October 1st Update

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

As Congress shuts down the Federal Government, millions of Federal workers will not get paid, however one group will get paid.  You guessed it….our Senators and Congressmen and women….the same group that voted themselves exempt from Obamacare”    Harry Newton

The Home Health Index Hits a New Two Year High!

In June, after CMS issued their onerous proposal, our Stoneridge Partners Home Health Index (HH Index) crashed.  It charged back in July, up 6.5%, then in August it was up 6%, and now in September it’s up another 4%.  Over the last three months its up over 16%, while the general market, as measured by the S&P 500, is up only 4.6%.  All this while facing the new CMS proposal for reduced reimbursement.

All stocks in the HH Index were up for both the month, and for the last three months.

To make matters more confusing,  Addus HealthCare is up close to 50% over this same three month period.

What is going on?

Last month the big news was the announcement that private equity giant KK&R had taken a stake of over 8% in Amedisys.   This month the big news was Gentiva’s announcement of their proposal to buy home care industry giant Harden Healthcare, with annual revenues of $476 million.  More on this below.

For the last few months we have included Addus in our monthly tracking; however, because they have very little Medicare revenue, they are not included in our index.  Addus is however a home care company to watch, and, for the past year, they have had outstanding stock market performance.  Here are the results:

Company Price 9/30/13 Change in %,  Month Change in %,  YTD Price 9/30/12 Change in %, year
Almost Family 19.43 2.97% -4.10% 21.28 -8.69%
Amedisys 17.21 5.65% 52.17% 13.82 24.53%
Gentiva 12.04 4.97% 19.80% 11.32 6.36%
LHC Group 23.46 3.67% 7.66% 18.47 27.02%
Home Health Index 18.04 4.16% 13.77% 16.22 11.17%
S&P 500 1681.55 2.97% 17.91% 1440.67 16.72%
Addus 28.97 36.78% 196.22% 5.35 441.50%

As you can see, all stocks were up nicely for the month, and, with the exception of Almost Family, all stocks are also up nicely for both YTD and from one year ago.

Regarding stock market performance over the past year, clearly the big winner continues to be Addus HealthCare.  Talk about a stock on a tear….up another 36% in September.  One year ago their stock sold for $5.35, today it sits at 28.97, up over 400%.  Did anyone see this coming?

The high for our HH Index was set in September, 2008 at 41.75.  It now sits at 18.04.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through September, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

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Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index going back to November, 2002.

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Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through September, 2013.

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 GENTIVA ANNOUNCES A PROPOSED ACQUISITION OF HARDEN HEALTHCARE

In a surprise move, it looks like Gentiva is going to buy the home health and hospice segment of Harden Healthcare.  Harden, with revenues of $476 million, is being purchased for $408.8 million (about 86% of revenue).  The logic of this acquisition appears to be to reduce Gentiva’s dependency on Medicare home care.  About 40% of Harden’s revenue comes from Hospice with most of the remaining revenue coming from community care programs such as Medicaid waiver programs.

Prior to the acquisition Medicare accounted for approx. 86% of revenue, and, with the Harden acquisition, this will drop to 72%.

 ProForma by Bridgewater Invesments

2014 Pro Forma ($ in MM) GTIV Harden Combined
Revenue $1,770 $485 $2,255
 EBITDA $160 $53 $213
   EBITDA Margin 9.04% 10.82% 9.42%
Net Income $31.64 $11.20 $42.84
Earnings per Share $1.01 $0.19 $1.20

To read the entire analysis by Bridgewater Investment you can go to the following link:

Gentiva-Harden

On the Good News Front!   It looks like the Partnership for Quality Home Healthcare, a coalition of home health providers, is making some progress in Washington…..142 members of the US House of Representatives have expressed their deep concern regarding the proposed rate cuts in a letter to Marilyn Tavenner, the Administrator of CMS.  To read the entire article go to the following link:

Partnership

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies (with the exception of Addus) are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with data provided by Capital IQ.

Company EV as % of Revenue
Almost Family 43%
Amedisys 43%
Gentiva 65%
LHC Group 68%
Addus 107%

Multiples of EBITDA which are based on Enterprise Value (EV).  Data provided by Capital IQ.

Company Multiple of EV/EBITDA
Almost Family 5.79
Amedisys 7.98
Gentiva 6.43
LHC Group 7.04
Addus 14.08

MERGER & ACQUISITION ACTIVITY – Clearly the big news was the Gentiva-Harden transaction discussed earlier in this column, however it’s been a very busy couple of months for us.  Over the last seven weeks we have handled the sale of seven home health agencies or hospices.  Our most recent:

Synergy Comfort Services, a Massachusetts based private duty agency sold to a diversified health care company.  Kevin Taggart, one of our partners, provided sell-side advisory services.

You can find all of these “sold” transactions on our blog at www.stoneridgepartners.com/blog

Gentiva also announced a joint venture with Wake Forest Baptist Medical Center based in Winston-Salem, NC.

NAHC’S ANNUAL CONFERENCE & EXPO will be in Washington DC October 31 – November 3rd.

Panel Discussion:  At the NAHC conference, on Friday at 2:30, we will hosting a “Panel Discussion”  on  mergers & acquisitions, and how the current home care environment is affecting acquisition strategies and valuations.  On our panel will be:

  • Shelly Berman, Principal of Simione Consulting, a leading home care and hospice consulting firm.
  • Peter Sosnow, Director of Development at Senior Bridge, now owned by Humana.
  • Brian Bruenderman, Director of Development at Almost Family, a public home care company.
  • Cory Mertz, a partner here at Stoneridge Partners.
  • Don Cummins (me), founding partner at Stoneridge Partners, will be moderating the discussion.

We would really like to put your tough questions to this panel of experts.  There is a contact tab at the top of this page where you can send us your questions, or you can send them to me directly: don@stoneridgepartners.com.  Please let us hear from you.

The Battle Begins….is the title of another presentation we will be giving at NAHC.  On Friday, November 1 at 4:15 in Washington we will be giving our ever-popular presentation titled “Negotiating the Sale of a Home Care Agency or Hospice…The Battle Begins”, where we humorously depict a transaction from initial valuation issues through negotiations, offers, due diligence and the final closing. Please join us, its a lot of fun!

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the top of this column is a “Contact Tab” with a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com

Previous editions of this monthly newsletter can be searched for at the bottom of this page.

Cartoon of the Month, from The New Yorker

 

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HokeyPokey

 

 

 

 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group