October 1st Update

[pl_alertbox type=”info”] 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. [/pl_alertbox]

Hot Off the Press:

Kindred Healthcare, Inc. and Gentiva Health Services, Inc.  announced that they  have entered into a definitive merger agreement under which Kindred will acquire all of the outstanding shares of Gentiva common stock for $19.50 per share in a combination of cash and stock.  The transaction is valued at $1.8 billion.  For full press release click here

Quote of the Year

We go back to the prescient quote a few months ago from Paul Diaz, CEO of Kindred regarding their proposed purchase of Gentiva:

“We will not be deterred.  We are determined to pursue the proposed combination of Kindred and Gentiva and are committed over the long term to achieving our objective.”  

Clearly he was serious.

The Stoneridge Partners Home Health Index (HH Index) down 5.8%.

After four straight months of increases,  our HH Index finally took a dip.  This mirrored the stock market in general with the S&P 500 down 2%.  This drop seems to be continuing, perhaps reflecting the bad news we get in our evening broadcasts…slow down in Europe and China, Ebola, ISIS….etc, etc.

The high for our HH Index was set in September, 2008 at 41.75.  We now sit at 21.83.

Here are this month’s results:

Company 9/30/14 8/31/14 Mos % Change YTD % Change Year Ago % Change
Almost Family 27.17 27.98 -2.89% -15.96% +39.84%
Amedisys 20.17 20.92 -3.59% +37.87% +17.20%
Gentiva* 16.78 18.07 -7.14% +35.21% +39.37%
LHC Group 23.2 25.74 -9.87% -3.49% -1.11%
HH Index 21.83 23.18 -5.81% +4.69% +21.04%
S&P 500 1963.25 2003.37 -2.00%  +6.22% +16.75%
Addus 19.60 21.90 -10.50% -12.69% -32.34%

*The purchase price of the Kindred-Gentiva transaction was $19.50 per share.

It is interesting to note that YTD both Almost Family and LHC Group are down while Amedisys and Gentiva are up…. substantially, but looking back one year all are up nicely with the lone exception of LHC Group.

Addus, a company that is not a part of our HH Index, is now down 32% from one year ago.  From the spring of 2013 their stock went on a tear, just about tripling in price.  This is a very well run company that may be under-valued.

Here is a chart comparing Addus and our HH Index over the past two years.  Addus is primarily a non-Medicare company while the stocks in our index are primarily Medicare reimbursed. The two have crossed.

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-addus.html” width=”604″ height=”450″ scrolling=”no”]

PERCENT OF REVENUE & MULTIPLE OF EBITDA:

But more importantly, when checking back one year ago to the multiples of EBITDA and percentage of selling price to revenue we see big changes.

Selling Price (Enterprise Value) as a Percent of Revenue. What a difference a year makes!

10/1/2014 10/1/2013
Almost Family 69% 43%
Amedisys 66% 43%
Gentiva 89% 65%
LHC Group 69% 68%
HH Index Average 73.3% 54.8%
Addus 70% 107%

Note that the purchase price of the Kindred-Gentiva transaction is approx. $1.8 billion.  Based on Gentiva’s second quarter annualized revenue of about $2 billion this works out to around 90% of revenue.  We again ask the question, are the other stocks undervalued?

MULTIPLES OF EV/EBITDA. Think of this as price as a multiple of EBITDA.

10/1/2014 10/1/2013
Almost Family 16.57* 5.79
Amedisys 22.22** 7.98
Gentiva 11.75 6.43
LHC Group 8.55 7.04
HH Index Average 14.77 6.81
Addus 10.96 14.08

The above calculations are based on selling price being defined as Enterprise Value (EV), with data provided by Capital IQ.   EV has been calculated based on stock prices September 30.

Enterprise value is defined as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

* The spike in EBITDA for Almost Family may be a result of their 4th quarter acquisition of $150M Suncrest.

** The spike in multiple of EBITDA for Amedisys may be a result of the increased earnings recently announced for the 2nd quarter. It seems that the stock trades on current earnings but the multiple of EBITDA is calculated on a trailing twelve months.

IN THE NEWS:

Gentiva-Kindred:  After months of waiting, and as we predicted, the news broke that the Kindred-Gentiva transaction is going forward.  A Definitive Agreement has been executed with final closing to take place in the first quarter of 2015.

On May 15 we woke up to the news that Kindred had put forth an unsolicited offer of $14.50 per share for Gentiva.  Gentiva adamantly said no.  But now, after months of zigging and zagging by both parties we have a deal at $19.50 per share.  On May 1st the stock at was at $7.50.  Some pretty good negotiating.

The purchase price is $1.8 billion.  They anticipate revenue of combined entities of approx. $7.1 billion with operating income of $1 billion.  Synergies of $70 million in cost savings are expected within two years.

According to their press release, this will make their combined company the largest provider of rehabilitation, home health and hospice services in the country.  They will operate within the “Kindred at Home” division and be based in Louisville, however they will keep a significant regional presence in Atlanta, where Gentiva is based.

Kindred has an excellent presentation on their web site, however, to make it easy, you can access it here:

Kindred-Gentiva Combination

We can’t help but speculate….as health care, insurance, and other companies move toward a continuum of care…..will this transaction presage the eventual sale of all of the public home care companies?  Will they go private?  Who will be left five years from now?

NAHC PANEL DISCUSSION – Find out what’s going on in M&A and home care:

On Tuesday, October 21 at 2:30 at NAHC’s annual conference we will be hosting a panel discussion on the latest trends in the M&A consolidation of home care.  Featured will be Todd Flowers, VP of Development, Kindred, Peter Sosnow, Integration leader, Humana at Home (formerly SeniorBridge), and Cory Mertz and Brian Bruenderman, partners here at Stoneridge.  Bring your questions and let the experts respond.   Link to more information:  NAHC Panel

GRAPHS: This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through September, 2014.

(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)

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi.html” width=”604″ height=”450″ scrolling=”no”]

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 for over 13 years, going back to November, 2002. It has been quite a ride.

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-sp.html” height=”450″ scrolling=”no”]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, 2014. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-12.html” height=”450″ scrolling=”no”]

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-addus.html” width=”604″ height=”450″ scrolling=”no”]

MERGER & ACQUISITION ACTIVITY:

SOLD….by Stoneridge Partners:

  • Dallas, TX: Reachout Home Care, Inc, a premier Medicare agency with offices in Dallas and Houston sold to a national healthcare company.   Congratulations to Joe and Peter Lynch for building such a fine company.  Joe and Peter will both be staying on in executive positions.  Stoneridge Partners provided sell-side advisory services.
  • Tyler, TX:  Omega Home Health, a diversified Medicare home health agency, sold to a regional home care and hospice company.  Cory Mertz, one of our partners, provided  sell-side advisory services.
  • Tampa, FL:  Ascentia Home Care, a Medicare agency with offices throughout the Tampa/Clearwater area merged into Carter Healthcare.  Stoneridge Partners provided sell-side advisory services.

Other Transactions From Around the Country

  • Kansas City, KS:   Swope Community Enterprises has exited home health care.  Just two years ago they bought Kansas City Home Care but now have sold to Thoughtful Care, Inc., based in Prairie Village, Kansas.
  • Lynbrook, NY:  Nautic Partners, a mid-market private equity group, announced that it has partnered with management to acquire All Metro Health Care Services.  Healthcare Finance Group led the financing.  David Middleton remains President and CEO.
  • Craven County, NC:  Craven County Home Health has approved the sale of their home health agency to PruittHealth for $850,000.  Revenue over the past four years totaled $2.14 million.  The primary asset is the Certificate of Need.

COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Jacksonville, FL – $2 million revenue Medicare home care agency based in Jacksonville.  Well established with strong management team in place.  Diverse referral base.  Stoneridge file S-4159
  • New Jersey – $4 million hospice serving southern New Jersey, well-established with a great reputation for quality care.  Stoneridge file S-1070
  • Utah – $10 million home health and hospice provider with multiple office locations. Good platform or add-on opportunity, motivated seller.  Stoneridge file S-2262
  • New Mexico – $2.3 million Medicare provider serving the Roswell area. Clean surveys.  Stoneridge file S-5295
  • Arizona – $2 million hospice located in large Metropolitan area.  Clean surveys and no CAP issues.  Stoneridge file S-6210.
  •  Michigan – $2.2 million revenue behavioral health company providing Medicaid waiver services in group homes. Great relationship with referral sources.  Stoneridge file #S-1066.
  • llinois – Profitable $5.5 million revenue Medicare home care and hospice serving the northern Chicago MSA.  Mature management team in place, a diverse referral base and strong outcomes — exceeding state and national averages on 15 of 22 quality measures as measured by Medicare’s “home health compare”.  Stoneridge file S-5288.
  • Ohio– $2.2 million revenue run rate diversified agency in central Ohio.  Private pay and both Medicare & Medicaid certified to serve both dual eligible and managed care populations.  Excellent outcomes.  Stoneridge file S-5276.
  • West Texas – $3.5 million Medicare agency established in 1995.  Stoneridge file S-5279.
  • Ohio – $2.5 million Medicare agency in Columbus area, 75% traditional Medicare, long history of quality care.  Stoneridge file S-5232.
  • Florida – Orlando area Medicare agency with about $900,000 revenue.  Stoneridge file S-2540.  UNDER CONTRACT
  • Ohio – $11 million Ohio Medicaid Provider.  Experienced management team will stay with new owner.  Stoneridge file S-5283.  UNDER CONTRACT
  • Georgia – Medicaid provider with over $6 million in revenue, 40% gross margin, and approx. $800K in EBITDA.  Stoneridge file S-5263.  UNDER CONTRACT
  • Texas – Multi-location private duty home care agency, $3.4 million revenue with a consistent 40% gross profit produces 15% EBITDA.   A quality agency evidenced by their latest survey with zero deficiencies,  Stoneridge file S-4250.
  • West Virginia – Medicare home care agency in CON state.  $3 million in revenue, growing with new CON territories being developed.  Strong management team.  Stoneridge file S-5261.
  • Texas – $3.5 million Medicare & Medicaid provider.  40% pediatric services, Gross margin of 48% and adjusted EBITDA of $400,000.  Stoneridge file S-5231.
  • Minnesota – Medicaid home care agency.  Large and diversified with $11 million in revenue, with unique license that positions it well for growth.  Stoneridge file S-5268.
  • Florida – Diversified Medicare/Medicaid Home Care Agency with revenue of approx. $4 million.  Professionally operated with excellent financial records.  Stoneridge file S-5280.
  • California – $8.3 Million Private Duty and Medicare Provider.  Predominately a private duty provider, this agency also operates a small, but significant, Medicare operation, making it a unique opportunity.  Owner will consider selling the business lines separately.  Stoneridge file S-3098.
  • California – $5 million Hospice agency east of Los Angeles, profitable with clean surveys.  Stoneridge file S-3037
  • New Mexico – Private pay home care and care management agency with annual revenue approaching $1 million.  Stoneridge file S-5450
  • California – $3 million Santa Barbara Medicare agency, very motivated seller invites all offers.  Stoneridge file S-3098M

To see more home care agencies and hospices exclusively listed for sale by Stoneridge Partners go to the following link:Agencies for Sale

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.

Favorite Cartoon

12_10_04 Debate

 

 

 

 

 

 

 

 

 

 

 

 

 

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 –  800-218-3944

Previous editions of this monthly newsletter can be searched for below.    Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group