Jeff Howell (00:01):

Welcome to home health, 360 a podcast presented by AlayaCare. I’m your host, Jeff Howell. And this is the show about learning from the best in home healthcare from around the globe.

Jeff Howell (00:18):

Hi everyone. And welcome to another edition of home health, 360, where we speak with leaders in home care and home health from across the globe. Today, we are going to be chatting with a couple of folks that live and breathe home health, mergers, and acquisitions, both from Robinson and Cole, a 175 year old law firm based in New York, spanning eight states. We have Kiernan Ignacio, an associate who is a member of the firm’s business transactions group, assisting with all aspects of corporate transactions, including mergers and acquisitions and other strategic transaction. Kiernan welcome to the show.

Kiernan Ignacio (00:55):

Thanks Jeff. It’s nice to be here. I definitely live and breathe healthcare. M a I’m I’m a generalist, a an M and a generalist by trade, but since I’ve joined Robinson and Cole about a year ago, I’ve done a lot of work with Les who I’m sure you’re going to introduce and probably about a dozen deals in this space alone, so, okay. Definitely took a dive into the deep end over the past about 15 months or so.

Jeff Howell (01:23):

Oh, great. Well, that’s why we have you on today. and we also have Les Levinson, the co-chair of the firm’s health law group, and he concentrates on the transactional regulatory and compliance representation of healthcare and life science clients, including home care, hospice, physician practices, hospitals, information, technology, medical device companies, healthcare equipment providers, and healthcare investors and lenders Les, thanks for coming on today.

Les Levinson (01:54):

Thanks for having us. We’re looking forward to a good conversation as, as you know, and the audience knows it’s been an incredibly busy space over an extended period of time. So I’m excited to, to have this conversation with, with you and, and with Karen and, and sharing our experiences with the audience and looking forward to it. So thanks for having us.

Jeff Howell (02:19):

Yeah, my pleasure. Well, as the us began emerging from the worst of the pandemic last spring, large home care and home health companies, including companies like LHC group and a Mey publicly said that they’re on the hunt for acquisitions in 2021. Both companies announced acquisitions across all segments, and we’ve even seen deals announced in the hospital home sector. So healthcare, mergers and acquisitions are in no short supply right now as companies and providers and payers are all looking to expand and, and gain a competitive edge. Give us a little bit of background. I hadn’t come across you folks before reading in about you in home healthcare news, as you were quoted less. And so give us some insight into your health law practice. What kind of clients do you serve? I did notice you’re around for 175 years. Love to learn a little bit more about some of the deals that you guys work every year.

Les Levinson (03:11):

Both. So yes, we’ve been practicing this space for a long time. Not 175 years personally, but I’ve made is personally, but more than a little overly there, more than 30, more than 30 plus years with a, with a major emphasis as, as you noted in, in healthcare and with a particular attributes to home care and hospice. So let, let’s take a little bit of a step backwards and talk about that market a little bit, if we can. And, and then tell you a little bit more about the clients, if that, if that’s a, a good way,

Jeff Howell (03:43):

Let’s do it.

Les Levinson (03:44):

The question. So as we all know, 2020 was, was an unusual year. The beginning part of the year was the onset of, of COVID. And it certainly took folks quite some time to react to that. Particularly home care and hospice companies were triaging. How do they keep up with, with new regulatory regimes? How are they gonna take care of their patients? And we began to see that that’s stabilized towards the second half of the year. And the second half of the year from June on really became quite quite active. And any transactions that we’re gonna mention have been publicly announced. So we feel confident in, in mentioning names there. So the second half of the year was, was quite busy. And I would say, and I think you had the same experience, Karen, cause you worked on a lot of these transactions with me, 2021 was an explosion.

Les Levinson (04:39):

I think we can fairly say that we probably have one of the more active home care and hospice M and a practices in the country last year we completed in 2021, we completed 17 transactions, fairly equally split between the buy side and the sell side. So a number of the transactions that we handled were in the mid to upper midmarket. Again, a lot of that activity was purely in home care and hospice, some of the deals are pretty well known within the space we handled the semi tree transaction. We handled via Aquest which recapitalized with council capital integrity with biota in tandem with Providence care down in South Carolina, a S with V VNA in Nebraska. So that’s just a sampling of some of the deals that we did. A lot of them were with private equity firms. Some of them were with institutional buyers. And I’m just gonna turn part of that over to because I think as she began to get more active in the space, I think she got to see a wide array of buyers and sellers structuring different kinds of transactions. And it really was I think probably a year that, that it’s gonna be, it’s gonna be one for the ages. You know, as people look back at the volume of transactions, any anything you want to add to that?

Kiernan Ignacio (06:04):

Well, yeah, I think just also hopping back to Robinson and Cole being 175 year old firm and Jeff kind of listed off all of the different areas that both you and I work in. I, I should add to that. It’s a Hartford based firm that we do a lot of the M and a work out of the New York office healthcare M and a is in an interesting area because there’s a lot of regulatory and very industry industry specific knowledge that goes into transacting. Any of these deals as well as just having a general corporate M and a practice, and you heard some of Les’s expertise in technology, we have it practice here, we have insurance. So the way that we work on all of these deals is to draw on, on a lot of different areas of expertise. So healthcare M and a, and all of the other kind of ancillary aspects of the deal and yeah. Support for our clients.

Les Levinson (07:03):

And, and I think one of the things that makes us maybe a little bit more unique, particularly in the mid-market is that while our oldest office and our legacy office is in Hartford we are a national practice. And certainly our M and a practice is national in home care. And hospice we’ve done deals in 38 or 39 states. And as I sort of ticked off some of those transactions, some of those are on the east coast. Some are the west coast, some are south, some are in the Mid-Atlantic some are in the Midwest. And I think the, really the, the reason is because we understand that space, we know how to get transactions done effectively and, and efficiently for clients. And it doesn’t really matter whether we’re practicing out of New York or maybe someone’s located in Connecticut or in some, in some other market. We understand the space and, and, and have a good feel for how to get these deals done.

Jeff Howell (07:59):

Well, COVID certainly has sped up this location a lack of location dependence in our, our world. Now it’s more about, do you have the knowledge and really people can work from everywhere. I was really interesting. It was interesting when you said that, use the word explosion for the deal velocity for 2021. What do you really attribute that to? Do you think it was a lot of nervous sellers that were suddenly impacted from COVID?

Les Levinson (08:26):

Yeah, I think it, I think it’s a number of different factors. So as we began to emerge in the second half of 2020 people were, were getting comfortable or more comfortable with doing deals remotely and being able to do diligence you know, while not ideal via zoom having meetings. So as that began to take a little bit more hold, and as we turn the corner into 2021, so you had capital markets being very strong and abundance of capital on both the equity and debt side interest rates being very low. You have pent up demand from 2020, and maybe even backing up a little bit into 2019 for deals that needed to get done and capital to be deployed that now has a place to go. And and that was one factor, another factor, which clearly was very important for at least the first nine months of the year, was this looming fear of, of a major change in the tax laws in the United States. And a lot of transactions were really driving towards a hard date of, of 1231. I think case in point Ken, and how many deals did we close in December five?

Kiernan Ignacio (09:43):

Right. And I think, you know, we less, and I each had probably three deals, a piece, one, the integrity deal together closing on December 31st. So buyers sellers by hooker by crook closing by 12 30, 1 21

Jeff Howell (09:59):

Ha got it. Yeah. This is the something to do with the capital gains tax was gonna go from 23% to 43% or something like that. Right?

Les Levinson (10:10):

Well, well, it was definitely some, some, some fear the capital gains were gonna be raised significantly at at least a 10 point addon and that’s real money. So, yeah, sure. So while you, you always try to counsel clients that you have to evaluate all the factors in doing a transaction, you know, taxes are certainly important. That shouldn’t be the only factor, but, but when you’re looking at a potential large change in, in what your net is gonna be, that that’s a huge, huge impetus and were some deals that frankly didn’t get done because they started too late in the cycle where parties were talking about a transaction in October or even November, and saying, we, we want to be done by 1231. And the answer was, it’s just not gonna be possible.

Les Levinson (10:55):

Yeah. My next question was gonna be have you found that the velocity of the deal cycle has changed during COVID are things taking longer because you’re working virtually or were things faster because we’re just in unusual circumstances where buyers might be that much more motivated.

Kiernan Ignacio (11:15):

I think we definitely have probably eliminated any delay in timing due to being on the remote side, transaction teams are, are pretty much seamless at this point, working from wherever they’re working. I think, you know, there’s definitely been some COVID related delay built into a lot of these deals where, you know, state regulatory offices are sitting there with stacks of papers because there can’t be that many people processing them and things like that.

Les Levinson (11:50):

Yeah. And I think as we got deeper into 2021, we began to see a little improvement in that as people were coming back into their offices staffs at the agencies were able to pick up a higher volume of work than they had been processing earlier. So I think to really fully answer your, your question, Jeff, it, it really depends on the year you’re talking about, I think 2020 was a lot different than 2021, as we noted before. I think people got comfortable with how to do all these things remotely. And I think if anything, the deal pressure was much more in 2021 for all the reasons that we talked about pent up demand competition for assets abundant capital, a concern that tax rates were gonna change and we really need to get these deals done. And we were finding that transactions that might normally take five or six months in a normal cycle were getting pushed and getting done in 90 days.

Les Levinson (12:48):

That was, that was really quite, quite noticeable. I think part of it also was that there’s a certain kind of reverse efficiency when you’re sitting remotely and you’re not commuting or, or having a business travel and go to an airport and maybe your flight’s been canceled. You, you can just work more hours. And I think, you know, everybody in the, in the cycle soda understood that one other comment, though as you got deeper into 2021, certainly some resources began to get really stretched, right? So you were finding that firms that were providing quality of earnings reports or clinical support for for transactions were really at the point where they just, they had no more bandwidth. And I think probably to some extent law firms and, and, and accounting firms too you know, later in the cycle, we’re beginning to reach that. And if you can’t have all of those components, it’s really hard for a transaction to get done. So that that’s really, you know, October, November, that’s really where the pipeline really got stuffed to, to the max and that there was just, there was no more capacity to, to do any more deal.

Jeff Howell (13:57):

Yeah. You can only run as fast as the the slowest bottleneck in the whole chain, for sure. So now we’re in you know, knock on wood we’re sort of everyone kind of feels like we’re getting back to normal, but we have, we still live in a strange world with inflation, labor shortages you know, you’re old, or, you know, the price of gas is really high when you’re, when, when I’m talking about it, I’m a lazy consumer that I’ve never cared, but what, what it is right now, I’m curious what you guys see might be shaping the landscape the most in terms of the ma macroeconomic factors for M and a activity moving forward.

Les Levinson (14:38):

You know I, I think there are some consistent themes among both the home care and the hospice sectors. It’s the two RS it’s recruitment and retention. And I think that continues to be a concern for both buyers, as well as sellers in being able to take on the volume of cases that they want to be able to staff and just having a clearer trajectory as to what your growth pattern might look like. If you don’t feel like you’re gonna have the labor supply consistently to staff those, those cases. Now, I, I just wanted make one other comment and, and wanted to ask, you know, Kieran’s view on, on, on that too. So those have been, those have been real concerns and those concerns have been evident probably going back to, you know, 2020 having said that there is still very healthy appetite in both home care.

Les Levinson (15:47):

And hospice, I, I do think that we’re seeing a little bit of breaks pumping in the last, probably 30 days coming out of a very, very extraordinary 2021. But I think all indications are that the second half of the year Q3 and Q4 are gonna be strong. And, and I think that view is probably fairly widely, widely shared amongst other M and a practitioners and, and bankers, cuz we’re all kind of operating in a big pond, but the, the pond isn’t all that big when, when we’re all kind of doing some of, of similar things. Yeah. And what are you seeing?

Kiernan Ignacio (16:27):

Well, we have private equity funds that need to be deployed there’s money that needs to be spent. And there’s gonna be enthusiasm in this space with all the challenges that the industry faced, that ones that you mentioned with everything that COVID taught us about giving, supplying these services and social distancing and, and communicable diseases being factors in the provision of these services. There’s still gonna be a lot of enthusiasm. This is going to be a defensible asset class because another lesson from COVID is that people want to choose home care. Mm-Hmm they wanna continue to choose this? I know I personally in 2019 was beginning to look for options for my father, my sisters and I were looking at congregate living situations. And when we saw the, you know, a lot of the effects that, that COVID had on group living situations that was off the table and it’s gonna be home health post. So, you know, it’s still gonna be an attractive place to invest.

Jeff Howell (17:35):

It’s almost like you can see my list of questions here, cuz the next question I had Karen is are you guys seeing a little bit of integration with facility based care? So you know, the folks that are providing facility based care that want to get into home health or are you seeing the opposite where maybe there’s more home health providers popping up to serve this need?

Les Levinson (18:01):

Let me, let me jump on that first, first, but I it’s kind of been an interesting and when you look at the transactions I don’t think we have an entirely clear, clear message coming out of that. I mean, we, you alluded to them a little bit earlier, Jeff, there have been some very, very large on the seismic transactions, which suggest that a company like United wants to have a broader platform of services that it can offer to its customers. But I think the industry still, most of the consolidation that we’re tending to see, I would call a more pure play where it’s continuing growth in a home care platform or continuing growth in a hospice platform as opposed to you know, more vertical integration.

Kiernan Ignacio (19:01):

Although I think to, you know, it’s not just group li group settings and home care settings, there’s what, what we’re doing right now and what we’ve all done. And this goes in the healthcare space two is virtual services. And we may be kind of far off from where that’s eventually going to go, but that may be another an another way to diversify your ability to be responsive.

Les Levinson (19:32):

I think telehealth is definitely, is definitely here to stay. And many providers were, were utilizing telehealth to the extent they were able certainly in, in the early part of the pandemic when they weren’t able to either get workers into the, into the home setting or, or they couldn’t go see the patient. So I think that that piece is definitely here is, is here to stay.

Jeff Howell (19:56):

Do you see the money changing? I’m curious. You know, as the, as the layman, I, I basically feel like there’s a very, you know, few really big institutional players that are sort of coming into the space. I’m wondering if you’ve seen any changes or trends cuz the provider side, you know, you can be a $3 billion company and you know, have less than 5% market share. It’s it’s crazy how fragmented the provider side is. I’m curious if there’s you know, do 20% of the, the, the people on the money side, are they controlling 80% of, of the activity out there? Or how would you comment on that?

Les Levinson (20:36):

Yeah, I, I think, I think that, I think the industry is still pretty, is pretty fragmented. That that statement has, has probably been repeated for the last 10 or 15 years. It continues to be a somewhat fragmented sector and that’s probably gonna continue that lends itself well to M and a activity because consolidation and M and a are, you know, kind of, kind of one in one in the same interesting that we did have a couple of large transactions early in the year and, and that we’re gonna have to keep a close eye on that and see whether those are gonna be harbingers of things to come. There are five or six large institutional type home care hospice providers that are publicly traded. I think you, you know, you, you know them all, I mean, one of them is, is now gonna be acquired by United.

Les Levinson (21:34):

So that universe you know, is changing a little bit. And I think it really depends on the type of transaction that you’re doing. If it’s a multibillion dollar transaction, there aren’t that many players that can write those kinds of checks. Mm-Hmm, those kinds of transactions. There’s a lot of mid-market private equity interest in, in this space. That’s been true for some period of time and we see that as continuing they’ve raised a lot of funds and those kinds of acquisitions are certainly more manageable in a multibillion dollar transaction. And there’s a lot of players at that level. Yeah, absolutely. Mm-Hmm ,

Jeff Howell (22:18):

Let’s say if we go down a level, if I’m a growing home care or home health agency, what, what should I be thinking about if I, if I want to develop a growth by acquisition strategy?

Les Levinson (22:30):

I think the first thing that you’re, you’re thinking about is where, where do you want to be? Are you trying to build a stronger regional platform? Is that, is your strategy more of a national play? Are you gonna be a multi-regional provider? There are some that sort of fit fit that bill, there are other providers that are almost blanketing the, the United States. So I think that’s probably your first determination is where, where do you want to be and where do you see your ultimate growth pattern going? I mean, I think you would agree. We’ve seen that with some of our clients where they’ve tended to cluster where they’re looking for, you know, regional footprint. Right, right.

Jeff Howell (23:20):

And if I’m say I’m on the opposite side of that, you had mentioned out of your 17 last 17 transactions, it’s about an equal split from you guys representing the buyers and the sellers. So if I’m a seller how should I be thinking, you know, if I say I’m close to retirement and I want to sell how can I lessen the complications of derailing a deal or how should I get my head around, you know, what steps I should be taking part of my exit strategy.

Les Levinson (23:47):

So I think we both have a lot, lot to offer on, on this question, let us, let us count the ways. so maybe I’ll kick that off. And, and so it’s really, it’s really important when you’re a seller. And you’re thinking about doing a transaction that you start that thought process early that you have the right resources around you, whether it’s consulting investment banking, legal, accounting information technology and you be as prepared as you be as prepared as possible for, for what will be coming in a due diligence review and, and being able to identify some of those potential issues and, and rectifying them. I mean, we’ve worked in the trenches on so many of these deals. So think about some of the things that yeah. We’ve had to encounter.

Kiernan Ignacio (24:50):

I mean, and I, I appreciate this question because, you know, maybe we maybe we’ll reach some sellers who you know, we are always wishing that we, we got to speak to and advise our clients sooner in the process early on in the process you can think about as a seller, what level of involvement, if any, you mentioned somebody retiring. So probably none if you’re, if you’re planning on retiring, but some sellers will need to, or will wanna remain in some form or fashion after the transaction is completed, some sellers will have key employees that mm-hmm they feel or know will need to be involved. So that’ll affect the type of transaction that you’re going to be looking at how your your corporate structure is arranged is, is going to be important. You’re gonna wanna sit with certainly tax advisors ahead of time to think about if there are any, you know, assets that need to be owned differently before you go into a transaction or or, you know, that type of thing, ways that you can prepare to do a clean transaction.

Kiernan Ignacio (25:56):

You, you’re going to think about, like Les said, your team it’ll involve maybe consultants, attorneys, accountants, but also probably an internal team. Yeah, you know, there’s gonna be people that are gonna have to do a lot of work that they’re not used to doing in their day to day jobs in order to respond to diligence requests in order to you know, to move the transaction along. And one thing that we see a lot of from sellers that creates a lot of bumps is deal fatigue as the deal goes on. And as the buyer asks more and more questions and as more documentation is needed

Jeff Howell (26:33):

It, it feels like an audit .

Kiernan Ignacio (26:35):

Yeah. So we, we wanna help people be prepared as is, we’re gonna say that over and over again, be prepared and yeah. Have reasonable expectations, expectations setting early on for the process of selling, I think is really important.

Jeff Howell (26:50):

Yeah. Now here’s a, here’s a question. So a home care agency is essentially a service based agency with really, you could run an agency with really no, almost no assets, right. I’m curious what the range would be for typical valuations, whether it’s one times revenue, two times revenue, whatever it is. And I’m also curious the degree to which the intangibles come into play like brand equity within your market. Right. Are you getting more phone calls than your competition? Do you have a caregiver retention strategy that’s stronger than other firms? Do you have better systems in place? I know it’s a very loaded question, but I’m, I’m just curious what sort of range you typically see out there and what are those other intangibles that an exiting agency can really focus on to make sure that they’re really attractive to a new to a buyer?

Les Levinson (27:45):

Sure. So let me take the first part first and that’s on the valuation range. And I think something that has historically been true in, in, in the market and, and that’s really what’s the size of the agency and, and typically buyers are looking at EBIDA as, as their valuation multiplier. So there’s a difference between an agency that has five or 10 million of EBIDA versus an agency that has 15 or 20 million. And the market has not surprisingly tended to pay more for the agencies of a lo of a larger scale. And that truism has, has been, has been the case. Certainly as long as I can remember this bifurcation of, of size not that a smaller agency is necessarily, you know, run badly or, or has any, any particular awards that, that are different, but that’s just really the way that the financial buyers in particular have value this.

Les Levinson (28:51):

The second part. And I think probably the thing that tends to derail deals almost more than anything else is compliance. Making sure that you are regulatory compliant and, and being able to demonstrate that to a buyer early on really creates a high level of comfort and, and a buyer knowing that this company is well managed, and they’re not gonna have a lot of headaches after the fact or, or looking at a lot of unexpected audits or overpayment claims that are gonna be coming in. And, you know, that creates a lot of I ill will between the parties. And there’s a lot of that an agency can do before you’re in the market to, to make sure that you’re as compliant as possible, you know, going through your documentation process, your intake process, your billing as needed, you know, bring on consultants that are, who, who are gonna run compliance checks for you and, and give you you know, regulatory support beyond just traditional legal cuz the operational details are really important and we see this constantly in, in deals that we work on.

Kiernan Ignacio (30:06):

Right, right.

Jeff Howell (30:08):

Hmm. All right. So stepping up the compliance game prior to planning your exit strategy let’s move on to the moratorium for Medicaid agencies in New York. I was wondering, I know Florida, I believe is still active with their moratorium. Are you guys aware of any other states that have moratoriums on new Medicaid licenses?

Les Levinson (30:32):

Not, not that I have heard California had had a hospice moratorium for a while. Ah I think that that has been lifted. You know, New York is an interesting place to, to do business we’re, we’re populous a very, you know, large state with a high demand for services. So, it certainly is an important part of what the department of health regulates. But that moratorium technically was, is over. And we’re waiting for the new regulatory direction to come down from Albany. We’ve been all waiting for some time for that, for that to, to happen. And it could be this Friday.

Jeff Howell (31:23):

That’s great. Yeah. I heard that nothing’s been published as of yet.

Les Levinson (31:26):

No nothing’s and, and we’re all keenly interested in, in knowing what the you know, what the next step is. So people are still continuing to, to transact, although we’re just doing it in, you know, in, in ways that are apply.

Jeff Howell (31:41):

Do, do you get a sense that the moratorium has served its purpose? How do you feel that’s, it’s worked out. I feel, and I, to my knowledge, it’s been at least five years that it’s been in place,

Les Levinson (31:51):

I guess it depends on what you think the purpose was. I mean, if the purpose is to shrink is to shrink the number of providers in the state. It, it, I think it’s definitely, you know, had an impact. I mean, there are less providers in the state than there there were before. So, and, and I do think that that’s probably been an unstated goal of the, of the department is, is to contract the number of providers that, that are here, right. Particularly to the state.

Jeff Howell (32:19):

Well, I know you guys have a Memorial style barbecue to head to, so I’ll get you guys outta here on this last question. What’s your sense on what’s gonna happen in the space over the next five years?

Kiernan Ignacio (32:30):

So I think, you know, we’ve touched on a, a bunch of different aspects of this space that will continue to make it a strong area for investment. And I definitely think that, you know, that we see that home healthcare industry remains strong and I see that telehealth and other, other tech innovations become prevalent to an app for anything that right now is being done you know, by telephone or in person things like that and, you know, home, home delivery of medical devices, et cetera.

Les Levinson (33:08):

Yeah. I think, I think if history is, is a guy, the industry continue to be strong. There’s certainly an even further an enhanced recognition of the value of home care that people want to be in their home. They would prefer not to be in Ary, good settings that they can be comfortable at home and they can be taken care of it at home. And I do think that there are certain, some elements in Washington that recognize that and are a supportive supportive of it. So we think that the industry will continue to be strong and that M and a and activity will will remain vibrant.

Jeff Howell (33:47):

And certainly if there’s a silver lining to COVID, it has shined a light on home care and home health. And you know’s really expedited sort of innovation and we’re in a, a shockingly immature and fragmented market. So it’s good to see consolidation and efficiencies and moving towards a place where we can all make sure that the people that need care in their home, get it well, thanks. So much Karen and unless for being here today, I’ve definitely jotted down some notes of the, some things that I learned, and I’ll be keeping an eye on you guys, and I’d, I’d love to see the deal of velocity continue to be in explosion mode for you.

Kiernan Ignacio (34:30):

Thanks Jeff. It’s been great talking to you.

Les Levinson (34:32):

Likewise, have a great rest of your week, Jeff, and, and thanks for talking with us today.

Jeff Howell (34:37):

All right. Take care.

Jeff Howell (34:40):

Home health 360 is presented by AlayaCare. First off. I want to thank our amazing guests and listeners to get more episodes. You can go to alayacare.com/homehealth360 that’s spelled home health 360, or search home health 360 on any of your favorite podcasting platforms. The easiest way to stay up to date on our new shows is to subscribe on apple podcasts, Spotify, or wherever you get your podcasts. We also have a newsletter you can sign up for on alayacare.com/homehealth360 to get alerts for new shows and more valuable content from all Eli care right into your inbox. Thanks for listening. And we’ll see you next time.