Selling Your Private Duty Agency

Due to its high demographic concentration of seniors and vibrant economy, the demand for home healthcare in South Florida has never been stronger. Private duty agencies occupy a special niche within the senior care industry by matching contracted caregivers with patients needing home healthcare (non-medical companion care or skilled care). Licensed in Florida as nurse registries or companion care agencies, private duty agencies do not take government insurance and instead focus on servicing private paying patients or patients with private insurance. Prior to selling, private duty agency owners should prepare a transparent financial statement, reduce the level of owner-dependency, focus on creating a patient base with a strong revenue mix, and create a scalable business model with diversified referral sources. It is always best to hire a business broker with experience in confidentially selling private duty agencies by targeting strategic buyers able to navigate the licensure transfer process.

Valuing Private Duty Agencies

The typical valuation range for private duty agencies is 2-4 x the annual adjusted owner benefit or Seller’s Discretionary Earnings (SDE). It is crucial for the business broker to adjust the financial statement by adding back the owner salary, personal expenses of the owner that may flow through the financial statement, and any other non-recurring expenses that would not be borne by the buyer. This maximizes the adjusted owner benefit used for valuation purposes. An experienced business broker will also highlight the high-margin, recurring, and private pay revenue mix of private duty agencies. Additionally, private duty agencies do not pay payroll taxes, unemployment taxes, and workmen compensation costs for caregivers since they are paid as as independent contractors. This is another major advantage of private duty agencies that should be emphasized in order to maximize the valuation.

Growth/Patient Census

The growth rate in the revenue, profits, and overall patient census of private duty agencies plays a major role in the overall valuation.
A growing private duty agency over a three to five year historical time period demonstrates that the company has a recurring patient base as well as a widening base of consistent referral sources.
Many strategic buyers examine the scope and diversity of referral sources (such as physicians, nursing homes, estate attorneys, and hospitals), and will pay a premium valuation multiple when it likely that referrals will continue flowing at the same pace after the sale.
A growing level of revenue and profit increases a buyer’s expected Return on Investment (ROI) from higher expected future cash flow, and serves as the most compelling justification for a premium valuation.
The patient census – or number of active patients being treated by the agency – is a key metric used as a strong indicator of future growth.
A private duty agency with a high level of customer concentration in only a few select 24/7 patients (with round the clock care) is a warning sign for many buyers.
It is far better to have a more diversified revenue mix within a growing patient census since revenue and profits will not be as adversely affected when patients are discharged.
Lastly, the number of new patients admitted on a weekly or monthly basis is another key metric that closely tracks the direction of future growth.

Stock Purchase v Asset Purchase

An important aspect of selling a private duty agency is an awareness of the two possible methods of structuring the acquisition. Most businesses are sold as asset purchases where the buyer creates their own corporate entity and purchases the assets (tangible and intangible) of the business. In contrast, a stock purchase deal is where the seller’s corporate entity remains intact and the buyer purchases the seller’s shares or membership interests. In the sale of private duty agencies, stock purchase deals are fairly common in order to effectuate a smoother and faster licensure transfer process and transition of ownership. By retaining the corporate name and tax identification number, buyers may apply for an easier change of ownership application when transferring the healthcare license. The transfer of insurance contracts (between the agency and insurance companies pertaining to allowable billing) is also much simpler with a stock purchase deal.

Reduce Owner-Dependency

A private duty agency with a relatively absentee owner who lacks any personal relationships with referral sources or caregivers will sell for a higher valuation multiple than an agency with a more actively involved owner. The buyer must be assured that the goodwill of the business (patient base, referral sources, relationship with caregivers, brand name) will be retained after the sale. Otherwise the future cash flow will be in jeopardy and the buyer will not pay a premium valuation multiple. It is therefore essential for an active owner-operator (who is unable to reduce the level of owner-dependency prior to the sale) to create a transitional plan. The transitional plan describes how the seller will introduce the buyer to referral sources and industry contracts, provides for a sufficient training period, and suggests specific ways to ensure the long-term retention of the company’s referral sources and patient base.

A business broker should guide an owner of a private duty care agency through every step of the sales process, including the initial business evaluation, negotiation of offers, compliance with the buyer’s formal due diligence, and closing. Confidentiality at every stage ensures that patients, staff members, and competitors will not disrupt the seller’s business nor interfere with the sale. Emphasizing the recession-resistant nature of the healthcare industry, favorable demographics in South Florida, and the specific competitive advantages of the private duty agency will ensure the seller achieves the best possible purchase price and terms.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.