Has anyone here bought a skilled home care agency in California? I would love to hear inputs from entrepreneurs who have successfully closed a deal in this space or from intermediaries with knowledge of structuring a transaction.

Background: Many of the non-franchise home care businesses in California tend to provide skilled home care (nurses in the staff) and have most of their business through Medicare or Medi-Cal (CA's version of Medicaid). Typically 99% of the revenue is through Medicare/Medicaid for these businesses. There seems to be multiple challenges here in structuring a transaction and I'm hoping to get pointers from the search community.

  1. These businesses need Medicare license in the state of CA. Getting a new license takes 2+ years now. So an asset purchase is ruled out since a new entity means new license. We are only looking at a stock purchase. Even with a stock purchase, the change of ownership process can take 2-3 months. How do we ensure continuity of operations for the interim period? What if we close the deal, initiate change of ownership process but it gets denied? Now we will have paid the seller but we will not have the required Medicare license.

  2. Even when the change of ownership does take place smoothly, how do you cover yourself from liabilities due to stock purchase? Healthcare services can be highly litigious. I see intermediaries mention RWI (Reps & Warranties Insurance) but this is also only for prior###-###-#### months. What if a client from 5 years ago sues the business after you bought it? Worse - what if the prior owner committed Medicare fraud and now you the buyer are liable and face criminal charges? How can we protect ourself from these liabilities while doing a stock purchase?

  3. The business must have someone in the Director of Nursing (DoN) role and possibly also someone in the medical director role (with an MD). Many owners have an RN (Registered Nurse) degree. If the buyer is not an RN, then how do we make sure the current DoN or medical directors stay? If they leave then CA state government can quickly cancel your license with very short grace period, thus taking away 99% of your revenue.

This seems to be an attractive segment with demographic tailwind with many good businesses. But structuring the transaction seems to be a challenge for outsiders. I hope to get good points here. Any intermediary in this space that I approach seems to brush these off as non-concerns without clear answers, so I feel like I'm against a wall when looking at this segment in CA.