Amedisys Inc. (Nasdaq: AMED) — already one of the country’s largest independent home health providers — has closed on its $340 million acquisition of Compassionate Care Hospice. In doing so, the Baton Rouge, Louisiana-based company in one fell swoop dramatically expands its end-of-life care presence and becomes the third-largest hospice provider in the U.S. as well.
Strategically, the addition of Parsippany, New Jersey-based Compassionate Care Hospice adds several new states to Amedisys’ hospice footprint, including Florida, where the company will now offer the full spectrum of home-based care.
Under terms of the agreement, announced in October, Amedisys acquires 100% of the ownership interests in Compassionate Care Hospice for a fixed price of $340 million, inclusive of $50 million in payments related to a tax asset and working capital.
“With the Compassionate Care family, we have a presence now in 33 states as opposed to 22,” Regarner Thompson, senior vice president of Amedisys’ hospice south region, told Home Health Care News. “We get an opportunity to care for more than 11,000 patients instead of 7,500.”
Nationwide, Compassionate Care Hospice has about 2,300 employees across 53 locations. Amedisys’ wide-ranging south region includes 18 states overall, spanning from Oregon and California to Minnesota, South Carolina and Florida.
Compassionate Care Hospice generates about $188 million in annual revenues, with an adjusted EBITDA of $27 million, according to Amedisys. Moving forward, the end-of-life care provider’s locations will, apart from a few possible exceptions, be branded as “Compassionate Care Hospice, an Amedisys company.”
“The opportunity to have home health, hospice and personal care in the same space has really been an overarching goal of our CEO and leadership team,” Thompson, who has a nurse practitioner background with a specialization in oncology, said. “Seniors getting to age in place with one company, one provider that can do restorative care to end-of-life care.”
More to work with
Amedisys’ Compassionate Care Hospice purchase calmed anxieties of some investors who worried the home health behemoth was falling behind in the M&A race without a major acquisition to hang its hat on, particularly one in the white-hot hospice segment.
From its perspective, Amedisys had resisted opportunities to, perhaps, pull the trigger on previous hospice opportunities, instead choosing to take a more patient approach focused on sourcing deals internally.
Amedisys’ calculates the Compassionate Care Hospice deal valuation at about 12.6 times EBITDA. With tax savings and synergies factored into the equation, the valuation drops to roughly 8 times EBITDA.
Other recent hospice deals had reportedly been done at valuations in the mid-to-high teens, partly inflated because of intense interest from private equity buyers. In 2018, there were at least 28 PE hospice deals, according to proprietary data from M&A advisory firm Mertz Taggart.
PE-backed Compassus — owned by Audax Group and Formation Capital — is one of the latest hospice providers rumored to be exploring a potential sale.
In addition to announcing the closing of its Compassionate Care Hospice deal on Monday, Amedisys, which also has an executive office in Nashville, Tennessee, also revealed that it was expanding its borrowing capacity by $175 million to $725 million.
That total consists of a $550 million revolving credit facility and a $175 million term loan. The initial pricing represents an interest rate reduction of 25 basis points compared to pricing under the company’s previous credit facility.
Following the closing of Compassionate Care Hospice, Amedisys will still have about $350 million of liquidity available, leaving plenty of firepower for future hospice deals in months to come.
“Just as results and regulations are changing, we know there are a lot of small hospice providers that have a need to scale and have a need to put in, you know, some EMR-type technologies and aren’t able to,” Thompson said. “We’ll keep looking for those opportunities.”
Along with the closing, Amedisys has been reaching out to Compassionate Care Hospice employees via conference calls and plans to soon follow up with field meet-and-greets. Thompson, whose responsibilities include making sure Amedisys’ hospice operations are Medicare compliant and maintain strong quality standards, expects to connect with people in-person on Monday afternoon.
“We’re going to our many locations,” she said. “Everything has gone really well. People are excited.”
So far, Amedisys has not heard any concerns from Compassionate Care Hospice employees or referral partners, Thompson said. Among Amedisys’ early integration goals will be transitioning Compassionate Care Hospice onto Homecare Homebase and similar platforms.
“Moving to some other processes and platforms, payroll systems, automation, tablets,” Thompson said. “Some of the Compassionate Care team members were hauling laptops out. We’re able to bring tablets and different technology that’s more seamless.”
Reducing paperwork burdens is also among Amedisys’ integration priorities.
Amedisys plans to get Compassionate Care Hospice up to its margin profile within the next few years, CEO Paul Kusserow previously told HHCN. Compassionate Care Hospice currently operates with 14.4% margins, while Amedisys hospice margins are near the 20% mark.
The finalization of the Compassionate Care Hospice deal met Amedisys’ estimated completion date and was free of any unexpected hurdles, Thompson said.
Amedisys is expected to release its financial results for the fourth quarter of 2018 later in February. The company’s stock was trading at $136.68 per share nearing end-of-day Monday, up 3.08%.