Home Care M&A Glossary

Plain-English definitions of every term you'll encounter selling a home care, home health, or hospice business. Each term links to a full explainer when one exists.

Process

Confidential Information Memorandum (CIM)

Comprehensive marketing document distributed under NDA to qualified buyers. Describes the business, financials, market, and growth opportunity in 30–60 pages.

Indication of Interest (IOI)

Non-binding written proposal from buyers indicating proposed valuation, deal structure, and process expectations after CIM review.

Letter of Intent (LOI)

Written document setting out principal terms of the proposed transaction. Most provisions non-binding; exclusivity, confidentiality, and expense allocation typically binding.

Non-Disclosure Agreement (NDA)

Confidentiality agreement signed before any non-public information is shared with prospective buyers.

Valuation

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization — the standard cash-flow proxy used in home care valuations.

EBITDA Add-Backs

Adjustments to historical EBITDA for one-time, non-recurring, owner-discretionary, or normalization items. Documented add-backs survive QoE.

EBITDA Multiple

Enterprise value expressed as a multiple of trailing EBITDA. Home care multiples range from ~4x (small private-pay) to 12x+ (scaled, certified platforms).

Enterprise Value (EV)

Total value of the business operations: equity value + debt − cash. The headline number quoted in M&A deals.

Structure

Asset Sale

Buyer purchases specified assets (and assumes specified liabilities) of the business. Common structure that requires CHOW for licensed agencies.

Stock Sale

Buyer purchases the equity of the legal entity. Avoids CHOW in many jurisdictions; tax-disadvantageous to buyer absent 338(h)(10).

Equity Rollover

Seller reinvests a portion of proceeds into the buyer's holding company. Aligns incentives; provides 'second bite at the apple' on next exit.

Earnout

Contingent payment based on post-close performance metrics (revenue, EBITDA). Useful for bridging valuation gaps; mechanically risky for sellers.

Seller Note

Portion of purchase price paid via promissory note from buyer. Typically 5–20% of EV with subordinated terms.

Escrow / Holdback

Portion of purchase price held by third-party escrow agent to secure indemnification claims. Typical: 5–10% for 12–24 months with R&W; 10–15%+ without.

Representations & Warranties Insurance (R&W)

Insurance policy that covers buyer indemnification claims, replacing seller indemnification beyond a small retention. Standard on home care deals above ~$25M.

Indemnification

Seller obligation to make buyer whole for losses arising from breaches of reps & warranties or specified matters. Caps, baskets, and survival periods are heavily negotiated.

Platform vs. Tuck-In Acquisition

Platform: PE's first acquisition in a vertical (premium multiple). Tuck-in: subsequent add-on to an existing platform (lower multiple).

Regulatory

Change of Ownership (CHOW)

CMS / state Medicaid process triggered when a licensed home care or home health agency changes ownership. Typical 60–180 day timeline.

Certificate of Need (CON)

State licensure requirement that limits the number of home health, hospice, or related providers in a market. CON states command premium multiples.

CMS 80/20 Rule

Final rule requiring 80% of Medicaid HCBS payments to flow to direct caregiver compensation by 2030. Material valuation implication for Medicaid-heavy agencies.

Buyer

Strategic Buyer

Operating company in the same or adjacent industry. Pays for synergies; typically slower process; may require longer transition.

Financial Buyer

Private equity firm or family office. Buys for cash flow and growth; uses leverage; typically holds 4–7 years before exit.

Independent Sponsor

Deal-by-deal investor without committed fund. Raises equity per transaction. Slower close; often requires significant rollover.

Diligence

Quality of Earnings (QoE)

Independent third-party financial analysis validating EBITDA, normalizations, and add-backs. Sell-side QoE pre-empts buyer re-trade.

Working Capital Peg

Negotiated normalized working capital target. Closing working capital above peg increases purchase price; below decreases it.