Ep:59: We’re Facing ‘The Perfect Storm’ in Home Care M&A—Here’s Why

Miriam Allred (00:08):

Today, we’ve got the wonderful Stephen Tweed, a great friend of Home Care Pulse! He is the Founder and President of Leading Home Care. And as many of you know, he leads mastermind groups with the top home care providers in the nation. And fortunately, we get to speak with him today for a few minutes. So he and I are going to start out having a conversation about what’s happening in the industry in regard to mergers and acquisitions. I’m sure many of you have seen headlines or hearing from colleagues about just the influx of activity. And so we’re going to get Stephen’s take on the topic and then we’d love to hear from all of you, you know, some of you are providers joining us on the line and we want to hear what questions you have, what concerns you have, what, what thoughts you have around the topic today. So we’ll get to that. So Stephen, why don’t you just take a minute, introduce yourself briefly. I know we’ve got some familiar faces on the call, but what else would you like to share with the providers?

Stephen Tweed (01:04):

Well, thanks Miriam. It’s always great to be with you and our friends at home care pulse. We have a long, long relationship with home care pulse. As Miriam said, my name is Stephen Tweed and I’m CEO of leading home care, a Tweed Jeffries Company. And we’re based in Louisville, Kentucky. And we work with home care owners and CEOs across the U S and Canada in companies that are in the top 10% of the industry. We also created a about eight years ago, the home care CEO forum, and from that developed a series of home care CEO mastermind groups. So we now have five groups of CEOs who meet twice a year face-to-face and once a month by zoom video to share ideas, to solve problems and to support one another. And then in February of this year, we started the caregiver quality assurance mastermind group, which is a group of leaders in home care coming together to talk about the issues related to recruiting and retention. And we know that that’s the big burning issue for every home care company across the country. And so we’ve been doing research and digging into solutions for the recruiting and retention crisis. And we’ve also been doing a fair amount of research in the home care CEO forum about the topic for today of mergers and acquisitions within home care. So I think we’re going to have a great conversation.

Miriam Allred (02:31):

Thanks for joining us. Stephen, we’re excited to experience, you know, a mastermind group on a kind of informal small scale today, so hope for a lively discussion. So I want to start with your concept of a perfect storm. You know, everyone’s perceiving maybe what’s happening in the industry a little bit different, but I love your terminology of a perfect storm. So describe that for us. What are you feeling and how is it creating this perfect storm?

Stephen Tweed (02:59):

Well, I think most of us who’ve seen the movie, the Perfect Storm with George Clooney out on a fishing boat where three major storms come together at one time and create an amazing storm at sea. And so we’ve sort of used that metaphor. Anytime three major forces come together around our industry. So when we talk about the perfect storm of industry consolidation, there are really three big things we’ve seen just in the past year and a half or so. The first is private equity firms acquiring major franchise ores. Now that’s been going on for a decade or so, and 12 are 10 of the top 12 franchise systems in the country are now owned by private equity groups or major corporations. There are, there are two that are still independent. And then there are some smaller franchise organizations that have also been acquired by private equity.

Stephen Tweed (04:03):

We saw a very interesting trend in that regard here in Louisville, Kentucky, where one of the largest home instead franchises was acquired by a private equity group. And as far as I know, that’s the first time that an individual franchisee organization has been acquired by private equity. So we’re watching and paying attention to that with regard to the franchise orders. We’re also seeing private equity firms investing in large independent consolidators. And I have some examples of that as we go forward. And this whole thing has led to experienced home care agency owners who maybe are a little bit burned out over the stress of COVID and the caregiver shortage, deciding to exit their businesses early. We’ve been talking with our members and clients for a long time about developing your exit strategy. And we’ve said to folks, the best time to begin working on your exit strategy from your home care business is the day you start it, or the day you acquire it. And the second best time to start working on your exit strategy is today. And so many of our members have already begun doing that. And that doesn’t mean they’re going to sell this year, but folks who are looking out three years or five years or 10 years, but thinking about what can I do to position my company so that when the time is right to exit, I’m prepared to do that

Miriam Allred (05:39):

On that same vein. Stephen, let’s talk a little bit about this concept of consolidation. It’s been buzzing around the industry, you know, are we moving towards consolidation? Do we anticipate seeing that? And if so, when, what are your thoughts there?

Stephen Tweed (05:53):

Well, that’s a great question. M and I’ve been watching the home care for a decade wandering when consolidation would start, because if you look at other industries that began as highly fragmented industries, where you have a large number of smaller companies, eventually some consolidation took place. So for example, in the, in the medical staffing industry, it was highly fragmented. And then a couple of big companies started consolidating that business. And of course there’s always room for small independence, but we fully expected some consolidation to begin. And it really has begun in the last couple of years as we have seen private equity firms investing in large independent agencies who are then developing a platform to acquire other independent agencies and, and build a big company that has a strategic position in the marketplace.

Miriam Allred (06:58):

You mentioned before that you’ve, you’ve got some examples to share. There have been some really headliner acquisitions in the recent months and in the past year, do you want to highlight some of those and what you’ve learned observing from, from up close and from a distance, some of those acquisitions?

Stephen Tweed (07:16):

Well, of course the big headline maker was a month or so ago when honor the private equity based technology company announced that they had acquired home instead senior care, the largest home care franchise in the country, probably in the world. And this created quite a stir and a great deal of interest. If you go back in the history of honor, they’ve been around since around 2015, and they raised some private equity money with the intention of quote ‘Uberizing’ the home care space. All of us have used Uber and we know how that works. And they said, well, we’re going to apply a similar principle and families can go on their app and, and request a caregiver. And somebody will show up in 20 minutes and do care. Well, we know that that home care isn’t quite like that it’s more of a relationship business.

Stephen Tweed (08:10):

And so they, they were challenged by that first model. They were also challenged because they’re based in California and initially their, their caregivers were 10 99 independent contractors, state of California said we don’t like that. They need to be employees. So they changed the model, which of course changes the economics. And they really had a difficult time getting traction with that model. So then they came out and announced the honor care network, where they would partner with independent home care companies and apply their technology to help companies recruit caregivers, manage scheduling, managed billing. And so the owner of the local company would be focused on sales and marketing and on client care coordination and the back office and recruiting and all of those other people’s pieces would be handled by honor. They’ve gotten some traction with that. I’m still not sure quite how many partners they have taken into place.

Stephen Tweed (09:13):

And so now they’ve announced the acquisition of home instead. So there’s a great deal of discussion around, well, what does that mean for home instead? What does that mean for the franchise sector and what does that mean for home care? In general, we’ll continue to watch that we’ve talked with some of the homestead franchisees to get their take on it. We’ve talked to some other franchise owners and we’re always paying attention to a big newsmaking trends like that. The other big trend in the industry with regard to mergers and acquisitions is home care assistance, which was a midsize franchise company. I say midsize in the middle of the top 10. And they were acquired by a private equity group and their move was to buy back some of their independent or individual franchisees, and then to acquire other independent home care companies and consolidate them under the home care assistance brand.

Stephen Tweed (10:15):

We have had four of our mastermind members be acquired by home care assistance in the past 14 months. And I’ve talked with the sellers and of course they are bound by non-disclosure agreements. So they’re not giving us all of the details, but based on talking to a number of key people, we have a, a sort of a sense of where home care assistance is going with that. And they continue to be quite aggressive in reaching out to independent companies and making offers that are quite generous compared to what the multiples of EBITDA have been in the past. Another acquisition that we heard of just about two weeks ago is 24 hour home care in Southern California that acquired the personal care division of Grande care health services also in California, which is a major home health agency. And so this is one of the first major acquisitions on the part of 24 hour home care.

Stephen Tweed (11:19):

They’ve grown very well through organic growth in adding new offices, adding new people and a very, very successful company mostly in California, but also with offices in Phoenix and in Dallas. So another significant player I mentioned earlier the private equity group that acquired a very large home instead franchise here in Louisville, Kentucky, and that franchise had been a client of ours in the, and so we know a little tiny bit about that. And as I said, I think this may be the first time in my awareness where private equity group has been able to acquire an individual franchise location in terms of seasoned, experienced home care owners moving up their exit time. We’ve had eight members out. We have 50 companies in our home care CEO forum. We have eight members be acquired during the past 16 months. One of those is under a letter of intent or LOI right now. And they expect to close in, in mid to late October. And then we’ve also have three of our members who are doing due diligence right now to acquire another home care company. So there’s a lot of activity in mergers and acquisitions and seasoned owners and CEOs in this business are really taking notice and paying attention and looking at what’s going on in the industry to ask themselves, how will this affect me? Hmm.

Miriam Allred (13:11):

It, it’s an interesting time. And, and this is right where I wanted to take the direction is we’ve, we’ve got some of you providers on the line that I’m sure are thinking about this. So I want to kind of shift gears and open it up to the audience here to ask, you know, those of you that are looking to acquire those of you that are ready to sell. You know, we probably have both parties on the, on the call. What are some questions that you have, or you that you’d like to ask our expert here, Steven, Susan, I know you’re, you’re on with us. And you had mentioned maybe looking to entertain some acquisitions, any questions come to mind or thoughts that you have

Susan (13:47):

Interesting. We were entertaining. The owners of the company were entertaining a conversation with a small independent and the the overinflated value of their agency is like, I ain’t dreaming.

Stephen Tweed (14:05):

Yeah, exactly. Susan, it will be very interesting to see the impact that this has on companies like yours, who were thinking about doing an acquisition of a smaller company in your local market. The members of our 5% groups have coined the term, or at least that’s the term day is I don’t know if they coined it, but the term they use is a tuck-in where they buy a smaller company and tuck it into their core business. And so they’re typically able to acquire those for relatively low multiples of EBITDA and with home care assistance coming along and making much higher offers. It does create that turmoil and confusion in the marketplace for companies like yours might like to do an acquisition.

Miriam Allred (14:56):

Absolutely. Yeah. Think thanks for timing and Susan. Todd, you’ve got a question here.

Todd (15:01):

Hey, Stephen!

Stephen Tweed (15:01):

Are you? Hey, Todd, good to see you, my friend. How are you?

Todd (15:04):

Good to see you. You know, I think the question that I get you know, emailed on a regular basis, you know, outside of, you know, Hey, who should we talk to if we’re looking to either purchase from a broker standpoint, but you know, secondary is, you know, what, what should they do in preparation to either enter into an acquisition mode or to get acquired themselves? You know, you talked about the tuck-in strategy, but I’d be, be interested to hear what what you would tell agency owners to kind of do in preparation for being acquired or for entering into acquisition mode.

Stephen Tweed (15:44):

That’s a great question. And let me start with the first part of preparation to be acquired. And as I mentioned earlier, I say to all of my members and my clients, the best time to D to begin working on your exit strategy is when you start your business. But if you haven’t done it, the next best day is to start is today. And so if, if there’s an owner, who’s saying, okay, I’m going to, I’ve got a five-year target window that I’d like to have my company positioned, ready to exit in five years. What do I need to do well, as we have studied the industry and talked with the mergers and acquisitions advisors and talk to some of our members who have done acquisitions, and as I’ve talked to some of our members who have sold their businesses, there are really seven specific factors that affect the valuation of a home care company.

Stephen Tweed (16:40):

Number one is size. So the bigger the company, the more value it brings, particularly in the eyes of the private equity folks or the big consolidators. The second factor is momentum. Is your company growing? And has it been growing over three to five years, both the top line revenue and the bottom line net income, or what the industry reverse to as EBITDA earnings, before interest taxes, depreciation, and amortization, and the value of a company is typically a multiple of adjusted EBITDA. And so the bigger the company, the more momentum growing the increase in value revenue, diversification buyers are looking for companies that don’t have all of their eggs in one basket. And so having multiple streams of revenue adds value, and then the next two are important having systems for client acquisition and systems for caregiver, acquisition and retention that do not depend on the previous owner.

Stephen Tweed (17:50):

As you know, Todd from the benchmarking study that you all been doing now for, it was just the 11th or 12th year. And as we looked at the, the medium size company in this industry this past year was 1,000,009 in revenue. So half the companies are smaller than that. And half the companies are bigger than that. And so were many companies at the median in the industry. The company is heavily dependent on the owner for sales and marketing and for caregiver recruiting and retention. And so to prepare your business for acquisition, you need to have systems in place that don’t depend on you to be there, to do that. And the less the company is dependent on the owner, the more value that company has. The sixth element of value is office team disruption. That is, do you have an office team in place that will stay and work with the buyer to continue the business going forward?

Stephen Tweed (18:52):

Or is it a case where the current office team could be heavily disrupted when the owner sells the business and leaves? Maybe there are multiple family members, maybe there are other kinds of issues. And then the last value effecting factor is threats to profitability. And this is sort of a big, wide open category that could cover a lot of things, but it could be a disruption in the local marketplace. It could be major competition. And one of the questions we’ve been asking as a result of these mergers and acquisitions is what impact is that having on the local marketplace? What does that do to you? If your major competitor is a home instead franchise, and they’ve just been acquired, what does that mean? How’s that going to affect that operation? Or what does it mean if one of your competitors was recently acquired by home care assistance? And now they have the resources of that company? So those are all the kinds of things that could be threats to profitability that a potential buyer is going to take into account. So those are the kinds of things that, that we’re looking at and working with our, our members to help them prepare for

Miriam Allred (20:09):

Great question, Todd and great insights. I know I’m jotting down some notes. We did have a question come in from Renee about multipliers of EBITDA. What are you seeing as a norm across the board?

Stephen Tweed (20:23):

Well, that’s a great question. And hi, Renee. Good to see from you again, I can’t see your face, but I can see your name on the screen. Haven’t seen each other for a while, but good to see you again. Historically let’s say over the past 10 years, the range of multiples of adjusted EBITDA was around three to five times. So depending on the size of the company and the profitability and the bottom line, and some other factors, a buyer would make an offer somewhere between three to five times adjusted EBITDA over the past three years, let’s say that range has expanded. And so for companies under $10 million in annual revenue, the multiples have expanded out to two to seven times EBITDA. So with the smaller companies that Susan mentioned, the example of a tuck and a, we might see a company being acquired for one and a half to two times adjusted EBITDA, where the, oh, it’s a small company.

Stephen Tweed (21:24):

The owner wants to exit the bigger buying company is just going to tuck it in, and they’re not going to pay a lot for the business to those companies that maybe under $10 million in revenue, but they’re firmly established. They have a great brand. They have systems in place for recruiting and retention and for sales and marketing, they have technology in place. And it’s a platform that another company, whether it’s a strategic buyer or an equity buyer might want to build on that platform. And so they may see the 5, 6, 7 times adjusted EBITDA. And then in the last year, we’ve seen larger companies over $10 million bringing in multiples in double digits, 9, 10, 11, 12, up to her, or one the other day of 14 times adjusted EBITDA. And so those are pretty significant numbers. And that takes us back to what Susan was asking about a moment ago is how is this going to affect the ability of a local company to make a smaller acquisition? If that smaller company is being offered, you know, 5, 6, 7, 8 times adjusted EBITDA.

Miriam Allred (22:46):

Yeah. Great insights. Thanks for the question, Renee. It’s interesting to see how with heightened activity things are changing, you know, three to five years ago, it looks very different now than it did just a short time ago. So appreciate that Renee, I’ll ask another question around revenue diversification with more diversification comes more complexity, but have you seen, is there a sweet spot of, you know, how diversified an agency becomes is, is there kind of a middle ground that becomes most attractive?

Stephen Tweed (23:17):

That is a great question. And the answer is, I don’t know because it’s, it’s a, an interesting question. And we actually had this discussion the other day in our top 5% mastermind group. The two big areas of revenue diversification are private pay and Medicaid waiver. And we have a number of very large member companies that are a hundred percent private pay or including in their private pay would be long-term care insurance and veterans administration benefits because those look more like private pay. And then on the other side, you have the Medicaid waiver and some other government related programs. And we have members that are 70 to 80% Medicaid and 20% private pay and 10% VA and long-term care insurance. And we have members that are, as I said, a hundred percent private pay. And so what we have learned is that some of the strategic buyers and many of the private equity buyers like that diversification.

Stephen Tweed (24:29):

So they’re looking for companies that may do work with the state Medicaid programs. And what we’ve seen is that the home care companies that, that serve Medicaid tend to be larger because it’s easier to grow the Medicaid business because you don’t have the marketing process that you do on the private pay side. But in most states, the Medicaid reimbursement rates are lower than the private pay rate. And so it becomes a high volume, low margin business, and that means putting systems in place for scheduling and billing and payroll and all of those things that are really efficient. And so those businesses lend themselves to scaling, to growing bigger. And we’ve seen some examples where private equity companies have purchased home care businesses that are primarily providers of Medicaid services across multiple states across a region, or in some cases almost nationally. So those are the kinds of things that we’re seeing there. We are also seeing some companies that have diversified revenues, so they have private pay, they have some Medicaid, maybe they have a transportation business. Maybe they have a geriatric care management business. Maybe they’re doing a meals program like meals on wheels. So there are a number of different ways that a home care company can diversify, but for the most part, the biggest, most successful companies in the industry have sort of stuck to their knitting and focused on either growing their private pay business or growing the Medicaid business and still doing some private pay.

Miriam Allred (26:12):

It’ll be interesting. I think that’s another topic that we’ll continue to evolve. Like you said, there’s so many opportunities to diversify, and I think we’re going to see that shift over the next couple of years. And, and like, we’ve talked about, it’ll look different, you know, as things evolve. We’ve got another question from Renee again here or Renee. I see you’re in meeting. If you want to highlight the question

Renee (26:34):

And just, you know, wondering with home care, being one of the businesses that seem to survive. COVID if Steven you’re seeing any other type of buyer other than just private equity entering the arena?

Stephen Tweed (26:52):

Well, that’s a great question, Renee, and yes, we had have seen some interesting examples of that. If you followed the franchise organizations many of, you know, comfort, capers and comfort keepers originally started, I don’t know, a dozen years ago or more as a privately owned franchise up in the Cincinnati Ohio area. And then the founders after a number of years sold it to a private equity firm. They grew at some more, they resold it to another private equity firm, and then I’d have to go back at my timeline, but I’m guessing five or six years ago, the second private equity firms sold the business to Sedexo, which is a large food service company. And so it’s corporate America looking at the home care space and saying, gee, this might be a good place to make an investment. And so there’s an example of a large corporation, publicly traded corporation.

Stephen Tweed (27:52):

I think there are publicly traded that has acquired a home care franchise organization. The other example of that, that we saw just recently is senior helpers, which is another large franchise that was started by two individuals and they grew it, and they, they took some private equity investment, but they didn’t sell the controlling interest, but they took some investment. They continued to grow it. And then they sold a controlling interest to another firm. And earlier this year, the announcement was made that senior helpers was sold by their owning private equity firm to an investment organization owned by a not-for-profit hospital system in the Chicago Milwaukee area called Aurora advocate. And people were saying, well, why would a hospital get into the private pay franchise business? And as I understand it, and again, I haven’t had a chance to dig into this deeply.

Stephen Tweed (28:55):

It wasn’t bought by the hospitals. It was bought by their investment branch. So they have some capital that they’ve accumulated and they decided that a way to invest their capital was to buy senior helpers franchise business. And so there’s a non PE owner. We’re also seeing some individuals who have grown their home care businesses fairly significantly who are then doing acquisitions with cashflow from their existing company. But I think you raised a good question, Renee in terms of what’s the impact of private equity on this whole industry since so many of the acquisitions are being driven by private equity firms.

Miriam Allred (29:43):

Thank you, Stephen.

Stephen Tweed (29:45):

Thank you, Renee. Good to see you again!

Miriam Allred (29:48):

Susan, you’ve asked a related question about other post acute arms being interested in entering this space. Do you want to elaborate?

Stephen Tweed (29:56):

Yeah, that’s a great question as well, Susan and she mentioned specifically Brookdale and Brookdale is a major senior living organization and they’ve been in the home health business for a number of years. And over the past several months they announced that they were selling their home health business to HCA in, in Nashville, which is hospital corporation of America. And this is an interesting move in that regard that that HCA is moving away from for-profit hospitals and adding home healthcare to their mix. Now they may be taking a lead from Humana as many of you know, Humana is one of the largest insurance companies in the country. They happen to be based right here in Louisville, Kentucky, and about six or seven years ago, Humana ventured into the private pay home care space when they bought a company based in New York called senior bridge.

Stephen Tweed (31:04):

And at that time senior bridge had about 30 offices around the country. And what made Sr bridge unique is their business model focused on geriatric care management and working with clients and families where the clients had multiple chronic conditions or significant acute conditions. And while senior bridge did not do skilled home healthcare with nursing and therapy, their patients had multiple health conditions and the combination of personal care and geriatric care management enabled them to build a significant presence in a number of markets. They were bought by Humana. Humana did some other acquisitions. And if I recall the senior bridge under Humana went from like 30 locations around the country to 50, but then Humana shifted their strategy a little bit. And instead of acquiring more home care businesses and adding the geriatric care management component, they began contracting with independent home care companies for care management to work with the beneficiaries of their Medicare advantage plan.

Stephen Tweed (32:17):

So then we find kindred, which is also based here in Louisville is a large operator of acute care long-term care hospitals. And they were in the nursing home business. And so Kendra purchased one of the largest home health agencies called Gentiva and folded it in under the name of kindred at home. And I believe at one point, Kendra at home Gentiva was the largest publicly traded home health company in the country. And then a couple of years ago, Humana acquired kindred at home, a 40% stake in a private equity firm had a 60% stake. And earlier this year, Humana announced that they were purchasing the balance of the ownership of kindred at home. I also heard the other day that as part of that strategy Humana was planning to exit from their ownership of a large hospital, a hospice organization, hospice called Cura. They had acquired that a while back. And so there was a period when Humana was, and they probably still are, but they were the largest provider of in-home care in home health, hospice, and private pay home care. So those are the kinds of things that, that we see happening. And so that’s a great question, Susan, you, you have a up to that, you hit everything. Okay.

Miriam Allred (34:02):

I was just going to add Stephen, it’s remarkable, the wealth of knowledge that you bring in your understanding of what’s happening in the industry in regard to this topic, if it’s all right. I want to shift gears kind of one more time and bring it back to the seven topics that you outlined in talking about some of the most relevant challenges that providers are facing on the recruitment and retention front, and also on the office team disruptor concept that you mentioned. I think that’s a topic that people may not be approaching in this context. And so I’d love to hear your thoughts on the importance of a good office team and finding the right people and getting them in the right seats so that they stay with your agency longterm.

Stephen Tweed (34:49):

Yep. Okay, good, good, really good question. Let me go back and take the first part first about the caregiver recruiting and retention crisis. As I mentioned, we have these 50 companies in our mastermind groups and every mastermind meeting somehow comes around to recruiting and retention. And we were just down in Orlando, Florida over this past weekend with our strategic growth mastermind group and S 15 companies. And 80% of our discussion was around recruiting and retention. We were in south bend Indiana a couple of weeks ago with our top 5% group. And a significant part of their conversation was around caregiver recruiting and retention. One of the differences between the companies that are growing during COVID crisis and the companies that are either not growing or that have declined in revenue is their ability to find and keep caregivers. And as we’ve looked at these big companies in the top 5% group they, they have, most of them have grown their revenue in 2020, over 2019 during COVID and of all the members of our group, 69% of them grew their business in that timeframe.

Stephen Tweed (36:06):

And the average revenue growth was 14.4%. 23% of our members declined in revenue and the average decline was 12%. And then there’s 8% that were in the middle that were basically flat. So when we looked at the growing companies compared to the shrinking companies, the big difference was their system for recruiting and retention. And it starts with their company culture, creating a great place to work, having clear values and being able to communicate that to their potential caregivers. And then having systems that involve more than just putting ads on indeed.com. As you know, Miriam from the benchmarking study, the number one online source for caregivers is indeed.com. And what we know is that the best caregivers in the country are not on indeed every weekend, looking for more work, they’re already happily working for someone else. And so these companies have figured out how to attract new applicants in spite of the shortage and how to get them on board quickly, and then how to keep them.

Stephen Tweed (37:15):

And we’ve been doing a lot of work around improving 90 day retention because again, Home Care Pulse data showed that 81% of turnover happens in the first 90 days. And so we’ve really been looking at what can we do to improve 90 day retention. And many of our members have been applying those principles and have been successful in doing that. And so having those systems in place is what enables those companies to grow. Second part of your question is about office team disruption. And what we are seeing is that the companies that have been acquired that, that have the highest value have the highest multiple of EBITDA are those companies that have a solid leadership team in place. And the leadership team agrees to stay with the buyer. And so I mentioned that we have had four of our companies acquired by Home Care Assistance.

Stephen Tweed (38:20):

Three of them, the chief operating officer, or the president of the company being sold, agreed to stay with the company for some periods of time. And the times are variable, but everybody agreed to stay at least a year one company that was a smaller company, the owner and the COO both exited the business. And so I, I don’t know much of the details of that, but I think it illustrates part of the point of your question is that if you are growing a company with a plan to exit putting in place a team of people who can run the business in your absence, and then if that team of people will stay with the new buyer that increases the value of the business

Miriam Allred (39:10):

Easier said than done. You know, I wish it was as easy as, as we want it to be, but getting the right systems in place, getting the right people in place, it takes time. It takes years and it takes hard work. And I know at the beginning of the call, Stephen, you mentioned, you know, some of you on the line today may be burnt out and maybe ready to exit. And that’s understandable with what’s happened over the last 18 months, but, but it is doable. And that’s, that’s what I love hearing through you. Stephen is just, it’s, it’s doable, it’s hard, but it’s plausible. And, and that’s kind of the hope that that’s resonating. So I want to open it up again for questions. We’ve, we’ve covered a lot. Anyone else have any questions in regard to what we’ve spoken to or any other questions in regard to mergers and acquisitions?

Fernando (39:55):

They have a question real quick. This is Fernando. Hi, nice meeting you, Stephen. I have a question we we’ve been approach throughout when the pandemic started in a few months after along the way, maybe every other week I received letters, you know, we want to acquire you or I get phone calls. You know, this company is interested in your business and things like that. But my concern always being that you know, you have to go through the due diligence period when, if you decide to move forward. Now I’ve gotten calls from, I know companies in my market looking at us and because we have such a rapid growth and our president has become bigger in our, in our market here. And it’s always been disclosing the information, you know, it’s the process of telling them, you know, this is my revenue. This is how many careers I have. This is how we do things. So is there a way to protect yourself you know, the company makes doors trying to buy you, but then they’re not really want to buy you, is when you know, Snoop into your business and see, you know, how things are.

Stephen Tweed (41:07):

Well, there’s always, I think a little risk with that. If it’s your next door neighbor, who’s a competitor. But typically the process is that when a company expresses an interest in acquiring your business, the first thing they will do is sign a nondisclosure agreement. And basically the nondisclosure agreement says, we will not let anybody else know that your company is for sale, because obviously that has an impact the local market. And we will not disclose any of the information that you disclose to us. And sometimes those NDAs have a paragraph in there that basically says, they’re not going to use the information in an adversarial way to compete with you. Now obviously the the nondisclosure agreement is only as good as the integrity of the person who signs it. However, there are remedies in the courts. If the person violates the nondisclosure agreement and you can prove it, you have some recourse, that’s a, I’m not an attorney.

Stephen Tweed (42:10):

And I try to avoid all of those kinds of conflicts, but it is a legal document that is enforceable. And that’s the first way. Then you mentioned due diligence. So you sign a nondisclosure agreement, you share some information, they look at that information, they may have some questions and then they would issue. What’s called a letter of intent. And the letter of intent basically says, I would like to buy your business. And I will pay you this many dollars under these terms pending due diligence. And we reserve the right to adjust the offer or withdraw the offer. Once we’re doing our due diligence and they sign that, you sign that and you say, okay, and now they’re going to dig deeply into not just your finances, but your policies, your procedures, your systems, your licensure, any contracts, you have any leases that you have.

Stephen Tweed (43:09):

They’re going to dig deeply into all the details of your business to make sure that they’re not acquiring any, any unnecessarily liability or obligations that they didn’t know about. And once that due diligence is completed, then they will come back and possibly adjust their offer or possibly withdraw their offer. But, but they will affirm that offer based on what they learned in the due diligence process. You agree on the, on the new purchase agreement and then the attorneys for both parties work on the actual purchase documentation that transfers the ownership from you to the buyer.

Miriam Allred (43:54):

Good question, Fernando, as that’s very applicable. Any other questions from, for many of you joining us today?

Susan (44:03):

When’s it going to stop?

Stephen Tweed (44:07):

When’s it going to stop? That’s a great question, Susan. And it will be interesting, you know, if we look at some other industries where there have been significant consolidation, the banking industry is an example. You know, it used to be every little town had their own national bank. And now you know, they’re, I don’t know how many big major national banks, but there are still small, independent, local banks being formed. There’s a new one that formed here in Louisville just a couple of years ago. And so even though this consolidation will continue, I think there’s always going to be room for highly effective independent companies to carve out a niche in that local marketplace. And I think there’s going to be an opportunity for new entrepreneurs to enter the market and start a business. And there will be entrepreneurs who start a business and run it for a long time and maybe transfer it to family members. And there will be entrepreneurs who come into home care and start a business and grow it for five years and flip it over to another buyer. So it will be interesting to see how all of this merger and acquisition activity carries forward over the next couple of years.

Miriam Allred (45:19):

The questions is, and that was going to be one of my final questions here is the timeline of what’s next and what can we expect, but it’s been an insightful call and you are the one to speak about this topic. So glad that we could have you for a few minutes today. So thank you everyone for joining us. We look forward to more conversations in the future to having you tune in, live with us. But Stephen, that’s all we’ve got time for. Thank you again so much for joining us today.

Stephen Tweed (45:43):

Thank you, Miriam. Thanks Todd. Thanks everybody. It’s been great. Have a wonderful week!