Home- and community-based care giant BrightSpring Health Services — formerly known as ResCare — plans to merge with pharmacy company PharMerica. The two companies will be under the private equity ownership of KKR, with an affiliate of Walgreens Boots Alliance (Nasdaq: WBA) holding a minority stake, according to an announcement issued Tuesday.
Full financial terms of the transaction were not disclosed.
In addition to ending long-running speculation that BrightSpring’s private equity ownership group, Onex Corporation, was looking to cash in on its investment, the prospective combination of BrightSpring and PharMerica would potentially create a new post-acute and senior care player capable of managing medically complex patient populations by leveraging each company’s unique strengths.
In general, BrightSpring is aware of the high-need populations it serves and has an overarching, three-pronged approach to care, BrightSpring President and CEO Jon Rousseau told Home Health Care News. Those three prongs are non-clinical day-to-day support services; medical oversight; and “critical ancillary services,” such as pharmacy and medication therapy.
“Those three things need to be integrated and working very well together to deliver optimal outcomes,” Rousseau said. “That’s our strategy. What we’re trying to do is have a class of assets in our target geography to give us that capability set, ultimately working in a highly integrated way to the benefit of our client and the benefit of our company.”
Louisville, Kentucky-based BrightSpring is one of the country’s largest providers of diversified home- and community-based health services, serving seniors as well as a sizable population of non-seniors and individuals with intellectual or developmental disabilities. Home health, hospice and personal care services are among the diverse business lines of BrightSpring, which provides services for roughly 60,000 people daily across 40 states.
PharMerica, also headquartered in Louisville, is a pharmacy company that specializes in serving the long-term and post-acute care spaces, such as skilled nursing and assisted living facilities, as well as hospitals. Acquired by a joint venture between private equity firm KKR and Walgreens Boots Alliance in 2014, PharMerica operates across 96 institutional pharmacies, 20 specialty home infusion pharmacies and five specialty oncology pharmacies in 45 states.
Although many perceive PharMerica as a more facility-focused organization, it is, in reality, “far more diversified,” Rousseau said.
The combination of BrightSpring and PharMerica is expected to close in the first quarter of 2019, according to the companies. Upon close, the combined enterprise will serve more than 300,000 individuals daily.
Overall, there is “a bit of a gold rush” toward owning assets in the home-based care industry, Stephens analyst Dana Hambly told HHCN.
“PharMerica, presumably, has expertise in medication management and safety, so my guess is the strategy would be to start exporting that knowledge into home care, where more care is being delivered.” Hambly said. “As seniors are typically taking multiple prescriptions, this could also be a way to capture some of that share for the pharmacy.”
Rousseau, who joined BrightSpring as CEO in 2016, will lead the BrightSpring-PharMerica combination. PharMerica President and CEO Greg Weishar will transition into a strategic advisor role and remain on the board of directors.
“We really believe that pharmacy is essential and, in many ways, is the front lines in keeping patients out of the emergency room and out of the hospital,” Rousseau said. “One of the top reasons people go to an emergency room or hospital, particularly after they’re discharged, is because something is amiss or wrong with their medication compliance.”
BrightSpring and PharMerica plan to continue supporting all operations from Louisville.
Branding for the combined entity has not yet been revealed.
Onex Corp’s exit
As part of the deal, Toronto-based PE group Onex will sell its stake in BrightSpring. Onex made its initial minority investment in BrightSpring, then a publicly held company, in 2004, then invested additional capital in 2010 to take a majority stake in a take-private transaction.
Onex’s portion of the sale proceeds as a limited partner in related BrightSpring funds is expected to be about $190 million, including carried interest of $39 million, according to the PE group. The estimated value results in a blended gross multiple of invested capital of 5.7 times.
The new PE owner of the BrightSpring-PharMerica merged entity, KKR, is also currently an Amedisys, Inc. (Nasdaq: AMED) shareholder, though to a lesser extent than in the past. Amedisys — one of the largest U.S. home health providers — repurchased half of its common shares from KKR in June for about $178 million. Around the same time, KKR acquired Nashville, Tennessee-based doctor-staffing company Envision Healthcare Corporation for $9.9 billion, handily one of the biggest deals by any private equity firm over the past few years.
It was previously reported that PharMerica is “aggressively” eyeing the assisted living market. That’s still the case, Rousseau said.
“That is certainly a top growth opportunity for the organization,” he said.
BrightSpring building ‘class of assets’
While unique in combining home care and pharmacy companies, the deal between BrightSpring and PharMerica is not altogether surprising, as it falls closely in line to high-level strategic plans Rousseau has previously revealed to HHCN.
Indeed, BrightSpring is constantly looking to build its clinical and care management capabilities to thrive in a managed care landscape, Rousseau explained during a recent appearance on HHCN’s Disrupt podcast. He specifically singled out pharmacy services as one of the key areas where his company “was pressing on pretty hard” in terms of exploring potential opportunities, foreshadowing Tuesday’s news.
“This is very consistent with the strategy we’ve had in place over the last two years,” Rousseau said. “We’re really embarking down that road and making a lot of progress on that strategy.”
The prospective capabilities that PharMerica brings to the table complement the pharmacy business BrightSpring already has in house.
“Today, we have a closed-door pharmacy business that serves over 30 states,” Rousseau said. “It’s a vital part of BrightSpring today — and, in many ways, a gem within our company.”
Expanding throughout the care continuum
BrightSpring is not alone in its plans to expand throughout the care continuum to appeal to managed care systems and payers.
Amedisys, for example, has actively expanded into the personal care and hospice spaces, the latter point reflected by its agreement to acquire New Jersey-based Compassionate Care Hospice for about $340 million.
The blurring of roles between non-skilled and skilled — and even provider and payer — is also evident by Humana Inc.’s (NYSE: HUM) acquisition of Kindred at Home, in concert with PE firms TPG Capital and Welsh, Carson, Anderson & Stowe. The same triumvirate additionally acquired major hospice provider Curo Health Services with the plan to combine it with Kindred at Home.
Other examples include LHC Group (Nasdaq: LHCG) merging with Almost Family, melding home health strengths with home care expertise, along with Addus HomeCare Corporation (Nasdaq: ADUS) recently adding to its hospice footprint with multiple deals.
PharMerica combining with BrightSpring continues to reshape the rapidly changing pharmacy sector, as CVS Health Corp. (NYS: CVS) completed its nearly $70 billion acquisition of insurance company Aetna Inc. at the end of November.
Written by Robert Holly