July 1st Update

The Stoneridge Partners Home Health Index (HH Index) is updated monthly and measures the performance of these three publicly traded home health companies, all listed on the NASDAQ:

  • Almost Family (AFAM)
  • LHC Group (LHCG)
  • Amedisys (AMED)

Quote of the Month:

“We believe that transaction prices will start to come down in the next couple of years. We think the opportunities in the market are going to be really good in the next two to three years.”  Paul Kusserow, CEO, Amedisys

The Stoneridge Partners Home Health Index surges 11%

Following a nice 3.3%  gain in May, our home Health Index (HH Index) surged another 11% in June bringing our YTD increase to over 30%, and we are now up 95% from one year ago. Wow!

This is particularly impressive when looking at the market as a whole.  The S&P 500 is now flat for the year, and up only 5% from one year ago..

Our HH Index has not been at this level since May of 2010, and we are now closing in on our all time high of 41.75 set in September, 2008.  After we hit that high our HH Index dropped all the way down to low of 11.77 at the end of 2011.  Quite a comeback and quite a story.

Again, averages don’t tell the whole story.  While Almost Family and LHC Group were up about 4% for the month, Amedisys zoomed ahead with over a 28% increase pulling the entire HH Index with them.  They are now up 240% in two years. More on Amedisys later in this column.

Here are the results of the stock prices for the past two years:

Company 6/30/15 1 mos change YTD change 1 yr change 2 yr change
Almost Family 39.91 +3.93% +37.86% +80.75% +109.06%
Amedisys 39.73 +28.08% +35.37% +137.34% +242.5%
LHC Group 38.25 +4.05% +22.67% +78.99% +95.35%
HH Index** 39.30 +11.03% +31.75% +95.86% +134.51%
S&P 500 2,063.11 -2.10% +0.20% +5.24% +28.44%
Addus 27.86 -0.54% +14.79% +23.93% +41.13

Although we track the performance of Addus, they  are not included in our HH Index because very little of their revenue comes from Medicare.

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.

This second graph compares our HH Index to the price of Addus stock (non-Medicare).

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 June, 2015.  The stock prices converge!

Enterprise Value (EV)

EV (000s) 7/1/15 6/1/15 5/1/15
Almost Family 416 403 463
Amedisys 1,420 1,170 1010
LHC Group 742 666 679
HH Index Total 2578 2,239 2,152
Addus 311 302.7 301.3

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

Company 7/1/15 7/1/14 9/1/13
Almost Family 83% 65% 42%
Amedisys 119% 51% 42%
LHC Group 100% 69% 66%
HH Index Average 101% 62% 50%
Addus 96% 82% 80%

Multiples of EV/EBITDA.

Think of this as selling price as a multiple of EBITDA.

Company 7/1/15 7/1/14 9/1/13
Almost Family 12.77 16.96 5.66
Amedisys 16.02 19.72 7.82
LHC Group 11.26 8.60 6.83
HH Index Average 13.35 15.1 6.77
Addus 13.28 12.80 10.50

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 July 1. 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.

IN THE NEWS!

Aetna to Acquire Humana for $37 Billion!

July 3rd, 2015, Aetna and Humana Inc. today announced that they have entered into a definitive agreement under which Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2, 2015.

The combined company would have projected 2015 operating revenue of approximately $115 billion, with approximately 56 percent from government sponsored programs (including Medicare and Medicaid). The combined company will have over 33 million medical members…..

To read the entire article click:  Aetna to Acquire Human

Not exactly unexpected news.  On May 29th the Wall Street Journal reported that Humana was up for sale and that Aetna was the probable buyer.  We were just wondering what the hold-up was.  Perhaps it was negotiating the $1 billion break-up fee that will need to be paid if this deal is blocked on antitrust grounds.

Several years ago Humana purchased SeniorBridge, a leading private duty home care company.  We have been following their story as they have continued to increase their home health footprint.  Last year they expanded into Medicare with their purchase of Texas based ReachOut (with the help of our advisory services).   They have since change the name of their home care division to Humana At Home.

M&A activity among health insurance firms has been relatively quiet over the last few years, but now it appears to be heating up.  Will the rumored deal between Anthem and Cigna be next….and where is UnitedHealth Group in all of this?  And perhaps more important….what will the antitrust regulators have to say?

What are the odds of this transaction actually happening?  Aetna’s purchase price is $230 per share for  Humana.  You can buy that same stock today for less than $190.

Healthcare Insurers – Key Statistics

In billions Humana Aetna Cigna United Anthem
Revenue (ttm) 50.62 59.10 35.88 134.52 75.07
Enterprise Value 23.85 50.26 46.52 125.27 39.10
Multiple of EBITDA 8.85 10.15 11.97 10.50 6.50
EV/Revenue 47% 85% 130% 93% 52%

 Amedisys in the News!

With the great performance of Amedisys’ stock we thought it might be a good time to take a closer look.

Amedisys First Quarter Results:

In 1,000s 2015 2014 Change % Change
Revenue 301,572 298,739 +8,060 +0.9%
Gross margin 130,611 121,731 +8,880 +6.8%
Gross Margin % 43.3% +40.7% +2.6 +6.3%
G&A Expenses* 104,009 126,300 -22,291 -17.6%
Operating Income 26,602 -4,569 +31,171 +680Y%

* Not included in G&A is “Asset Impairment Charges”, which in the first quarter of 2015 amounted to over $75 million.

Yes they cut expenses, but its the increase in gross margin that is also impressive, and they expect this increase to continue due in part to their current transition to Homecare Homebase software.

Paul Kusserow, Amedisys’  new CEO, recently gave an interview to “Modern Healthcare”.  Some of the areas he covered:

  • Their acquisition search criteria.
  • Thoughts on industry consolidation
  • His thought on managed care and their willingness to take on full-risk contracts.

To read the entire interview click here:  Paul Kusserow – Q&A

Heard on the Street: Senior executives of Amedisys may be moving out of Baton Rouge, with New Orleans and Nashville as possible locations.  Our guess…..Nashville.

Merger & Acquisition Activity:

SOLD BY STONERIDGE PARTNERS:

  • Cherry Hill, New Jersey:  Lighthouse Hospice, Inc. sold to a regional hospice provider.  Congratulations to Elaine Ashby for building such a fine business.  Bran Bruenderman, one of our partners, provided sell-side advisory services.
  • Providence, Utah:  Access Home Care & Hospice sold to a regional healthcare provider.  Stoneridge Partners provided sell-side advisory services.

OTHER SALES FROM AROUND THE COUNTRY:

  • Mission Viejo, California -The Ensign Group, Inc. (NASDAQ:ENSG), announced today that Cornerstone Healthcare, Inc., Ensign’s home health and hospice portfolio subsidiary, had acquired Buena Vista Hospice, a Medicare and Medi-Cal certified hospice agency serving the Ventura County area from an office in Westlake Village, California. The acquisition was effective July 1, 2015.
  • Miami, Florida – Boyne Capital Partners, a Miami based private equity firm, announced that its affiliate, Family Private Care, Inc. completed the acquisition of Levin Home Care , a private duty registry in Florida. The combination of these two name brands gives the combined company a significantly broader footprint in Florida, access to a greater pool of talented caregivers to service customer needs, and the size, scale and resources to take advantage of the rapidly expanding home health services industry.
  • Jacksonville, Florida – Brooks Rehabilitation’s home healthcare division will soon become Brooks AmeriCare Home Health with the acquisition of a large Jacksonville-based agency serving 23 counties in Northeast and Central Florida. Brooks Rehabilitation, which has the larger administrative structure, will absorb AmeriCare Home Health and its assets, which includes 10 satellite office locations. The purchase is expected to close in July.

  • Chesterton, Indiana – Visiting Nurse Association of Porter County has agreed to sell its home healthcare program to the Porter Health Care System Home Health

Exclusively Listed for Sale by Stoneridge Partners:

  • Texas – $5 million East Texas Medicare certified home health agency with diverse payor sources, including Medicare, Medicaid, pediatric and private pay.  Stoneridge file S-3665
  • Pennsylvania – Approx. $4 million Medicaid home care agency located in central PA. Accelerated and profitable growth trajectory with continued opportunity for future growth. Professionally run with outstanding clinical and excellent staff in place.  Stoneridge file S-1000
  • Illinois –  $2.3 million Chicago area Medicare agency, clean surveys, excellent clinical reputation.  Stoneridge file #S-4300
  • Kentucky – Certificate of Need for 3 counties in Northern KY, rare opportunity to establish or expand services in populous CON service area.  Stoneridge file S-1121
  • Massachusetts – $5 + million home health agency, primarily Medicaid, but also private pay and commercial insurance, plus Medicare certification. Zero deficiencies on last survey.  Stoneridge file #S-9300
  • Washington State – $2 million revenue. This agency has a long history of profitability. Diverse payor sources includes Medicaid programs and private pay. Great reputation in a unique service area. Stoneridge file S-7010
  • Florida – $5 million Medicare agency located in the Tampa – St. Pete area.  Accredited, with solid bottom line.  Stoneridge file S-4109
  • Texas – $8 million East Texas agency, Medicare certified with deficiency free survey, no audits, and top-of- the line software.  Stoneridge file S-3001
  • Texas – $1.5  million East Texas Medicare certified home health agency, providing skilled care, approx 75% from traditional PPS Medicare.  Last survey was deficiency free. Stoneridge file S-4088
  • Texas – Houston $1.6 million revenue, pure private pay with strong bottom line.  Stoneridge file S-2766.
  • Virginia- $4 million Medicare agency located in Northern Virginia. 78% Traditional Medicare. Accredited. Stoneridge file S-6001
  • Texas – $2.3 million Medicare certified home health agency in Houston, Texas. 92% Traditional Medicare. Stoneridge file S-1542
  • North Carolina – $2.2 million Medicaid provider with two locations serving Charlotte, NC and surrounding areas. Service waiver programs include: PCS, PDN, and CAP. Accredited. Professionally run company with outstanding clinical. Great tuck-in opportunity. Stoneridge file S-2999 On Contract
  • Texas – $3.3 million accredited Medicare home health agency. Profitable and still growing with approximately 87% of revenue coming from traditional Medicare. Strong marketing team in place with diversified referral sources. Stoneridge file S-1500
  • California – $2.2 million revenue, JCAHO accredited, Medicare certified home health care agency serving Southern California. Stoneridge file S-1050
  • Texas – $2 million Fort Worth Medicare agency, approx 90% traditional Medicare.Stoneridge file S-2650
  • 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 SOLD
  • Florida – Stable $1 million Florida district 4 Medicare home health agency, management team in place and accredited. Stoneridge file S-5542 On Contract
  • New Jersey – $4 million hospice serving southern New Jersey, well-established with a great reputation for quality care.  Stoneridge file S-1070  SOLD
  • 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
  • Oklahoma –  $6 million revenue Oklahoma City Medicare certified home health agency.   90% of revenue from traditional Medicare. Stoneridge file S-3200
  • Ohio – $2.5 million Medicare agency in Columbus area, 75% traditional Medicare, long history of quality care.  Stoneridge file S-5232.
  • Minnesota & Wisconsin – $2 million Medicaid & Medicare certified home health agency in MN and WI. Primarily Medicaid with great opportunity for Medicare growth. Well-run with excellent clinical. Stoneridge file S-3002
  • Texas $1.2 million Medicare certified home health care agency in the Galveston area. Stoneridge file S-9015

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 New Yorker cartoon…..

http://stoneridgepartners.com/wp-content/uploads/2015/06/15_06-hippo-cartoon.jpg

And now a groaner I couldn’t resist including

FarmerINTheDell

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: http://stoneridgepartners.com/category/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 at the bottom of the home page of the Home Health Index. Links to Google Finance: Almost Family | Amedisys | LHC Group