This article is a part of your HHCN+ Membership
Honor captured most of the headlines last week when the San Francisco-based company announced it had acquired Home Instead Inc., the international home care franchiser founded by Paul and Lori Hogan more than 25 years ago.
Even as somebody who follows both Honor and the home care franchising world closely, this deal caught me off guard.
Backed by venture capital powerhouses like Andreessen Horowitz, Thrive Capital and others, Honor has mostly been a startup focused on sustainable, steady growth more so than splashy moves. That’s partly why, despite raising $255 million since its 2014 launch, the Honor Care Network only consisted of 40 home care agencies in six states as of October 2020.
Meanwhile, with 1,200 locations in over a dozen countries, Home Instead has been one of the most successful franchise companies around — in any sector. The Omaha, Nebraska-based home care giant was certainly comfortable under its traditional structure, so much so that it was turning down weekly inquiries from private equity firms before Honor came along.
Since the deal was announced on Aug. 6, I’ve been gathering my thoughts while reaching out to home care insiders, including Home Instead franchisees, to see how they feel. I wasn’t alone in my surprise, it turns out.
“Everybody was shocked,” one Home Instead franchise owner told me. “I think that includes people at corporate.”
Based on what we know so far, I believe this deal creates substantial upside for Honor, though it will now have to figure out how its existing Honor Care Network partners fit alongside legacy Home Instead locations. Strategically, by adding hundreds of home care locations and tens of thousands of caregivers to its footprint, Honor will finally have the economies of scale needed to maximize its model and put its staffing, scheduling and predictive-analytics tools to the test.
I’m less confident about what this deal means for Home Instead, however, both when it comes to the overall business and individual franchisees. And again, I’m not the only one with questions.
“A lot of us are scratching our heads,” another Home Instead franchise owner told me. “I’m not really sure what this means. I guess we’ll find out together.”
A fresh start for Honor
In addition to instantly finding more caregiving manpower to pair with its technology, Honor’s acquisition of Home Instead solves one of the most difficult barriers to growth: the home care industry’s incredibly fragmented nature.
Honor has been able to partner with several highly respected home care operations, including Cypress HomeCare Solutions in Arizona, Canopy Home Care in California and Bridgewater Senior Home Care in Ohio, but quality non-medical home care businesses are hard to find.
Landing Home Instead fast-tracks Honor’s growth at a time when the home care M&A market is only getting hotter.
“I like this deal for Honor,” Stoneridge Partners President Rich Tinsley told me. “Because a franchiser is involved, there are a lot of unique complexities, which will make post-deal integration challenging. But similar moves happen in other industries all the time.”
In home care, having true, national scale brings several major advantages. One of the biggest is more opportunities to contract with Medicare Advantage (MA) plans, which are increasingly offering benefits around in-home care and social determinants of health.
In 2021, for example, 430 MA plans took advantage of relatively new regulatory flexibilities around the definition of “primarily health-related” to offer “in-home support services” benefits, according to an ATI Advisory analysis.
When plans are looking for partners, they like finding providers that can cover most of their markets, saving them time by avoiding shopping around. They additionally like finding partners armed with data and advanced analytics, something Honor has a surplus of.
“What machine learning is really doing is taking large amounts of data from the past and finding patterns in order to try to predict the future,” Honor co-founder and CEO Seth Sternberg told Home Health Care News in July 2019. “There are a lot of ways we use that to end up with better care pro and customer experiences.”
More than scale or other strategic benefits, though, I believe this deal will help Honor shake some of the negative perceptions that come with being a technology startup playing in a people-first game.
“They started as a home care competitor using technology to disrupt,” Peter Ross, CEO and co-founder of Senior Helpers, told HHCN in December 2018. “The industry was freaking out that these folks were going to come in and turn things upside down.”
Home Instead, in contrast, has a solid reputation among industry leaders, clients and caregivers alike.
Acquiring Home Instead also signals to the rest of the industry that Honor isn’t going away.
In December 2019, CNBC and others reported that SoftBank had held talks to invest upwards of $150 million in Honor. About a month later, follow-up reports surfaced that “SoftBank killed the deal one week before Christmas.”
Not long after that saga, news broke that Honor was laying off a number of non-caregiver positions.
Skeptics took that as a sign that Honor was in trouble, but Sternberg told HHCN the cuts were simply part of an internal reorganization.
“When you’re working on any company, you will always have people who support what you’re doing, love it and think it’s the future,” Sternberg said in October 2020, speaking to HHCN after Honor closed a $140 million Series D round. “And you will always have people who think it’s clearly doomed to failure, especially when it’s a company that’s trying in a pretty material way to change the way things are done in an existing, very large industry.”
If Honor was feeling financial pressure, it certainly wouldn’t have had the resources to swing a deal for Home Instead. Financial terms of the deal were not disclosed, but Senior Helpers — another large home care franchise company — reportedly sold to Advocate Aurora Enterprises for $187 million in April.
Honor raised a combination of debt and equity to finance this transaction, a spokesperson for Honor and Home Instead told HHCN in an email Thursday.
“While we are not disclosing the sale price, we can tell you that 2020 revenue for the Home Instead franchise network neared $2.1 billion, and Honor revenue reached nearly $70 million,” the spokesperson said. “In 2021, these numbers are already projected to grow exponentially (to $2.5 billion and $100 million, respectively).”
Questions for Home Instead
To recap, I like the Home Instead deal for Honor because it:
— Gives the startup a clear path to growth
— Puts Honor in a good position with health plans and other possible payers, an important point as states and the federal government look to shift more care into the home
— Triggers a fresh start for the company by creating space between Honor’s “disruptor” days and the fairly recent SoftBank-layoff reports
But like many within the home care industry, I’m still trying to figure out what this means exactly for Home Instead and its franchisees.
In a joint press release, the two organizations clarified that the Home Instead network will operate under its existing brand, but as a subsidiary of Honor. Similarly, the Honor Care Network will continue under the Honor name.
The press release additionally noted that Sternberg will remain in his role as CEO of Honor, while Jeff Huber will report to Sternberg and continue to lead Home Instead as CEO.
And as far as strategic benefits, Honor and Home Instead say Honor’s technology and operations platform will “serve as a foundation for a dramatic increase in innovation to benefit caregivers and clients.” The move will also, they say, help Home Instead franchisees with recruiting and retention, which has long been the top operational challenge in home care.
“Our franchise network has known that we have been looking for a sustainable tech solution to support their businesses for some time,” the spokesperson continued. “And we no longer want to be reactive to these market demands. This partnership is a huge, proactive step toward that critical solution for their businesses. We believe that all of our stakeholders, including our franchise network, will see that Home Instead is stronger with this partnership.”
But what if a franchisee doesn’t want to use Honor’s technology or platform? One of the Home Instead franchisees I spoke with said Honor plans to start doing “road shows” to demonstrate its value proposition, but getting all owners to convert could be a tall order.
The spokesperson did not provide a response to that inquiry.
Another question I have: What happens if a Home Instead location is located in the same territory as an Honor Care Network agency? Franchise agreements typically make sure in-network businesses aren’t competing for the same clients.
And will Home Instead still try to grow its franchise model moving forward? The answer to that question appears to be a firm “yes.”
“Achieving our shared vision of changing the face of aging is not possible without our franchise/care networks around the world, and we absolutely intend to continue growing our networks — domestically and internationally — moving forward,” the spokesperson said. “Home Instead is keeping its branding, as its name represents 25+ years of excellence in quality, personalized care for older adults, in addition to its leadership and partnership with global organizations addressing societal issues.”
It’s worth noting that Home Instead owns corporate offices in Omaha, Nebraska, and Abilene, Texas. All other Home Instead offices are independently owned franchises.
While these and other questions will persist for the foreseeable future, one thing is safe to say: This deal sets the stage for a new digital age in home care, and I wouldn’t be surprised if other companies responded with unexpected deals of their own.
Companies featured in this article:
