In April, home care provider Family Tree In-Home Care acquired HomeCare of the Rockies. And while it seems like just another transaction, from the buyer’s perspective, it was anything but.
The acquisition was Family Tree’s first since the pandemic began. Its growth strategy plans were severely delayed by the COVID-19 crisis, but the trends in home care seem to be turning — for a variety of reasons.
“Waiting this long, it wasn’t necessarily our decision,” Daniel Gottschalk, the president and co-owner of Family Tree In-Home Care, told Home Health Care News. “The people that were looking to sell decided they really need to buckle down and take care of clients and caregivers. That became the most important part of the business.”
Founded in 2011, Texas-based Family Tree is a concierge home care agency with locations in Austin, Dallas, Houston and San Antonio. It additionally has offices in Denver and Boulder, Colorado, with the acquisition of HomeCare of the Rockies further bolstering its presence there.
The company provides caregiving, private nursing and care management services to seniors.
In 2018, Family Tree completed six transactions. At the beginning of 2020, it had three more acquisitions lined up, until the pandemic hit. From an M&A perspective, that could have been a blessing in disguise.
“Many of those sellers really suffered during COVID and struggled to get back to where they were before it,” Gottshalk said.
Its plan to acquire at least four to six more agencies was stymied. The experience from the past 14 months, in fact, ended up changing how Family Tree views sellers completely.
“We found ourselves in a place where they didn’t actually want to sell anymore because their performance dropped so dramatically,” Gottshalk continued. “And we weren’t interested anymore in trying to force their hand or continuing the sale.”
Overall, there were nearly three dozen deals for home care assets in all of 2020, with the most transactions happening in the fourth quarter of last year, according to data from M&A advisory firm Mertz Taggart. There were at least nine home care deals in the first three months of 2021.
Everyone in the home care industry struggled with COVID-19. It tested the outdated infection control protocols of agencies and placed new hurdles in front of old day-to-day operations.
But the pandemic also exposed some undesirable traits of agencies that had been looking to sell.
But for HomeCare of the Rockies, Gottshalk and his team did the opposite. HomeCare of the Rockies was able to navigate the crisis smoothly, which made it an even more sensible target from Family Tree’s perspective.
“This particular deal with HomeCare of the Rockies was not one of those deals that fell through. In fact, it came about during COVID,” Gottschalk said. “They were just thriving during COVID. They actually just performed well throughout it, and they continued to grow their business.”
COVID-19 has shone a light on what makes each home care agency run. Having the chance to take a greater look at each seller through a new lens has been beneficial for Family Tree as it restarts its M&A machine.
The past several months have also given Family Tree a chance to better assess its own internal offices.
“Really, the question is, ‘How are you getting business?’ The ideal clients in private duty are the long-term ones that come to you with high needs and want a relationship for many years,” Gottschalk said. “When you formulate those long-term relationships with them, those clients are really sticky. They do not just disappear in a pandemic, as plenty others would. Having those strong relationships with clients is just really, really important.”
Conversely, if a business is made up of short-term clients that are recovering from surgery or on hospice, the relationships are far more transactional and less likely to stick over time. They are also far more likely to cancel their services amid a pandemic.
“Businesses that got a lot of a lot of their clients from these short-term referral sources, they really suffered,” Gottschalk said. “And that’s just not the kind of business that is as attractive to us as ones with long-term clients.”
The reality of home care, of course, is that the client base will likely be a mix of both short- and long-term clients. But from an M&A perspective, Family Tree is more likely to err on the side of acquiring agencies that have built-in relationships with clients and are less dependent on those short-term, transactional clients.
“That’s just far less desirable for us and not the kind of brand we’re looking to build,” Gottschalk said.