Private Equity Pegged as New Multi-Billion Dollar Gentiva Bidder

The ongoing purchase offers and subsequent rejections between Kindred Healthcare, Inc. (NYSE:KND) and Gentiva Health Services, Inc. (NASDAQ:GTIV) has invited a new player into the mix, one that analysts assume is likely a private equity suitor for the latter home health giant.

Monday, Kindred solicited its newest proposal to Gentiva in response to the company’s rejection last week of its previous offer to acquire the company for $16 per share—an 87% premium to Gentiva’s closing share price on May 14, 2014, the day before Kindred made public its proposal to acquire the company.

In response to recent news that Gentiva is entertaining a new offer of $17.25 from a “recognized owner, operator and investor in the sector,” Kindred is now proposing to acquire 100% of Gentiva’s outstanding shares for the same price as the other unnamed suitor of $17.25 per share, according to a letter sent Monday by Kindred CEO Paul Diaz to Gentiva Executive Chairman Rod Windley and CEO Tony Strange.

“Specifically, we confirm that Kindred would be prepared to enter into a negotiated agreement to acquire all of the outstanding shares of Gentiva for $17.25 per share, provided that we are permitted to conduct diligence to confirm such additional value is warranted,” wrote Diaz.

Though still unnamed, analysts suggest the undisclosed “recognized” owner who proposed the alternative offer may be one of several private equity firms that has a presence within the home health space.

“While the company did not specify who the offer came from, we believe it is likely a private equity firm that owns a home health and hospice business, possibly Cressey & Co. or GTCR,” stated Kevin Ellich, a senior research analyst with Piper Jaffray, in a note released Thursday.

Under Cressey & Co.’s belt is Encompass Home Health & Hospice and Hospice Compassus. Both providers offer their services in select states nationwide across more than 100 branch locations. The company boasts a firm with experienced principals who have invested and managed over $1 billion of healthcare investments.

GTCR, a Chicago-based private equity firm that manages more than $8 billion in private equity and mezzanine capital, commands a portfolio includes Curo Health Services, a hospice provider that operates in 10 states, according to the company’s website. Curo is also headed by former Amedisys, Inc. (NASDAQ:AMED) Chief Operating Officer Larry Graham.

“There is also a possibility the offer came from KKR and would use Amedisys as the operating vehicle, although the combined leverage of the two companies seems like a deterrent for such a deal,” Ellich stated in the Piper Jaffray report.

Amedisys, of which the report notes KKR owns approximately 15%, has had its name circulated before amid the ongoing drama between Gentiva and Kindred.

In response to a previous offer snub from Gentiva at the end of June, Kindred’s Diaz sent a letter to Gentiva’s Windley and Strange, urging them to reconsider their rumored acquisition of Amedisys.

“We are concerned that, while refusing to discuss Kindred’s highly attractive cash offer, the Gentiva board may be pursuing a course that would disenfranchise its shareholders through a value-destroying and highly levered transaction with Amedisys,” Diaz wrote.

Lastly, another possible suitor who may likely be in the contest for Gentiva also includes Formation Capital, a private equity firm that maintains a national presence with over $4 billion of managed investments in healthcare real estate comprising over 60,000 beds in 35 states.

An investor primarily in the senior housing and post-acute care industries, Formation Capital in 2007 completed its acquisition of Genesis HealthCare Corporation in a total enterprise transaction value of approximately $2 billion.

Prior to Kindred’s announcement Monday, Piper Jaffray sees the alternative proposal of $17.25 as attractive. But now that Kindred has equaled that amount, the ball is now in the court of Gentiva executives.

Written by Jason Oliva