ModivCare Inc. (NYSE: MODV), the non-emergency medical transportation (NEMT) company that’s quickly becoming a major player in the home-based care space as well, announced Monday plans to buy CareFinders Total Care for $340 million.
Once the deal is finalized, ModivCare will initially combine the CareFinders business with its existing personal care capabilities from Simplura Health Group to create a strong foothold in the Northeast, CEO Daniel Greenleaf told Home Health Care News.
Not long after that, ModivCare will turn its attention to the rest of the U.S.
“Our goal is to build out a national platform,” Greenleaf said. “That’s what our customers want.”
As part of the deal, ModivCare will acquire all of CareFinders for a purchase price of $340 million. Tax considerations will bring the net purchase price closer to $306 million, according to the company, which intends to fund the transaction through a combination of cash on hand and its credit facility.
With CareFinders under its umbrella, ModivCare’s personal care segment will include nearly 16,000 caregivers across seven states. The business will provide about 30 million hours of care to roughly 18,000 patients per year.
“We believe we have an industry here that needs a scaled platform,” Greenleaf said. “We believe that, because it’s so highly fragmented today, there’s a real opportunity to legitimize and transform this industry with scale. It’s really part of our vision to transform the way that care is delivered to a patient.”
CareFinders and ModivCare had known about each other for a while, the CEO explained, with ModivCare even coordinating caregiver transportation for CareFinders during the COVID-19 pandemic.
Beyond that sense of familiarity, CareFinders was also reportedly at a point where its leadership was looking for growth equity.
“I think we’ve had our eye on them for some time,” Greenleaf told HHCN. “They are in a lot of the markets we’re already in, whether that’s Connecticut, New Jersey or Pennsylvania. And as far as timing is concerned, we certainly benefited on this.”
In March, PE Hub reported that CareFinders was seeking growth equity and expecting to produce a multiple of 11 or 13 times EBITDA, placing a potential deal north of $450 million. ModivCare’s deal for CareFinders comes at a valuation of 10.3 times LTM pro forma adjusted EBITDA, according to supplemental information shared by the company on Monday.
Contextually, home health and hospice assets have carried some of the highest average multiples in the entire health care sector.
In fact, the sector-wide mean enterprise value to EBITDA multiple was 16.1 times for the 12 months leading up to May 15, according to a mid-year dealmaking report from PricewaterhouseCoopers.
“We’re in a very unique position from a capital-structure standpoint, meaning we have money to do these kinds of things,” Greenleaf said. “And because of our acquisition of Simplura, we had a high degree of understanding about, you know, what exactly we’re acquiring.”
“There aren’t many of these types of $200 million to $500 million businesses out there, so candidly we knew we needed to act fast,” he added.
Although it has plans to grow the personal care segment even further, acquiring both CareFinders and Simplura already makes ModivCare one of the largest providers in the business.
Addus HomeCare Corporation (Nasdaq: ADUS), for example, reported doing about 30.6 million billable hours in its personal care segment during all of 2020. The Frisco, Texas-based home health, hospice and personal care company reported about 29.7 million billable hours for the segment the prior year.
Addus currently provides in-home care services to about 44,000 consumers through 208 locations across 22 states, according to the company.
In part, ModivCare’s leadership team is confident that it will be able to achieve its goal of building a $1 billion personal care business with $100 million of EBITDA because of its past Medicaid success in the NEMT arena.
The health care services providers knows what managed care organizations and state partners want, so it’s not starting from scratch with personal care, despite it being a relatively new segment for ModivCare.
“We know the channel,” Greenleaf said. “We’ve been in this channel for 20 years, dealing with Medicaid managed care organizations as well as state-run Medicaid entities.”
During a Monday conference call going over the CareFinders deal, Greenleaf suggested ModivCare still had plenty of opportunities in its M&A pipeline.
For now, though, the focus will be on successfully integrating CareFinders and making sure it’s fully aligned with Simplura.
“We’ve learned a lot since we bought Simplura,” he said. “I think the integration should go pretty smoothly. I don’t foresee that there will be any surprises, and we’ve done a ton of due diligence.”
Companies featured in this article:
