Happy New Year from Stoneridge Partners and the Home Health Index!
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:
“(Addus President and CEO Mark) Heaney…predicted the U.S. home care industry would see ‘massive consolidation,’ saying that there are currently 20,000 home care agencies, and ‘managed care’s not doing business with 20,000 of anything.'”
“Addus Defends Strategy, Talks ‘Painting States Addus Green.'” Home Health Care News. December 13, 2015.
Another solid year for the Home Health Index!
Despite weak performance over the last month, the Stoneridge Partners Home Health Index (HH Index) had a strong year, ending at 40.94, up 13.81 points over last year’s end at 27.13.
This is down slightly off last month’s record high of 43.17, but the S&P 500 dipped as well.
All of the stocks in our HH Index were down slightly over the last month, but had considerable gains over where they were a year ago with an average increase of 37.2%. This is in direct contrast to the S&P 500 which showed lackluster performance with a YTD change of -0.7%. This is the third straight year that we have seen 30% plus gains in the HH Index.
Also of note, Addus (which does not derive much of its revenue from Medicare) was the only stock to show a positive change over last month (+2.1%,) but its YTD performance was down 4.1%.
Please note the graphs representing (1) HH Index to the percentage change in the S&P 500 Index for over 14 years, (2) 12 month trailing chart of the HH Index, and (3) HH Index to the price of Addus stock (non-Medicare) can be found in the most recent issue of the Home Health Index.
Here are the results of the stock prices for the past two years:
|Company||12/31/15||1 mos change||YTD change||12/31/14||12/31/13|
Although we track the performance of Addus, they are not included in our HH Index because very little of their revenue comes from Medicare.
Enterprise Value (EV)
|EV (in M))||1/1/2016||12/1/2015||11/1/15||10/1/15||9/1/15|
|HH Index Total||2,668||2,778||2,652||2,634||2,661|
Enterprise Value (EV), aka Selling Price, as a Percent of Revenue.
|HH Index Average*||103%||81%||63%|
Multiples of EV/EBITDA.
Think of this as selling price as a multiple of EBITDA.
|HH Index Average*||12.86||13.95||8.81|
*Included Gentiva prior to its acquisition in February 2015 by Kindred.
**The spike in multiple of EBITDA for Amedisys may have been the result of increased earnings announced around that time. It seems that stock trades on current earnings but multiple of EBITDA is calculated on a trailing twelve months.
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 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.
A Look Back: Notable Transactions in 2015:
The year 2015 was undeniably a very strong year in the merger and acquisition home health and hospice space, with two very large and notable transactions that started out the year.
The first was Kindred Healthcare’s closing of Gentiva Health Services for $1.8 billion. Yes, billion. That came in at approximately 100% of revenue and a 10 times trailing AEBITDA. Not bad!
Then, right around the same time, HealthSouth Corporation acquired Encompass Home Health and Hospice for $750 million. By our calculations that comes in at approximately 234% of 2014 revenue and although touted as a 10 times multiple, it was based on projected revenue rather than a TTM. Talk about one amazing deal!
And things did not slow down for the remainder of 2015 with somewhat smaller but not insignificant activity continuing through the end of the year with such acquisitions as LHC Group’s fourth quarter purchase of Halycon Hospice for $58.5 million in cash.
Predictions Looking Back:
Against better judgment, we go out on a limb every year making predictions for the year to come. So how did we do with our predictions from a year ago? Let’s see.
A year ago, we were very optimistic about the future of home health care, believing that the market would continue to see increases in valuations of quality companies and that the trends from 2014 would continue throughout 2015.
Seems like we got this right with our third straight year of 30% plus gains.
Some additional predictions we made for 2015:
- Public companies would continue to increase in price and would be selling for a minimum of 100% of revenue. With the HH Index Average at 103%, it looks like we got this right as well.
- Our index would end the year at 33. Looks like we didn’t have quite enough faith, with the Index ending at 40.94.
- There would be at least two very sizable transactions, as large integrated healthcare companies expand their home health presence. I don’t think there is any dispute that M&A in the home health market was strong over the course of 2015.
- Skilled nursing companies would continue to expand into home health. Check.
- We did not think that a merger of Amedisys and Almost Family would take place. Check.
- After years of increases, the total number of Medicare home health agencies would decrease. Check.
So we did pretty good with our predictions; we just underestimated the large increase in stock prices.
Predictions Looking Forward:
Stoneridge remains optimistic about the future of home health care M&A in 2016 and predicts continued increases in in valuations of quality companies as consolidation continues in this space. Agencies with decent earnings and management reports are in great demand.
And why not continued optimism? 2016 starts out with a BANG with Almost Family acquiring Long Term Solutions, Inc, an in-home nursing assessment company, for $20 million cash, $6 million note, and $11 million stock.
While valuations of public companies may be near their ceilings, trading at about 100% of revenue, we predict that privately owned companies will continue to see increased valuations as they follow in their larger brothers’ and sisters’ footsteps.
Notwithstanding our optimism, our prediction is that while 2016 will be a strong year, the gains will not be as spectacular as those seen in 2015. While we would love to ultimately be wrong on this prediction, it is hard to imagine a fourth straight year of 30% plus gains in the HHI.
So where will the HHI land at the end of 2016? Stoneridge is going with a strong, but somewhat tempered, 20% gain (compared to the three earlier years,) putting the HHI at 49.13 on December 31, 2016.
We predict we will see a continued trend of private equity firms selling off their home health care investments to strategic buyers. Examples from 2015 include the sales of WillCare, Halcyon, and Infinity Homecare.
The number of buyers has increased over the last couple of years, and we predict that trend will continue, with continued interest by such players as hospitals, rehab facilities, post-acute providers, and skilled nursing facilities.
Through the third quarter of 2015 the gross profit percentage of the public companies increased 1.6% to 43.9%. We do not believe there will be any increase in percentage in 2016.
Lastly we predict that Stoneridge Partners will have another record year.
SOLD BY STONERIDGE PARTNERS!
Orlando, Florida: 5 Star Home Health Services, a Medicare certified agency, sold to a regional home care company. Stoneridge Partners provided advisory services.
Northern Kentucky: The Visiting Nurse Association of Greater Cincinnati and Northern Kentucky divested their northern Kentucky agency which included a Certificate of Need for 3 counties. Brian Bruenderman and Ben Bogan, partners at Stoneridge, provided sell-side advisory services.
Freeland, Washington – Island Home Nursing, Inc., a non-Medicare agency, sold to a national healthcare company. Brian Bruenderman and Ben Bogan, partners at Stoneridge, provided sell-side advisory services.
Brian Bruenderman and Ben Bogan team up to make another sale.
Irving, Texas – Priority Visits, a Medicare, sold to a regional home care company. Joe Lynch, partner at Stoneridge, provided sell-side advisory services.
Joe Lynch, who runs our Texas office
Maricopa County, Arizona – Sunlife Home Health, a Medicare agency located in the Phoenix metro area, sold to a regional home care company. Rhonda Gronberg, our Director of Development, provided sell-side advisory services.
OTHER SALES FROM AROUND THE COUNTRY!
Salinas, CA- Sutter Care at Home acquired Alliance Home Health, effective December 7, 2015.
Mocksville, NC – Davie County’s home health agency sold to Well Care Home Health in December 2015.
Exclusively Listed for Sale by Stoneridge Partners:
- North Carolina – Accredited $2 million North Carolina Innovations Waiver Provider for Individuals with I/DD located in Winston-Salem and surrounding areas with a strong reputation in the community. Stoneridge File S-4001
- Pennsylvania – $4+ million hospice located in Western Pennsylvania. Stoneridge File S-5001
- Mid-Atlantic region – $30 million Medicare/Medicaid agency with multiple branches in several states, including CON service areas. Long history and great reputation for quality care. Stoneridge File S-8300
- Ohio – $4+ million Medicare/Medicaid agency located in NE Ohio. Stoneridge File S-8002
- California – Approximately $8 million private duty home health and staffing company located in Northern California with multiple locations. Stoneridge File S-7500
- California – $2.5 million private duty home care company located in Northern California. Motivated seller. Stoneridge File S-1572
- North Carolina – Accredited $2 million North Carolina Innovations Waiver Provider for Individuals with I/DD located in Winston-Salem and surrounding areas with a strong reputation in the community. Stoneridge File S-8015
- New York and New Jersey – Approximately $3 million private pay agency. Licensed in the 5 Boroughs of NY and the entire state of NJ with current operations predominantly in Central NJ. Stoneridge File S-8300
- New Jersey $3.5 million Medicaid agency in Northern NJ. Great opportunity for existing operator to add revenue and service area. Motivated seller. Stoneridge File S-9254
- Florida – $2.8 million Medicare certified home health agency in District 9 of Florida with a diverse referral base. Stoneridge File S-4148
- Minnesota – $14 million revenue Medicare certified home health agency with large Medicaid census, well established and deficiency free, SE Minnesota. Stoneridge file S-5268
- DFW Area – Approx. $3.5 million home care and hospice agency just listed. Stoneridge file S-6600.
- California- Approx. $2.6 million Medicare home health agency. Central coast region of Northern California. 90% Traditional Medicare. Strong gross profit with opportunities for immediate, sustained, long-term growth. Accredited. Stoneridge file S-5400. ON CONTRACT
- 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. ON CONTRACT
- Colorado – $2.5 million diversified home care agency and hospice, accredited with excellent books and records. Stoneridge file S-1005
- Rhode Island – $2.5 million Medicare agency. Accredited in CON state. Stoneridge file S-1100
- Texas – $4.8 million Medicare agency in Houston metro area with solid bottom line. 65% of revenue from traditional Medicare and the balance in private non-skilled care. Stoneridge file #S-2000.
- Oklahoma – $1.5 million Medicare agency. 89% of revenue from traditional Medicare. Stoneridge file S-4131
- Florida – $4 million in pure private pay. 15% bottom line. Accredited on the central east coast. Stoneridge file S-3250
- Illinois – $5 million plus Medicare agency with four offices. Strong management with excellent clinical. Stoneridge file S-6550
- 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 SOLD
- Illinois – $3 million hospice in Chicago area. Average census 58. Stoneridge file S-5325
- Texas – $4 million East Texas Medicare certified home health agency with diverse payor sources, including Medicare, Medicaid, pediatric and private pay. Stoneridge file S-3665
- 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 ON CONTRACT
- 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 SOLD!
- Florida – $5 million Medicare agency located in the Tampa – St. Pete area. Accredited, with solid bottom line. Stoneridge file S-4109, ON CONTRACT
- Texas – $8 million East Texas agency, Medicare certified with deficiency free survey, no audits, and top-of- the line software. Stoneridge file S-3001 ON CONTRACT
- 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 – $2.3 million Medicare certified home health agency in Houston, Texas. 92% Traditional Medicare. Stoneridge file S-1542
- 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 ON CONTRACT
- Texas – $2 million Fort Worth Medicare agency, approx 90% traditional Medicare.Stoneridge file S-2650 ON CONTRACT
- Florida – $2.8 million Medicare certified agency serving District 3. Solid operational team in place. 95% Medicare. Stoneridge file S-9000
- Ohio – $2.5 million Medicare agency in Columbus area, 75% traditional Medicare, long history of quality care. Stoneridge file S-5232
- Texas $1.2 million Medicare certified home health care agency in the Galveston area. Stoneridge file S-9015
- Texas – $1 million Medicare agency in the DFW area – 99% of revenue from traditional Medicare. Stoneridge file S-1015
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.
For more cartoons and additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit News.
From Don Cummins, Publisher of “The Home Health Index” firstname.lastname@example.org – 800-218-3944