How Much is a Home Health Agency Worth? [Detailed Analysis]
According to Grand View Research, the US home healthcare market was worth $152.9 billion in 2024 and is projected to be worth $253.4 billion by 2030. Further, the industry's compound annual growth rate is projected at 7.48% between 2023 and 2030.
The above numbers and the industry's prevailing rapid growth mean this is the right time to sell your company, and you’re in for a maximum-value exit!
If you're wondering, “How much is a home health agency worth?" you’ve come to the right place. In this guide, we explore the worth of home health agencies, the secret to great valuations, and how you can maximize your exit value.
Let's get to it!
Quick Answer - How Much is a Home Health Agency Worth?
Your home health agency can be worth anywhere from a few hundred thousand dollars to billions. For example, in February 2023, UnitedHealth acquired LHC Group in a $5.4 billion merger.
The following factors affect your company’s worth:
Quality of care and agency reputation
Client base characteristics
Revenue and profitability
Payor diversification
Owner involvement
Staff and employee expertise
Market conditions
Before we delve deeper into each factor, we recognize that valuing and selling your company can be overwhelming.
An expert M&A team can provide all the help you need when selling your agency. Connect with us at Exitwise today so we can help you recruit and manage an all-round M&A team to value your agency and sell it at the highest price possible.
Factors That Affect Home Health Agency Multiples
The home health agency exit multiples depend on the following factors:
1. Quality of Care and Agency Reputation
An agency with a strong reputation for exceptional healthcare in its community of operation and beyond is more valuable.
As a service-based business, you'll want to maintain high levels of quality care across all your clients to ensure a good reputation, which can translate into more referrals.
2. Client Base Characteristics
Some crucial aspects of the client base include client diversity, concentration, loyalty, and clientele size.
Client concentration is a significant issue in home health care because as most seniors age further and require full-time care, they can be the agency's leading source of income.
Aim for a good mix of full-time and day-care-only patients to balance your incomes and reduce revenue shocks whenever a 24/7 patient passes away.
How you acquire clients is also important. Your company is riskier and less valuable if you get most of your referrals from one marketing method, salesperson, or hospital.
3. Revenue and Profitability
Your agency will be worth more if it performs well financially, with high revenue growth potential, annual revenues, sustainable cash flows, and high profitability.
But how much do homecare agencies make? HomeCare Answers reports homecare agencies have an average net profit margin of 11.36% per patient from PDGM (Patient-Driven Grouping Model) reimbursements.
You can sell your agency for more if it consistently maintains net profits above 10% per patient from government reimbursements.
4. Payor Diversification
The diversity of payors can raise or lower home health agencies' revenues, profitability levels, and valuations.
The four main payor options include:
Government reimbursements: Including Medicare, which covers home health care if a doctor shows a patient is homebound and medically needs skilled services, and Medicaid, which covers seniors who qualify for home health care in all states.
Private pay or out-of-pocket payments: These apply if a patient doesn't meet the eligibility criteria for other coverage types or lacks health insurance.
Long-term care insurance: These policies allow home health care for the aged, ill, or disabled.
Private health insurance plans: Caters only to part of the cost of medically necessary home health care services.
Your agency can be worth more if your payors are diversified and the payments are well distributed to reduce risks.
5. Owner Involvement
If your agency can't survive without your input as the owner, buyers find it risky, and its value will be lower.
6. Staff and Employee Expertise
You'll want to hire key-talent managers and employees such as registered nurses (RNs), licensed practical nurses (LPNs), and skilled therapists. The higher their levels of education, certification, accreditation, and licensure, the better.
7. Market Conditions
Your company's value can rise or fall depending on the general economy and industry market conditions. For example, valuations are higher when home health services are in high demand.
Medical vs. Non-medical Home Care Business Valuations
Medical home care businesses attract higher valuations than their non-medical counterparts because they incorporate skilled professionals like RNs and LPNs.
Generally, most M&A firms observe small and medium non-medical home care SDE multiples of 1.96 at the lowest and 3.63 at the highest, with an average of 2.86.
In contrast, most M&A firms report 3x - 6x adjusted EBITDA multiples for medical home health agencies. The EBITDA method is common here because medical agencies are usually bigger and command higher revenues.
Common Valuation Methods for Home Health Agencies
Depending on available financial information, the nature of the agency, and the purpose of the valuation, you can choose from the methods below.
Seller's Discretionary Earnings Valuation
If you’re the owner-operator, you can use a seller's discretionary earnings (SDE) multiple. The SDE is the total annual financial benefit you get from the business.
SDE = Pre-tax income + Owner's salary + Depreciation & Amortization + Discretionary expenses + Non-recurring items, including personal expenses
Assuming $195,500 SDE and an average industry SDE multiple of 3x, your business would be worth:
Agency value = SDE x Multiple = $195,500 x 3.0 = $586,500
Market-Based Valuation
The market-based method will value your agency based on the comparable sale values of other agencies in the market.
The method may apply a multiple of cash flow or earnings. For example, you can use a multiple to your adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The EBITDA multiples for medical home health agencies generally range between 3x and 6x.
Assuming an adjusted EBITDA of $450,300 and an EBITDA multiple of 6x, your agency's value will be:
Agency value = EBITDA x Multiple = $450,300 x 6 = $2,701,800
Asset-Based Approach
The valuation here uses your balance sheet based on the idea that the agency's value equals its assets' net value.
Agency value= Total assets - Total liabilities
Remember to account for intangible assets like goodwill, agency reputation, and patient relationships to increase the valuation.
You can try out our online calculator to estimate the value of your agency in real time.
How to Value a Home Health Agency
Here are the steps to value your agency:
Understand your agency in totality: Take a closer look at your services, clients, unique selling points, and more.
Conduct financial analysis: Review your financial records for the past few years and check your revenues, profits, and growth rates.
Evaluate the market: Look at the prevailing market conditions, such as demand for home health services, the overall economic situation, and competition levels.
Select valuation methods: Use several evaluation methods for more accurate valuation.
Apply your valuation method: Calculate your agency’s valuation using the methods you've chosen.
Consider intangible assets: Factor your intangible assets into the valuation, such as client relationships.
Compile a valuation report: Write a report outlining your findings and explaining your agency’s worth and how you reached that amount.
While your team can do a valuation for internal purposes, it's best to involve M&A experts if you plan on exiting your company soon.
We can help you find and work with the best M&A professionals for an accurate valuation and the best possible sale price.
Strategies to Maximize Your Home Health Agency Valuation
You have several options for increasing the value of your business before a sale. Check out the ones below.
Retain Professional Workers
Most home health agencies struggle here. If you can maintain most professionals for as long as possible, your exit value will be higher.
Add Revenue Streams
You can approach additional revenues in two ways.
First, add more payors. If most of your payments come from government programs, diversify into private payments.
Secondly, expand into auxiliary services besides the main ones, which include medical testing, nursing, wound care, and medicine administration. You can include companionship, wellness coaching, physical therapy, counseling, and mental health.
Improve Operational Efficiency
A highly efficient home health agency attracts buyers better and can lead to higher valuations.
Invest in equipment and infrastructure. For example, your staff needs to move around quickly to attend to clients at the convenience of their homes. Find ways to get the staff to the clients sooner.
You can also train and develop your staff by improving their knowledge and skills to boost client satisfaction. More satisfied clients can bring in more referrals, raising your firm's valuation.
Additionally, invest in modern technology.
Adopting wearable devices and practicing telehealth can improve your overall care quality. The results include timely treatments, reduced hospital readmissions, increased revenues, and a higher valuation.
Branch Out to Other Locations
Expanding your market reach into new locations can increase your agency's valuation. Add more service delivery areas in large, busy cities or regions with many older people.
Feeling overwhelmed? Worry not.
When you work with Exitwise, we ensure your M&A team provides a detailed report on all the strategies you can use to quickly increase your company's value before a sale.
Frequently Asked Questions (FAQs)
Let's look at some common questions about home health agency valuations.
How Do Recent Market Trends Affect the Valuation?
Recent market trends can raise or lower the valuation of home health agencies.
First, an increasingly aging population means more demand for home health services, which increases agency valuations. According to the Census Bureau, as of July 2023, 17.3% of the country's 334,914,985 people are 65 years and above.
Home health agencies face stiff competition from hospitals that set up hospital-at-home health programs. Such competition can lead to lower valuations.
How Does Location Influence the Value?
A home health care agency is more valuable if it operates in an area with a high demand for home health services or a favorable regulatory environment.
Some states with high populations of older people include California, Texas, Florida, New York, and North Carolina.
California has a vibrant home health agency M&A market because the service demand is high, and buyers are willing to buy agencies at higher values.
What Role Do Licensing and Accreditation Play in the Valuation of a Home Health Agency?
Licensing and accreditation increase the value of a home health agency — the more accreditation and licensure you have for the agency and its professional workers, the better.
Ensure you have certifications and accreditations such as:
Certificate of Need (CON) in CON states
The Joint Commission Accreditation
CMS Certification Number from the Centers for Medicare & Medicaid Services (CMS).
How Often Should a Home Health Agency Be Revalued?
You can revalue your home health agency annually or every 2-3 years to see if you have other viable value improvement strategies to exploit. As for the first valuation, try it 2-3 years before the sale to point out potential improvement areas.
Updated valuations are critical when the last valuation isn't as expected, and you are eager to sell your company at the highest possible exit value.
Whether you’re valuing your agency for the first time or subsequent ones, partner with us to hire and oversee your dream M&A team. You'll get an objective, accurate valuation and a successful sale at the best price possible.
Conclusion
Now that you know how much a home health agency is worth and how to maximize your valuation, the next step is to hire M&A experts for a professional valuation and maximum-value sale.
At Exitwise, we’ll help you recruit and oversee an objective M&A team of business lawyers, tax accountants, wealth advisors, and investment bankers. We help take the heavy lifting off your hands so you can focus on improving your agency’s value.
Get in touch with us today to hire the perfect M&A team that will get you your dream valuation!
