LHC Group Not Backing Off M&A After Mega-Merger

Fresh off its mega-merger with Almost Family, home health care giant LHC Group (Nasdaq: LHCG) is still eyeing big mergers and acquisitions opportunities in 2018.

“We might be tempted to sit back and rest on our laurels, but that’s not in our DNA,” CEO Keith Myers said Thursday during the company’s first quarter earnings call.

Lafayette, Louisiana-based LHC Group completed its merger with Louisville-based Almost Family in late March, creating the nation’s second-largest home health care company with a combined revenue of nearly $2 billion. The combined company, which will remain based in Louisiana with a Louisville presence, now totals 775 locations providing home health, hospice and personal care services in 36 states.


While closing the merger and integrating the two companies into one has taken a lot of work, time, money and guidance from Berkeley Research Group (BRG), LHC Group is still looking to take advantage of the current “land grab” going on across the health care space.

“They are not inhibiting their external growth,” Frank Morgan, analyst with RBC Capital Markets, told Home Health Care News. “It’s indicative of the market right now. There does seem to be a land grab going on for agencies and growth—whether it’s private equity funds who partnered with providers like Humana (NYSE: HUM), or other strategic buyers that are providers. All those forces together are what’s driving the growth in the deal activity.”

Home health M&A spiked at the beginning of 2018, with a 67% rise in the number of transactions compared to the number of deals seen in the last three months of 2017, according to recent data from Irving Levin Associates.


LHC Group specifically has an active pipeline with 24 ongoing discussions with hospitals and health systems to form home health joint ventures, according to Myers. LHC Group has largely been considered a leader in the industry with respect to forming and expanding JV deals; in 2017, the company did $114 million in transactions, including entering into a JV with Texas-based Christus Health and finalizing a deal with Tennessee-based LifePoint Unity Health (Nasdaq: LPNT).

About 85% of the company’s 2018 pipeline is focused on joint-venture deals, with the remaining being independent transactions focused on hospice and adding additional service lines to existing home health care markets.

“Our pipeline is currently comprised of joint ventures with large heath systems and individual hospitals, as well as some tuck-in acquisitions to accelerate our co-location strategy,” Myers said.

“I don’t want anyone to think in any point in time over last six months that we ever ceased that pipeline,” he emphasized later in the call.

For the first quarter of 2018, LHC Group reported that net service revenue increased 19.2% to $291.1 million, compared to $242.2 million during the same three months in 2017. Total organic growth in home health admissions was 6.7%, while total organic revenue growth in the sector was 9%. In hospice, total organic admissions were up 4.6% in the quarter.

Still, while earnings were up, the company’s stock was down more than 3% as of end-of-day trading Thursday, above $71 per share. However, the drop may be more of a correction to investors’ initial bullishness once the merger with Almost Family closed, rather than a reversal in overall sentiment.

“[The stock] has been really well-performing year to date,” Morgan said. “This is a sector with really good profits. [The stock] has gone from about $60 to $76 when they closed the deal. That’s a pretty big move in less than a month.”

LHC Group’s stock has been on a run lately, rising 12.33% in February, though it dropped 4.43% in March, according to the Home Health Index, which is tracked by M&A advisory firm Stoneridge Partners.

Written by Amy Baxter

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