by a shortage of workers such as home health aides, I expect employees will be coming from other industries to fill the need. Growth will be less hindered by staff shortages over the next few years.
Caring for patients and clients at home is a solution that just became more obvious. It is no longer necessary for patients to enter a facility or drive to an appointment to receive care for many types of illnesses or post-surgical treatments. Home health care, personal assistance care, therapies and home hospice are among the healthcare businesses that can thrive in the era of COVID. Patients have less stress and tend to do better with at home treatments. Patients will increasingly choose to receive care and treatments at home.
I expect we will begin to see a flurry of acquisitions in Medicare home health, custodial home care, home hospice and similar or related businesses by the end of this year and continue into 2021. Investors want returns. Returns are dictated by profitability, cost of capital, efficient technologies, availability of workforce and potential for growth. Homecare and Hospice are well positioned for growth and consolidation even amid the COVID crisis providing the ideal environment for acquisitions in homecare.
For more information about the selling process or to learn about acquisition opportunities, tap our wealth of experience in homecare and providing M&A services to homecare clients throughout the country. Call Beth DaSilva at 619-523-0303 or email her at bethd@fleetridge.com to schedule a confidential call.
Beth DaSilva is the president of Fleetridge Pacific, a healthcare mergers and acquisitions firm established in 2007 and based in San Diego, CA.