Last week, the investment arm of Advocate Aurora Health acquired Senior Helpers, the giant home care franchise organization that domestically operates across 44 states.
Advocate Aurora Enterprises pulled the trigger on the Maryland-based Senior Helpers as part of its three-pronged investment thesis around aging, parenthood and well-being. According to a report from PE Hub, Advocate’s deal valued Senior Helpers at around $180 million, or roughly 14 times the franchiser’s 2020 EBITDA.
“We realize there’s a whole range of things outside of medical care itself that contributes to a person’s health, wellness and well-being,” Advocate Aurora Enterprises President Scott Powder told Home Health Care News on Thursday, the day the Senior Helpers deal was announced. “We want to more actively participate in that whole ecosystem, hence the creation of Advocate Aurora Enterprises, which is a vehicle to do that.”
Senior Helpers was the first big home care domino to fall in 2021, but it won’t be the last.
Since 2015, there have been at least nine acquisitions of large, multi-state home care franchise companies, with the buyer typically being private equity. In most cases, PE firms invest in a business with a three- to five-year window in mind, which suggests another wave of home care M&A activity is right around the corner.
“Senior Helpers was the first deal since April 2018 for a home care franchiser,” Jim Moskal, a partner at M&A and debt advisory firm Livingstone Partners, told HHCN. “I am predicting that in 2021 and 2022, you are going to see this next wave of home care franchisers trade. A main driver is going to be private equity. At some point private equity buys. At some point private equity sells.”
The most recent round of home care dealmaking arguably kicked off in September 2015, when Los Angeles-based PE firm Levine Leichtman Capital Partners completed the acquisition of Caring Brands International, the parent company of Interim HealthCare, Bluebird Care and Just Better Care.
It then ended in April 2018, when NexPhase Capital — a New York City-based PE firm with typical investments ranging between $25 million and $75 million — finalized its purchase of SYNERGY HomeCare.
Sandwiched in between those transactions was Linsalata Capital Partners’s acquisition of Home Helpers, plus the investment that Gemini Investors and Plenary Partners made in Always Best Care, a move supported by TCF National Bank.
Right at Home in 2016 was similarly acquired by North Carolina-based PE group Investors Management Corporation, the money behind restaurant chain Golden Corral and athletic apparel retailer Fleet Feet Sports.
“Do I think this interest in non-medical home care is going to continue? Yes,” said Moskal, whose company served as exclusive financial advisor to Advocate Aurora Enterprises in its bid for Senior Helpers. “We’re in the next wave. And you’re going to see valuations in this sector, in the home care franchiser space, hit all-time highs.”
Strategics stepping up
Before Advocate stepped up to the plate, Senior Helpers was owned by New York-based PE firm Altaris Capital, which acquired the home care franchiser in 2016 for a reported $125 million.
During that sales process, not a single strategic buyer showed interest in Senior Helpers, co-founder and CEO Peter Ross previously told HHCN. The fact that Advocate showed such strong interest was a pleasant surprise, one that now gives Senior Helpers’ franchisees added clinical resources in overlap markets.
Matt Margulies, managing director at Cain Brothers, likewise fully expected to broker a deal between Senior Helpers and a PE buyer. Cain Brothers, a division of KeyBanc Capital Markets, acted as a lead financial advisor to Senior Helpers in the Advocate deal.
“I think it was pretty obvious that everyone going into the transaction fully expected that a private equity buyer would be the prevailing party,” Margulies told HHCN. “That’s happened in almost every one of the last several franchising deals.”
PE buyers will likely remain active in home care moving forward, attracted to the space by America’s aging population and the nearly universal preference to age in place. But as home care is proven to be a core part of the overall care continuum, strategics like Advocate may become more active buyers as well.
Apart from last week’s Senior Helpers transaction, the only other deal between a home care franchiser and a strategic buyer was the 2009 acquisition of Comfort Keepers by the France-based “quality-of-life company” Sodexo.
“Even in that situation, I wouldn’t call Sodexo a health care buyer,” said Margulies, who leads Cain Brother’s home health, hospice and general post-acute coverage effort.
If health systems and other strategics do turn their attention to home care, they’ll likely want to pursue something with size and scale. That means talking to franchise organizations, which currently make up somewhere between 40% and 50% of the home care market.
Nearly all of the home care organizations with a national footprint are structured as franchise companies, with most already owned by private equity.
“It’s not really possible to own a large asset, nationally, in the private-duty space without buying a franchise,” Margulies said. “[Independents] are typically single-state or, at best, super regional. But there’s nothing of the size and scale that would be considered a national business.”
Exceptions to the PE-ownership rule in home care franchising include Omaha, Nebraska-based Home Instead Senior Care, which has over 1,200 offices throughout the United States, Canada and 12 other countries. Chicago-based BrightStar Care is another major exception.
Both Home Instead and BrightStar remain privately owned.
Acquiring a franchise organization can come with added layers, since local owners are usually kept in place. But that’s something buyers like Advocate Aurora Enterprises just have to live with if they’re bullish on home care.
“It’s certainly a little counterintuitive, in that owning a franchise network doesn’t give the franchiser and the owner as much control over the branches,” Margulies noted. “But with that said, the Advocate Aurora system has identified private duty as a very important component to its elder care strategy.”
Playing the aging demographic
Other home care franchiser deals to take place during the 2015 to 2018 window include The Riverside Company’s investment in ComForCare and the acquisition of Homewatch International by Authority Brands, a portfolio company of PNC Riverarch Capital.
“This is our first home care franchiser, but franchise investment is a specialization of Riverside,” Steve Rice, a principal with the company, told HHCN in July 2017. “We’ve played in home care through software acquisitions, and this is our first home care provider investment, but it’s a market we’ve been following and chasing for a number of years. ComForCare was the first to hit all our criteria, and when we found it, we absolutely sprinted.”
Of the nine home care franchise companies not named Senior Helpers involved in deals over the last six years, at least one is currently exploring a sales process, a source with the organization told HHCN.
There are a handful of potential advantages of acquiring a home care franchiser instead of an independent, Moskal said.
For example, a franchise owner is one-step removed from the business itself, and top-performing owners can act independently with little corporate handholding. Cash flow in the home care franchise model is also generally strong, he added.
“Why does PE love non-medical home care? For one, it’s a way to play the aging demographic and what’s happening in this country,” Moskal said. “It’s a way to play it, too, with pretty minimal compliance and regulation, at least compared to [the Medicare-certified home health industry].”
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