Miriam Allred (00:11)
Hey everyone, welcome back to the Home Care Strategy Lab. I'm your host, Miriam Allred. It's great to be back with you. Hope everyone's having an awesome week. In the lab today, I am joined by Cory Mertz, the managing partner at Mertz Taggart, a leading healthcare mergers and acquisitions leader in the space. I hope all of you know them, and if you don't, it's my pleasure to introduce you to them. Cory, thanks for joining me today.

Cory (00:34)
Thanks, Miriam.

So my name is Cory Mertz. I'm a seasoned M&A advisor. ⁓ I've been doing healthcare services M&A since 2006. So I've been at it for a while now. Based in Fort Myers, Florida. I grew up here. It's a nice place to be this time of year. Die hard Florida Gator fan ⁓ and alum. Go Gators.

Miriam Allred (01:00)
Amazing and been at it since 2006. What were you doing before this?

Cory (01:05)
Yeah, pretty different industry altogether. I had a short term in real estate, ⁓ but I was only doing that for about a year and a half or so. But prior to that, I had about a 10 year career in electronics manufacturing. ⁓

worked for a global EMS provider and for about 10 years held a number of roles in operations and business development. Ultimately settled into an M&A role. So that's how I kind of got my beak wet, I guess, in the M&A world. So we were acquiring manufacturing operations all over the world. ⁓

was kind of drawn to that. leverage that opportunity to get back into the healthcare services M M&A game in 2006.

Miriam Allred (01:53)
Okay. And your title is managing partners. you've got other partners that you, I believe, started this business with. How did you connect with your other partners?

Cory (02:05)
Yeah, so I have one partner. So he put the Taggart in Mertz Taggart. ⁓ His name is Kevin Taggart. He's based in Tampa now. But at the time, I met Kevin and his family ⁓ in 2009. They owned a home care agency, private duty home care agency in the Atlanta area. Really nice company. They engaged us to take the company to market, had a successful transaction. And that's how Kevin and I got to know each other. ⁓

few years later, we were business partners.

Miriam Allred (02:37)
Good deal. And talk about the early days of starting this mergers and acquisitions company. think that might be a little bit foreign to many people of how a company like yours initiates and gets started. What do those kind of early years look like?

Cory (02:56)
Well, so I had already had experience. So we started the company in 2014. So I'd already had experience with another M M&A firm doing M M&A, home care M M&A.

So we, Kevin and I actually worked there together for a couple of years and then we transitioned out of that company in 2014. We had a one year non-compete, know, which we of course honored. So that's how we got into the behavioral health services industry. So we established ourselves in behavioral health, you know, in the early days and just focused on that, built up that practice. And then, within a couple of years we had, pivoted fully back into

into home-based care in addition to behavioral health.

So the way we're organized today is we have two business units. We have our behavioral health business unit. My partner Kevin heads up that business unit and I head up our home-based care business unit. And we're organized around representing sellers. That's pretty much all we do is sell side work.

Miriam Allred (04:01)
Okay, and explain that a little bit

more. So you represent the sellers, meaning you're connected to the buyers. And I've asked you some of this like offline, but I think this is interesting for people to understand. Talk about your relationship and how you've come to build your reputation with the buyers to be able to successfully represent the sellers.

Cory (04:22)
Sure, yeah, you know, think it helps to have been doing it a long time. You know, I think, we have a good reputation in the buyer universe. You know, the materials that we put together and present them are, are professional and credible. I think they understand that we're always gonna run, you know, a competitive but fair process. ⁓

to be honest. We may not share the whole truth, but we're going to be honest in our dealings.

And I think over time, buyers have learned to respect that. So over time, we built our database of what we call both the strategic buyers and the financial buyers out there. Strategic buyers are in the industry currently. They're looking for additional opportunities so they can expand their business. The financial buyers tend to be looking for platform opportunities that they can kind of build off of.

So we built up those databases over the span of the last, I guess call it 12 years now. And we continue to build it. It's a dynamic thing. New buyers pop up all the time. Fortunately, I think we've got a pretty decent presence. So they tend to find us if we don't pick up on them.

Miriam Allred (05:39)
And I'm not looking for exact numbers, but if you had to generalize about how many strategic buyers you are aware of and how many financial buyers you are aware of, about how many would you say?

Cory (05:52)
Yeah, so in our database, so we look at strategic buyers, and by the way, these aren't the only buyers, right? Every agency, every market may have its own unique buyers that you work into the mix. to ⁓ begin with, the industry buyers, if you look at the strategic buyers, we break it down into basically two categories, right? You've got the publicly traded companies, the Addis's, the Penta Groups, et cetera.

Miriam Allred (05:59)
Yes.

Cory (06:20)
And then you've got the financial sponsor backed portfolio companies that are out there doing transactions. There's only a handful of publicly traded companies, but if you look at home based care in general, and this spans home care, home health, and hospice, I'd have to break out home care separately, and I can probably estimate. But overall, we've identified about 140 strategic acquirers out there that are sponsor backed and

are at least considering opportunities. So how many of those, and this is across, obviously across the US, they're looking for different paired mixes, they're looking for different sizes, different geographies, but about 140 total. Of that, home care, personal care probably makes up 40%.

Miriam Allred (07:09)
Okay. Yeah, I love this stuff. So that's why I ask and you've shared some of this with me. And so I appreciate you sharing it here because for a lot of people there in the dark, you know, this is your bread and butter. This is your area of expertise for home care companies out in different markets. I think most don't have any sense of what kind of like the national landscape looks like when it comes to buyers and who they are and what that looks like. So I appreciate you sharing that. I want to I'm going to ask you just a variety of questions today. I've told you

⁓ The audience listening to this podcast is a lot of innovative kind of market leaders. And some people might be asking me, why are you bringing an ⁓ M&A expert on? But you and I have talked about and every operator that I talked to, they're either going to buy or sell at some point in time and or transition, know, their business is going to go through a transition when they are ready to exit. That could be to a family member that could be merging or acquiring in their market.

There's all sorts of possibilities, but every business will go through a version of this. so we're going to talk about value creation and market trends and leadership lessons and even blind spots. I think every owner should be thinking about this and have a good understanding of this at every single stage, which is why I wanted to have you on. you've worked with

At this point, hundreds of home care companies up close. And for a lot of people listening to this, their business is going well. Business is humming, hours are going up, they're growing, it's going well. But there are blind spots. There are things that they overlook or don't see even when business is good. And so I want your take on what some of those common blind spots may be that you have seen for businesses that are going well.

Cory (08:54)
Yeah, you know, I think probably the most common blind spot,

from a value perspective, and I'm talking about really, now I'm talking about marketability perspective. If the ultimate transition is a sale, by the way, everybody's gonna transition out of their business at some point in time, to your point. It's a guarantee. That's 100%. How that transition happens could be a lot of different ways. A lot of times it is through a sale, but in the meantime, you know,

not try to maximize value, right? And that's how we look at these businesses. So, you you could have a really nice company out there ⁓ that may not be very valuable in the marketplace, right? A lot of owners just don't know what they don't know. And, you know, what they know today may be different than tomorrow. So, as an owner, I think it's important to really have your pulse

on the market, you don't have to do this every week, but maybe on a quarterly basis, right? How does my agency, how would it fit into the broader market? Because ultimately that's going to drive value, right?

And I think the only way you can know is to do market checks, right? Talk with folks. Talk with, sounds self-serving, but talk with folks like me who understand what the market values, who can understand what the market values versus what it doesn't value, right? ⁓

We've seen a number of companies, for example, that have a have kind of a nichey business, right? Let's say you've got a business that, caters to a very small, unique patient population. ⁓ You know, if you look at the at the the biggest home home based care companies out there, right, that are that are the most valuable, they may not cater to that patient population. So there may not be a great way to, if you were to ultimately sell to exit it and get a get a strong multiple.

maybe the way you run your business is a little bit unique. ⁓ You have some secret sauce, right, that your competitors don't have that nobody has. It's great for you. ⁓

from a buyer's perspective, they're going to need to get comfortable that number one, it's sustainable. And number two, when these buyers ultimately decide to exit, is that uniqueness of that company going to be marketable to the next buyer? Because if you look at the biggest buyers out there, they all kind of tend to do business the same way, right? They don't have a lot of unique characteristics. The margin profiles are very similar across business lines.

lines. They tend to adopt technology at a certain rate. The way they're structured tends to be fairly similar. And so if you've got a very quality company but it's an outlier, it may not be incredibly valuable from a market perspective.

Miriam Allred (11:52)
Yeah,

couple of questions here. So yeah, you bring up a really good point about kind of like niche home care companies. And I see a lot of this because when people, it's a crowded space at this point in time. So people getting into the industry, they have to differentiate. And oftentimes they're doing that and maybe kind of like a niche concierge type way, kind of this offering that doesn't exist in their market. And so I'm curious your take on that. You know, is that pigeonholing them?

Or is it a good opportunity? Because like you said, it could be a gap in a larger agency's offering, so then that's attractive to them.

Cory (12:22)
It could. Yeah.

Yeah, no, you're absolutely right. ⁓ Right buyer, right time, that could be the perfect opportunity, right?

Miriam Allred (12:37)
So there's like niche home care companies, but then the opposite of that is what we've talked to quite a bit about the last few years, which is like diversification. You you need to work with several different payer sources, maybe several different patient populations, different specialties. There's kind of like two approaches, really niche, or do a little bit of everything.

And that's attractive to buyers. I kind of see it as two paths. Do you feel like there's kind of two paths and there's pros and cons to both?

Cory (13:05)
I think that it's not necessarily one or the other. Certainly if you talk about diversity, it's important. If you count on referrals, diversity of referrals is important. There's some other things where diversity is important. Diversity of payers may or may not help you. ⁓

So if you're doing private duty home care, and you're doing Medicaid work, and you're doing VA work, and you're doing skilled work.

There aren't a lot of buyers above you who are doing all those service lines and doing those service lines well. So it may be difficult for the majority of the buyers out there to get their arms around a company that is too diverse. So you don't want to have diversity, but you want to have diversity in the right way. I wouldn't just wholesale recommend that someone go out and spread their geography, go into different states.

know bring out a bunch of different payers that that could that could work against you ultimately you know unless again you find that one buyer that that just fits perfectly but then that buyer is probably going to know that they're the only one buyer for your company and they don't need to overpay for it right

Miriam Allred (14:29)
Okay, yeah, that's super interesting. I think what could help us both in this conversation right now is kind of thinking about some of the clients that you're currently working with. And I would like to have you maybe share, think of some of the clients that you're currently working with. What's their kind of like shape and size to paint this picture of? they kind of between two and five million and they are heavily private pay or do they have LTC and VA?

What's kind of the typical profile of a good amount of your clients right now for context?

Cory (15:01)
Hmm, you know, so, so I guess from a, from a size perspective, ⁓ you know, most of our clients are going to fit kind of a certain enterprise, what we consider enterprise value range, right. And for us it's, you know, companies that typically have an enterprise value of let's just say 5 million up to, you

⁓ We'd love to say a billion, but we haven't done any multi-hundred billion dollar deals yet. But five million and up, most of our transactions are gonna be in the five million to 50 million dollar range if we're looking at our transactions over the last six or seven years. As far as payers go, it's pretty diverse. We've got...

We've got one client that is strictly a VA client. They're just getting paid by the VA. That has its own unique characteristics for sure. We have another client that is, that's, you know, in a market where,

they're able to provide private duty home care services and VA services because the rates are pretty competitive, right? And so, you know, they've got the private duty side down and, recently they've expanded into the VA, if you can get in with the VA. And, that's a little bit more of a scalable model, right? And, which is great for them from a growth perspective. You know, I mentioned, you know, there are buyers out there that just want to do private duty.

and don't want to have any government payers. So it might limit your buyer universe a little bit in that example. But we've got a couple of hospices on the market.

just pure play hospices, and ⁓ one's a single state entity. One is a multi-state entity. ⁓ And then a couple of Medicare agencies that we're working. So, you know, we don't typically have a lot of clients, you know, as a company. We'll close eight to 12 transactions a year. And so, you know. ⁓

Miriam Allred (16:53)
And it sounds like

part of why I was asking about the payers too, you just kind of like highlighted a few examples. It sounds like a lot of the people you work with are maybe one to two pairs. They're doing really well with one or two pairs, not maybe three, four, five pairs. They've really honed in on one, maybe two pairs. Is that accurate to say? Because I think that's interesting.

Cory (17:13)
Yeah, I think that's accurate, one or two. And they tend to be somewhat complementary in one way or the other. There's some sort of synergistic relationship there. ⁓ Yeah.

Miriam Allred (17:26)
Okay,

let's talk about multiples. Explain what a multiple is and why owners need to understand that term and what it means now and in the future for their business.

Cory (17:40)
Yeah, I think ⁓ the multiples are probably the most over-emphasized, misunderstood concept really that's out there. Folks like to get fixated on the multiple.

Miriam Allred (17:54)
there that misunderstanding? Is it because it's a buzzword? People hear the word multiple and they just get hung up on it? Or why is there over focus on it?

Cory (18:04)
first, the multiple is not an absolute number. It's kind of a relative term. And it's a function of a number of things.

the multiple is subjective. It's a subjective number. For any given deal, you can ascribe a number of different multiples, and they could vary greatly. So for example, there's two parts to the whole valuation equation. Let's say you've got a $20 million company that you sell. But let's say the EBITDA.

average EBITDA over the last three years is $2 million. One buyer could say we paid it 10 times for that company, right, if you look at the last three years. If it's a growing company, let's say over the last...

three or four months, you you've got a run rate of four million, right? ⁓ Same company, right? But if you look at a different time period, it's a $4 million even, and now the multiple is five. So it just went from 10 to five, depending on the time period that you're choosing and what you're applying that multiple to. ⁓ And so buyers can, for any given deal, you can have a number of different multiples. You ask the seller what they got for their company, they may say, I got it 10 times.

⁓ You ask a buyer what they paid for that company, they may say I paid a five times. It could be very different numbers. So it's a very subjective term. ⁓

Miriam Allred (19:35)
And when you say subjective, there's like factors that dictate the value. Can you highlight what some of those factors are?

Cory (19:45)
first of all, buyers, first and foremost, are investors, right? And so they're buying into a cash flow of a company, right? A living, breathing company with a lot of different variables that's generating a certain cash flow.

From a buyer's perspective, it's all about risk, because they're investors. So if you look at, let's just say, a treasury bill that's trading at a 4 % yield, buyers know they're going to get it 25 times, because that's a relatively risk-free investment. ⁓

and treasury bonds could sell between 25 times and 50 times because they're relatively risk-free. If you look at the publicly traded companies, right, they trend to trade in the, right now, in the mid-teens. ⁓

from an investor perspective, those are relatively safe investments. Publicly traded companies, first of all, they're liquid assets. You can buy them and sell them on an exchange on a daily basis. But these companies tend to be very big. They tend to have significant infrastructure and resources that can adapt to changing health care services environments. ⁓ So first and foremost,

The multiple is really a function of risk, right? So the higher the multiple, the lower the risk that that cash flow will continue, will deteriorate after the closing. ⁓ The lower the multiple, the higher the risk.

Folks tend to get hung up on the multiples as if there are a number of comparables out there, right? And that these multiples tend to trade and tend to hover in a really tight range. But it really is a factor of risk from a buyer's perspective. So I'll just give you an example. You've got company A ⁓ that is doing a million and half in EBITDA. It sells for 10 times.

Company B, let's say it's same size company, also doing a million and a half in revenue.

One would deduce based on the theory of compables that that should trade somewhere in the 10 times range. But you have to kind of look a little bit closer, right? Because there's a number of risk items that affect every company. And they're both external risk factors and there are internal risk factors, right? So if you look at external risk factors, There's geography, right? Let's say ⁓ company A is in a CON state that may or may not apply

home care but it's in a CON state not a lot of competition you know not much fraud and abuse it's pretty clean state

Company B is in a state, and they're both doing Medicaid, I think I mentioned that. Company B is in a state that ⁓ there's a lot of fraud and abuse, and we know there are states where there are a lot of fraud and abuse. It's really hard to, know, buyers to get interested in jumping into that mix, right? It's a state where there's a big reimbursement cut on the table, right? So, know, that's gonna affect the cash flow of the company. That's gonna lower the multiple. ⁓

Timing, right? Company A, sold right at the peak of the market in 2021. Company B sold in 2022, you know, after the market had corrected a little bit. Now let's come back from there, from that a little bit. But, you know, after a correction, timing makes a difference. Internal, you know, how big is the company? You know, I mentioned the publicly traded companies. They're, they're billion dollar companies plus, right? So they, the bigger the company, the higher the multiple, because it tends to be a

risky company with more infrastructure. Culture. People talk about culture all the time, right? Company A has got a pristine, accountable culture. the people like to work with each other. Company B has got a terrible culture. You the owner's a jerk. They're going to probably command different multiples. Is the agency growing or struggling? Company A has been growing, right? It's on a great trajectory. Company B is deteriorating. Very different companies, different risk profiles, right?

is company A is all electronic, company B is all on paper. So you really have to drill down into all the facets of a company in order to ascribe any kind of a multiple to it. And by the way, what's also important is what are you applying that multiple to, right? What's that EBITDA when you're coming up with evaluation, for example?

Miriam Allred (24:13)
Mm.

Yeah,

that was really solid. A lot of good information. want to ask you, what is the typical look back period when it comes to the buyer? And I ask that because, for example, during the pandemic, I talked to a ton of owners whose businesses went through, we saw a lot of people grow, but we saw a lot of people stagnate and a lot of people actually go down in hours. And I've talked to many owners who came out of the pandemic and thought,

I need to get my business back on track so that it's attractive to be able to sell down the road. I'm curious, home care, hours, revenue, it's not hockey stick, it's really up and down and there's plateaus and it's all over the place compared to a lot of other industries. And I'm curious what the typical look back is because home care, there's so much variance. it the last 12 months? Is it the last three years? Is it the entire history of the company?

Cory (24:47)
Mm-hmm.

Thank

As a sell-side advisor, it's really whatever we can negotiate ⁓ and what we can get the buyers to agree to, right? Ultimately...

If you look at investment theory, right, buyers are buying into a normalized cash flow, right? So that takes into consideration some variation. ⁓ know, but, but normalized today is, is different than normalized 12 months ago, right? Cause the company's grown. So it's a negotiated number effectively. but when we take a company to market, we'll look at the last three years, right? But then we're going to find.

a time period that really kind of makes that EBITDA number, that normalized cash flow number, a little bit better than it was last year or would be otherwise. And that's what we're going to ask buyers to consider when they're putting their offers together. And a lot of times when they present an offer, they'll base it on a certain set of assumptions, right? It's this cash flow and...

If it's not that cash flow, they may want to ⁓ ultimately renegotiate. But it's our job to try to mitigate that issue.

Miriam Allred (26:22)
Okay.

And you mentioned a lot of different factors, external and internal, and I thought that was fantastic. In my mind, the top two are maybe like finances and then team and culture. You the two things that they're really looking at is like the financials, the stability, the hours, the revenue, like really the financial pieces, and then also like the team and the culture and the retention and the satisfaction.

Am I right in assuming it kind of boils down to those two things or would you disagree with that?

Cory (26:53)
It certainly includes those two things, but it's a number of things. Every company's, know, every deal is a little bit different.

Miriam Allred (27:00)
There's kind of the generic risk factors, but then there might be some that owners aren't thinking about, any come to mind.

Cory (27:07)
So generic risk factors. I think the biggest ones are, you know, is reimbursement risk, right? That's always, always, especially if, you know, you're in a government payer, right? That, because you're in healthcare services, that's what keeps these multiples in check, right? Is, you know, there's always gonna be a certain level of reimbursement risk. On the government side, everybody's aware of that, but even on the private pay side, right?

The economy goes through various cycles. Private duty home care tends to do better in good strong economic cycles versus weakened. A lot of that's dependent on geography as well, right? ⁓ And the patient population that you're servicing. If you're servicing the wealthy population, it'll be a little bit less subjective to economic factors than some of those that are just barely getting by and able to pay for home care.

Miriam Allred (28:04)
Okay.

And then what about transition risk? What is that and why is that important?

Cory (28:11)
Yeah, transition risk is huge. And from a buyer's perspective, that's the one thing that they're always going to focus on, right, is that transition risk. And there is a lot of different things that play into that, right? The most obvious one is, how involved is the owner in the day-to-day operation, right? Are they doing everything? ⁓ If that's the case, the transition risk is high.

And you've got to kind of drill down below that, Depending on the size of the company, if you're a sizable company, what is that first layer of management, your key employees? What's the risk that ⁓ after a sale, those employees don't stick around? How strong is that management team, those key folks? ⁓

we have a hospice client that we took to market, back in December. We're at the stage now where we've, gone through management discussions. So we sat down together and, had multi-hours discussions between the buyer and the seller. So they really get to understand and know each other. The buyer really kind of drills down and understands the culture and how, you know, how things are. And every one of these management meetings,

went well, right? Our client crushed it from our position. You know, they've got a strong management team in place, not a ton of risk, ⁓ but you know, it does depend on the buyer too, right? And their perception.

So after our six management discussions, LOIs are due today, actually. ⁓ We've had two drop out. And they dropped out because they saw different risk factors that the other buyers didn't see. Maybe it's overstated. Maybe for that buyer, it's a risk. But for these other buyers, it's not a big risk. They recognize it, but they don't see it as a big risk. ⁓

Miriam Allred (30:00)
that was great. How often do you hear of owners telling their team that they're entertaining a sale? Is that common or uncommon for them to share with their team that they're approaching or entertaining a sale?

Cory (30:18)
I think it depends on the size to some extent. ⁓ Not always, but it does depend. Some sellers don't want anyone to know anything until a sale is finalized. ⁓ But there are some sellers, I mentioned this hospice, they've got a management team that really needed to be involved in these management discussions. So they had to bring them in. It was important that they brought them in. Now they incentivize them. ⁓

there's some incentive in place that if the transaction ultimately happens, that management team is going to at least facilitate the transaction and a reasonable transition period and they're gonna give the buyer every opportunity to be their employer. So.

Miriam Allred (31:09)
I find that interesting because in my experience I've met lots of owners. And I think you're right that it's size dependent, but I've met owners that don't share with their team until the transaction is completed. that just, don't know, I'm kind of an honest upfront person and it worries me for their team's sake of there's just a whole part of the company that they didn't understand was happening

Talk about transition risk, if they weren't aware of an upcoming transition, are they likely to stay or not? But you're right, the buyer has a grander vision of what they're going to do with that team and with that operation and what that looks like. And so there's just a lot of different factors.

Cory (31:49)
Yeah, there are. And confidentiality really needs to be managed in all cases, right? What you don't want to have happen is for your clients, your referral sources, the community to catch wind of the fact that you're selling.

For the most part, you don't want your employees to know that either, right? Because it's going to freak them out. Although the buyer is probably going to want to retain 99 % of the employees that you've got, it's still a fear thing for employees. So managing that confidentiality during a process is super important. You want to bring in.

the right individuals in the company into the process, into the know at the right time, but also have some assurances that they're not gonna spill the beans.

Miriam Allred (32:45)
And we talked a little bit about this before we started recording about emotions. Emotions are high and you're not a trained psychologist or therapist, but emotions are high for these owners that are considering selling. Share maybe kind of what that looks like and how you help owners from kind of like the emotional standpoint or what your advice is. They talk to their owners like, how do you kind of like coach them and advise them through the emotional side of this process?

Cory (33:14)
Yeah, it is an emotional process. ⁓ No doubt about it. It's going to take its toll emotionally on you as a seller, one way or the other,

You know, the process itself, can be exhausting. It takes a number of months. there's going to be highs and lows during the process. we joke about it all the time. Every transaction falls apart three times before it closes, right? Because you're going to run into issues. And so you have to be kind of prepared for that. and that's where we, you know, when we're talking with our clients, you know, during these processes, we try to give them assurances. Let's continue.

you let's keep moving forward. ⁓ one day they think they're gonna get $20 million for their company, the next day they're afraid it may not be worth anything. as due diligence goes on, you know, that's emotional.

once you get into some of these, these negotiations, not, just letter of intent negotiations, but purchase agreement, non-compete negotiations. there are a lot of things that are going to come up that, that's going to be, it's going to be, difficult to negotiate. that can sometimes be emotional for folks. just, just going through that process. and then, you know, for a lot of folks, I think we've seen this,

know, folks sell their company and then they have, almost like postpartum depression, right? so they, maybe that's not the right term, but, ⁓

Miriam Allred (34:34)
But yeah,

that's a good, no, I think it's a good analogy.

Cory (34:37)
Yeah, they have a little bit of depression after they sell. They just gave away their baby. Maybe it's empty nester, right? ⁓ Their baby just flew the coop. ⁓

it's in someone else's hands and they're not involved, they're not going to see these people every day and a lot of folks identify themselves with their companies, right? So they sell the company, they've kind of lost their identity. ⁓ We always recommend, if you can, again, confidentiality is super important, but if you can confide with a few folks that have sold in the past and just kind of better understood what they went through and how they dealt with it, ⁓ we always think that's a good exercise and certainly we'd be happy

to make introductions anytime.

Miriam Allred (35:21)
You and I have both heard many people say, I never thought I'd sell. I never thought I'd sell. I never thought I'd partner with private equity. I never thought I'd entertain this or that. A lot of people say that. I'm curious, what are some of the most common reasons why that changes? What do hear people come to you and say, I never thought I'd sell, but what? What do you hear people say?

Cory (35:40)
Yeah.

Yeah, know, it's life happens, right? Things change. we call them life events, right? And it could be a lot of different things. ⁓ get, know, healthcare services, home care is, ⁓ you know, it's a tough business. You can get burnout. So, you know, we see folks that are just burnout and ready for a new start. Maybe they're just mid-career and they're just, they need to do something else. Burnout, health issues.

can sometimes cause folks to need to sell, right? They can have a health scare and now they have a different perspective on things, right? ⁓

COVID, we talked COVID, that was when folks were flocking to the exits. And it was a combination of a lot of things. The market, right? During COVID, 2021, the market was peaking in terms of M M&A and multiples, right? It caused a lot of folks to say, yeah, you know what? Maybe now is a good time to sell. Market's never gonna be better. So things change, life events we call them.

Miriam Allred (36:46)
And also I think there's one more that comes to mind is also kids and legacy. I think a lot of people build these businesses to pass on, but there's so many variables there. They may or may not have a child that wants it. It might get complicated amongst the family. And so also we see a lot of just like familial issues or things that just don't work out how they anticipated.

Cory (37:10)
Absolutely right. Yeah, we've seen that a few times as well. know, they think they're going to, just hand it over to their kids and maybe the kids are excited about it at one point in time, but then they lose their enthusiasm as they develop, right? And they start taking other interests and other things. So, ⁓ yeah, just because your kids ⁓ want to take it over today, they may not feel that way two, three, five years from now.

Miriam Allred (37:36)
Yeah.

And so speaking of the market and just how influential the market landscape is, can you speak to the market today? What does the market look like? Are we in a buyer's market, a seller's market? Is it high time, low time? What's your take on the landscape present day?

Cory (37:54)
Yeah, so, you know, as I mentioned, I've been selling non-medical home care agencies for a bunch of years now, I guess 18 years or so. So we've seen a few different markets over time, a few different cycles.

I will say that there were fluctuations and then COVID hit. had our peak in 2021. It's come down off of that peak from 2021. But it's still a better market than it was from 2007 until 2020. If you just look at, again, you use term multiples. Companies tend to trade for higher multiples today than they did at any time.

between, before 2020. So not at a peak, but still pretty high, pretty high. And, it's driven to a large extent by the publicly traded companies. You know, they're the ultimate consolidators out there and. ⁓

if you kind of look at where they've been selling or trading over time, over the last, let's just call it year or two, it's been somewhere in the mid teens, right? So they kind of set the benchmark for multiples. And right now they're kind of in the mid teens. Back in 2021, you know, they were in the high 20s. And that's when the market was a frenzy, right? That was a big part of it, that and free money. But the publicly traded companies are still trading in a pretty strong range right now. And so that's kept things,

elevated.

Miriam Allred (39:27)
And my take is we're talking about aging in this country, maybe more than ever, and we all hear the statistics that are written in the headlines all the time, 10,000 people turning 65 every day, just the demand for senior care in this country. It's so prevalent in kind of the public eye right now. And so there's more attention on home care than there's ever been.

And so people are fascinated. People are getting in. People are acquiring. People are throwing money this way. How much do you think that's influencing the M&A landscape particularly?

Cory (40:02)
Yeah, you know that's so that dynamic has been in play now for for a number of years right back when I got into the in the business, know the bait the baby boomers were they're gonna be 65 in a few years and then and then things change and now it's Now people talk about the silver tsunami, right? Those that same those state baby boomers are not are now turning 80 right and that's when things really change So yeah, I mean, I think there's there's no doubt that the

demand for non-medical home care is only going to go up over the next 10, 15 years or so or longer. I don't know what the time period is, but it's only going to go up. So that much is known.

Miriam Allred (40:50)
Absolutely. A couple more questions, Cory. want to ask you if you were to start a home care company today and you were going to build it to sell it in five years or maybe 10, what are maybe two to three things that would be non-negotiables for you right now that you would put in place maybe day one or in the first year?

knowing that you're going to sell in a few years. Like what exactly would you do knowing what you know?

Cory (41:19)
Well, no, first I would want to see kind of, what the marketplace values today, right? ⁓ And can I?

services. Now it's going to change probably over the time and that's why it's important to kind of stay in touch with what's going on in the marketplace. But I would probably start by understanding is there a marriage between where I think the market will be in a few years and what my skill set is and can I build a company that'll be attractive. But I would want to make sure I had systems in place.

I would, out of the gate, I'm not advocating for any one particular system, but EOS is a great system in terms of just putting structure into an organization and processes and KPIs and metrics.

All of those things are important and those are the things, that's the way the buyers operate, And so the more you can operate along the lines of how the buyer universe operates and what they value, the better off you're gonna be when you ultimately exit the company.

Miriam Allred (42:27)
When you

talk about market research, positioning yourself in your market, how would you do that? How do owners do that? How do they secret shop competitors? The market research piece is hard, but you mentioned it even at the start, quarterly or semi-annually, you should be doing some form of market research to see where you're positioned in the market. How would you go about doing that?

Cory (42:55)
Yeah, so there's market position in terms of how you present yourself in the market in terms of the services that you provide and how those services are received. When I talk about the market, I'm really talking about the M&A market, right? How would the M&A market look at this company?

And I think that's equally important ⁓ as a business owner is, this a company? How are buyers valuing these companies today? Because by the way, it's going to change three, five years from now. it's something that you need to kind of check in with. What am I doing today? What is the market value? Is there a gap there? How do I close that gap?

And self-serving, folks like me are always happy to talk with you about your company and how the market would look at their company. ⁓ And ideally, some suggestions that they can latch onto and opportunities to make changes.

Miriam Allred (44:03)
And I think that makes sense. either have to be talking to someone like yourself or talking to buyers. But I think most companies wouldn't know who the buyers are and how to get in contact with them. But that's kind of the market research, the due diligence, like someone from an outside perspective coming in and kind of like evaluating your company. So I think that's important to have those relationships so that you can check in periodically. Again, think a lot of companies, we've talked about just like pitfalls and misunderstandings and blind spots. ⁓

have no sense of these things. so getting an outside perspective regularly, would say at least annually for someone to come in and kind of evaluate and look at your company and give you a sense of what's happening in your market and also what's happening at the national level to give you a sense of where things are.

Cory (44:50)
Yeah, I agree. You we do that kind of work all the time. we talk with owners of companies and, give them our thoughts on where the company stands today and, opportunities to improve value. I would caution, if you're going to talk with the buyer, I would always suggest you talk with multiple buyers because they all look at these things, a little bit differently. So it's hard to gauge the market.

based on a conversation with one buyer. It's hard to gauge the market based on a conversation with even a few buyers. I mentioned earlier, there's 140 of them out there that are looking for opportunities. I think it's difficult to get a sense for where the market is just by talking to a few buyers and folks that have sold before.

Miriam Allred (45:37)
Yeah, a lot of good points. all have recently launched something called the Value Accelerator Program, which I think is fantastic and a great idea for companies to basically go through this process long before they're entertaining a sale. a lot of people might be early on, might be in mid stages of their business. They don't know when a crisis is going to happen, but it's good to understand kind of the valuation and the standing of your company throughout the lifespan of your company.

value accelerator program. Talk a little bit about that. How does it work and what would it look like for a company to enter into that program?

Cory (46:15)
Yeah, you know, it's something we've been doing forever. ⁓ It's just, but it's something that we've just kind of recently formalized. and we did this because, if we look back at the transactions that we've done over time and the ones that were truly valuable, great transactions, smooth transactions. ⁓

A lot of those folks, we were talking with three, five, 10 years earlier. And so they would come to us and say, hey, I want to sell sometime. What's my company worth today? And we'll tell them. But we want to sell for it's worth $3 million today, but we wouldn't sell for less than $20. And we've seen that. What do we need to do? And we'll give them a little bit of guidance, and then we'll check in with them over time. So we've just kind of formalized that process a little bit.

And for a seller, for an owner ⁓ coming in that wants to participate, by the way, we don't charge for this right now. ⁓ We may at some point in time, but for us, it's just an opportunity to build relationships. So you'll come in and say, hey, Cory, I want you to take a look at my company. We'll tell you what we think the company is worth today. ⁓ We always like to then also have a target. So let's say you come in today and

and we do our work and we say, okay, your company's worth $5 million today.

what do you want to ultimately sell for, and when do you want to do that? So there's a number and there's a win. And by the way, when you sell and what price you take, all that changes, right? It's variable. So it's important to kind of check in over time. So this is something that we'll kind of check in with folks on a quarterly or an annual basis, depending on how close we're getting, right? Between where they are now and where they want to get. And so the work that we'll do is we'll take that valuation.

And we'll break it down into kind of three.

what we consider more manageable elements, to the valuation and, you know, folks hear about the EBITDA and the multiple. So we'll break that down a little bit further. We'll look at revenue. We'll look at that margin, how profitable is the business. And then we'll look at the multiple, right, today. And then we'll say, okay, now it's worth five million today, but you won't sell for less than 10 million. This is kind of what the ideal revenue should be. This is what the ideal margin

should be and there is an ideal margin range by the way that you want to kind of target. That's good to know. And then this is that multiple and so how do we how do we grow our revenue right because every agency has to grow if they want to you know typically command a higher value. So we'll put plans in place to help them grow the company you know we've got a lot of folks that we have industry partners that that will introduce folks depending on what the need is.

So we'll come up with a plan to grow the revenue. Then we'll look at the margin, right? And we'll say, know, what do we need to do with the margin? Is it not profitable enough? Right? Because if it's not profitable enough, you could be leaving a lot of money on the table, right? If it's too profitable, by the way, that...

could be little bit too risky for a buyer. So maybe it makes sense to reinvest some of that into growing and give up some of that margin for growth. Because buyers, we see this all the time too. You've got a company that's doing 30, 40 % adjusted EBITDA margin. That's great for you. And I mentioned this before. From a buyer's perspective, unless they know better, that's full of risk. And so why not reinvest that? So we're going to right size the margin. And then we're going to look at the multiple. I mentioned the multiples.

all about risk, right? And so we're going to look at the risk factors. You know, what does the management team look like? How diverse is your referral base? What, and then what are the things that we can do to, to, to raise that multiple, to de-risk that business? And again, we can take it so far and give our thoughts, but, but, we do have a bunch of industry partners that will probably ultimately put, put some of these folks in touch with if they can't do it themselves, right? Or if they don't feel like they can do it themselves. So we'll put a plan together, you know, today.

Five years from now, revenue margin multiple today. Ideal revenue margin multiple, right? Put an action plan in place, check in, you what is it now? What is it now? We'll redo the gap analysis until that gap closes, then it's probably time to go to market. And then hopefully we have built the relationship and they trust us enough that they'll consider using us.

Miriam Allred (50:44)
I love it. Yeah.

I think it's great. I see it as kind of like a third party business health audit. think it's really powerful. it's just a great way for someone like yourself who's been doing this for a long time to just have kind of an outside perspective on the business and where it stands today. And then an action plan of where they want to take it and just gives owners a lot of perspective, a lot of hope and excitement about how they can grow their business and what it can turn into in the future.

Cory, this has been awesome. you've shared some really important topics today that again may or may not be on everybody's radar. And so I wanted to get them on the radar and also introduce you to this audience as an industry partner to me, an expert in this field, helping home care companies think about and plan for that transition that is inevitable in the future of their business. So Cory, thanks for joining me in the lab.

Cory (51:39)
Thanks, Miriam.