February 1st Update

Quote of the Month:

“I work today for the last time as a Gentiva employee.  Monday morning (February 2nd) I work for a division of Kindred Healthcare.”  Tony Strange, CEO Gentiva

Our Congratulations to Tony Strange for a job well done!

The Stoneridge Partners Home Health Index (HH Index) is updated monthly and measures the performance of these four publicly traded home health companies, all listed on the NASDAQ:
Almost Family (AFAM)
LHC Group (LHCG)
Gentiva (GTIV)
Amedisys (AMED)

The Stoneridge Partners Home Health Index (HH Index) slumbers for a month, down 0.8%.

Our HH Index ended last year with a flurry, up over 13% for the month and up over 30% for the year.  That was the second straight year with over 30% gains.  Over the past two years our HH Index has risen 71%.

This year however did not start out so well, with our index dropping slightly (-0.8%).  But when measured against the stock market as a whole we did quite well.  The S&P 500 dropped over 3%, so this is just a minor blip….even Apple has its ups and downs.  We continue to feel that this index will increase moderately over the rest of the year.

The all-time high for our HH Index was set in September, 2008 at 41.75.  Our low since then was set in October, 2011 at 11.65.  Two years ago we were at 15.60.  We now rest at 26.92.  Up over 72% for two years.

Here are the results for the past two years:

Company 1/31/15 1 mos change 1 yr change 2 yr change
Almost Family 30.36 +4.87% -0.16% +51.65%
Amedisys 28.18 -3.99% +86.75 +153.42%
Gentiva* 19.42 +1.94% +70.75% +95.96%
LHC Group 29.72 -4.68% +29.56% +39.14%
HH Index 26.92 -0.78% +34.94 +72.54%
S&P 500 1994.99 -3.10% +11.92 +33.17%
Addus 22.18 -8.61% -6.18% +167.87%

*The purchase price of the Kindred-Gentiva transaction was set at $19.50 per share, and closed on Feb. 2.

It was a bit of a mixed bag for the month, with Almost Family up close to 5% and both Amedisys and LHC Group down.  Addus was down over 8%, but when looking back two years their results are impressive.

Addus is not included in our index because the majority of their revenue does not come from Medicare reimbursement.

Below 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.  This shows a very nice trend line for our HH Index.

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

PERCENT OF REVENUE & MULTIPLE OF EBITDA:

Selling Price (Enterprise Value) as a Percent of Revenue.

2/1/2015 2/1/2014
Almost Family 71% 73%
Amedisys 88% 39%
Gentiva 89% 68%
LHC Group 85% 39%
HH Index Average 83% 62%
Addus 77% 87%

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.  It appears that the other public companies are catching up.

MULTIPLES OF EV/EBITDA. Think of this as selling price as a multiple of EBITDA. Take a look back two years –

2/1/2015 2/1/2014 4/1/2013
Almost Family 15.22 11.28 5.2
Amedisys 20.32* 9.79 4.3
Gentiva 11.41 7.06 6.1
LHC Group 10.56 7.38  6.3
HH Index Average 14.38 8.88  5.45
Addus 11.57 11.57

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 December 31. 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 multiple of EBITDA for Amedisys may be a result of recently announced increased earnings. It seems that the stock trades on current earnings but the multiple of EBITDA is calculated on a trailing twelve months.

See It To Believe It

This first graph 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.  And what a great two year trend.

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-sp.html” height=”450″ scrolling=”no”]
This second 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 January, 2015.[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-12.html” height=”450″ scrolling=”no”]

 IN THE NEWS!

Kindred completes acquisition of Gentiva in $1.8 billion deal: 

As we predicted from the get-go, Louisville-based Kindred (NYSE:KND) finished off their acquisition of Atlanta-based Gentiva, making Kindred at Home the largest and most geographically diversified home health and hospice organization in the country.

The combined company will serve more than 1 million patients per year in 47 states.  It will have over 100,000 employees, making it the 81st largest employer in the U.S.

To fund this transaction, Kindred recently closed on $1.35 billion in unsecured notes, issued in two tranches of $750 million at 8% due in 2020, and 600 million at 8.75% due in 2023.  This new debt is on top of the already $1.5 billion in debt Kindred was carrying on their Sept. 30 balance sheet, hence the attractive interest rates.

“Kindred will now be able to deliver services across the full spectrum of care, from transitional inpatient hospitalization to post-acute rehab and skilled nursing services to home health and hospice care.”

Almost Family:

As noted above, Almost Family’s stock went against the trend this month with a nice up-swing of almost 5%.  We also noticed that North Tide Capital, an activist fund, purchased over $4 million in stock over the past month.  North Tide is the same firm that floated the thought of a possible merger between Almost Family and Amedisys.   What’s going on there?

Stoneridge Partners opens Dallas office

Joe LynchJoseph (Joe) Lynch has joined the Stoneridge team and is now running our Texas office.  Joe has over 24 years in healthcare operational expertise.  His most recent stint was as the co-owner and CEO of Reachout Homecare, a Medicare and private duty home care agency in Dallas and Houston.   In 2014, with the assistance of Stoneridge Partners, he sold his company to Humana.

You can reach Joe at joe@stoneridgepartners.com or directly at (214)394-0070

For more information on Joe, you can go to the following link:  Joe Lynch

MERGER & ACQUISITION ACTIVITY:

 Sold by Stoneridge Partners:

Tamarac, Florida:  Alternative Home Health Care has acquired Senior Health Care Services, Inc. (SHS), a Vi-affliiated homecare provider with six locations throughout southeast Florida.  Senior Health Care Services operates in the Aventura, Hollywood, Tamarac, Pompano, Boca Raton, and Lantana areas.  Stoneridge Partners provided sell-side advisory services.

Other Transactions:

Dallas-based Epic Health Services made its Arizona debut with the purchase of Loving Care Agency.  Based in Hasbrouck Heights, NJ, Loving Care has operations in four states, including Arizona.  The combined company will have more than 10,000 employees at 54 offices and 11 therapy clinics in ten states.  Epic is now the largest skilled pediatric home health company in the U.S.

Markham, Ontario – Extendicare, Inc (TSX:EXE) has entered into a definitive agreement to acquire the Revera HomeHealth business for $83 million.  This represents a multiple of about 6.5 times estimated 2015 EBITDA.

Exclusively Listed for Sale by Stoneridge:

  • Florida – $7 million revenue with 80% from traditional Medicare, three offices and three provider numbers, accredited with professional management in place.  Stoneridge file #S-7324
  • California – $2.2 million revenue, JCAHO accredited, Medicare certified home health care agency serving Southern California. Stoneridge file #S-1050
  • Pennsylvania – $7 million plus, Medicaid provider with multiple locations in southeastern Pennsylvania. Well-run, profitable agency with great year over year growth and reputation for quality services.  Stoneridge file #S-8000
  • New Jersey – $4 million private duty agency.  Primary payor is Medicaid, and the agency enjoys very good relationships with many referral sources.  Stoneridge file #S-6700
  • Florida – $2.2 Million revenue Medicare agency in District 8, stretching from Naples to Sarasota.  90% of revenue from traditional Medicare, accredited with professional management and sales team in place. Stoneridge file S-6728
  • Florida –  – $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
  • Utah – Approximately $3.5 million home health and hospice provider with multiple office locations. Good platform or add-on opportunity, motivated seller.  Stoneridge file S-2262
  • New Jersey – $4 million hospice serving southern New Jersey, well-established with a great reputation for quality care.  Stoneridge file S-1070 On Contract
  • Florida – $2.8 million Medicare certified agency serving District 3. Solid operational team in place. 95% Medicare.  Stoneridge file S-9000
  • 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.
  • Arizona – very low census Medicare agency in the Phoenix metro area.  Accredited.  Stoneridge file #S-2010
  • 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. On Contract
  • 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.  ON CONTRACT
  • Ohio – $11 million Ohio Medicaid Provider.  Experienced management team will stay with new owner.  Stoneridge file S-5283. SOLD
  • Georgia – Medicaid provider with over $6 million in revenue, 40% gross margin, and approx. $800K in EBITDA.  Stoneridge file S-5263.  SOLD
  • Florida – Diversified Medicare/Medicaid Home Care Agency with revenue of approx. $4 million.  Professionally operated with excellent financial records.  Stoneridge file S-5280.
  • 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

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.

Another favorite from The New Yorker

http://www.technologyinvestor.com/wp-content/uploads/2015/01/Dinners.jpg

MORE:  For more cartoons and 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