Buyer: LHC Group
Seller: Almost Family
Sector: Post Acute Care, Home Healthcare
LHC Group and Almost Family Announce Merger of Equals to Create Leading National Provider of In-Home Healthcare Services
November 16, 2017 06:45 ET | Source: LHC Group
National platform enables greater service and continuity across continuum of care
Well-positioned to lead the transition to value-based reimbursement through the highest quality and patient satisfaction
Immediately accretive for the shareholders of each company
$25 million in run-rate cost synergies identified
Diversification of services and expansion of geographic footprint creates in-home healthcare provider and joint venture partner of choice for leading hospitals and health systems
Well-capitalized balance sheet for continued growth through acquisitions
Multi-channel growth opportunities accelerate organic growth, expand joint venture relationships and extend service lines
LAFAYETTE, La. and LOUISVILLE, Ky., Nov. 16, 2017 (GLOBE NEWSWIRE) — LHC Group, Inc. (NASDAQ:LHCG) and Almost Family, Inc. (NASDAQ:AFAM) announced today that they have agreed to combine in an all-stock merger of equals transaction pursuant to a definitive merger agreement unanimously approved by the Boards of Directors of each company.
The merger will create a nationwide provider of in-home healthcare services with a long track record of successfully partnering with hospitals and health systems led by the most experienced management team steeped in home health. The combined company will have 781 locations in 36 states with more than 31,000 employees and revenue of $1.8 billion and Adjusted EBITDA of approximately $145 million for the trailing 12-month period ended September 30, 2017.
Compelling Strategic Rationale
Industry Leadership: Creates the leading in-home healthcare company in the United States, with a large, national footprint and diversified lines of service as well as Centers for Medicare & Medicaid Services (CMS) Star ratings that outpace the industry. The combined company is well-positioned to lead the industry’s transition to value-based reimbursement and highly coordinated care.
Accelerated Growth: The creation of a comprehensive in-home healthcare solution with home health, hospice and personal care services sets the stage for new channels of organic growth throughout the existing footprint. The combined company will be positioned as the preferred in-home healthcare partner to current and potential hospital joint venture partners as well as referral sources. A significant pipeline of joint ventures, extensions of existing relationships and acquisitions is expected to accelerate revenue growth.
Immediate Accretion: The merger is expected to be immediately accretive to adjusted earnings per diluted share for both companies, and to generate identified pre-tax run-rate cost synergies of $25 million.
Balance Sheet Flexibility: Combined gross leverage is expected to be 1.5x based on combined trailing 12-month 2017 Adjusted EBITDA as of September 30, 2017, pro forma for $25 million in cost synergies, which provides additional capacity to pursue new acquisition opportunities.
Strong Cultural Fit and Shared Vision: A history of senior leadership collaboration within the in-home healthcare industry and a shared vision to shape the evolution of the U.S. healthcare delivery system to value-based reimbursement set the stage for an integration of naturally synergistic organizations. The ability to leverage technology to extend scale and share best practices among two industry leaders in quality and patient satisfaction creates a localized provider with an unrivaled commitment to delivering patient-centered care in the home.
Industry Leading Management Team: The combined company is led by a management team with strong operational expertise, a proven track record of developing joint ventures with leading hospitals and health systems and a history of successful, efficient capital deployment.
Under terms of the transaction, Almost Family shareholders will receive 0.9150 shares of LHC Group for each existing Almost Family share. Upon closing of the transaction, LHC Group shareholders will own 58.5% and Almost Family shareholders will own 41.5% of the combined company. The stock issuance in the merger is expected to be tax-free to shareholders of both companies. The transaction, which is expected to be completed in the first half of 2018, is subject to the receipt of regulatory approvals and other customary closing conditions as well as the approval of shareholders of both LHC Group and Almost Family.
The combined company will continue to trade on NASDAQ under the ticker symbol, “LHCG.” William Yarmuth, current chairman and chief executive officer of Almost Family, will remain as a special advisor to the combined company, while Steve Guenthner, current president and principal financial officer of Almost Family, will be named chief strategy officer. Keith Myers, current chairman and chief executive officer of LHC Group, will be named chairman and chief executive officer of the combined company, while Donald Stelly will be named president and chief operating officer and Joshua Proffitt will be named chief financial officer. The Board of Directors will be comprised of ten members, six of which (including Mr. Myers and Lead Independent Director Billy Tauzin) will be current LHC Group directors and four of which will be Almost Family directors. The combined companies’ Home Office will remain in Lafayette, La., and Personal Care Services, Healthcare Innovations and other support services will continue to operate out of Louisville, Ky.
Commenting on the announcement, Keith G. Myers, LHC Group’s chairman and CEO, said, “William Yarmuth and I have worked closely together on many of the important issues our industry has faced over the years, including the most recent home health advocacy with CMS, Office of Management and Budget and Congress. Almost Family shares our vision for making a difference in the communities we serve by delivering quality, outcomes-focused, patient-centered care to the most vulnerable in society. This merger is truly a transformative event for both our companies and our patients nationwide and a unique opportunity to bring more than 30,000 dedicated and talented employees together to lead the in-home healthcare industry’s transition to value-based reimbursement and highly coordinated care.”
William B. Yarmuth, Almost Family’s chairman and CEO, added, “In my opinion, we are combining two of America’s most successful home healthcare companies to create what will be the best-run, best-positioned in-home healthcare company in America. The complementary nature of our two firms provides incredible fit, adding clinical, operational and financial strength, and depth without any meaningful conflicts or overlaps in management, geography, and service capabilities. I believe the combined company will have the management team with the broadest and deepest experience of all the national in-home healthcare providers.
“By combining the best of both our long track records of success and patient-focused cultures, we will be able to accomplish much more together than either of us could possibly achieve alone. I am extremely proud of the work we’ve done, the progress we’ve made, and the tremendous prospects for our future together. I look forward to working with Keith and the rest of the management team in the continued evolution of these companies.”
About LHC Group, Inc.
LHC Group, Inc. is a national provider of non-acute healthcare services, providing quality, cost-effective healthcare to patients primarily within the comfort and privacy of their home or place of residence. LHC Group provides a comprehensive array of healthcare services through home health, hospice, community‑based services agencies and facility-based services. LHC Group operates 320 home health services locations, 92 hospice locations, 12 community-based service locations and 15 long-term acute care hospitals (LTACHs).
About Almost Family, Inc.
Almost Family, Inc., founded in 1976, is a leading national provider of home healthcare services, with 332 branch locations in 26 states, including its joint venture with Community Health Systems, Inc.. Almost Family, Inc. and its subsidiaries operate home health, other home-based services and healthcare innovations segments.
LHC Group, Almost Family merger highlights growth of post-acute market
LHC Group and Almost Family agreed to a merger that would create the second-largest home health provider in the country with 781 locations in 36 states, more than 31,000 employees and revenue of $1.8 billion.
The deal highlights the growing stature of the post-acute and home health space as many organizations aim to capitalize on population health and payment initiatives that emphasize reducing unnecessary care, shift care to lower-cost care delivery settings, improving patient satisfaction and outcomes.
The home health sector is also growing at a rapid pace, projected to add 425,600 positions from 2016 to 2026, an increase of 46.7%, according to the Bureau of Labor Statistics. Over that 10-year span, home health and personal care aides will expand by 1.2 million more jobs, making up a significant share of all new job creation. But they also account for some of the lowest-paying jobs in the industry—home health aides’ median wage is $22,600, which likely contributes to the lack of qualified home care providers available to fulfill that growing demand.
While home care provides a lower-cost delivery setting that patients often prefer, it nets lower margins than hospital and outpatient operations and has an evolving payment model.
CMS canceled its overhaul of Medicare home health payment that would have been based on patient characteristics rather than the number of visits, amounting to a $950 million cut. But further changes to the reimbursement model are looming.
Still, there is opportunity to acquire valuable assets with attractive multiples, said Thad Kresho, U.S. health services deals leader for PricewaterhouseCoopers.
“These can be wise divestitures to make, partly driven by a nice valuation and a lot of people interested in them,” he said. There has been a little chatter around reimbursement cuts but not as dire or catastrophic of cuts like skilled nursing has experienced, he added.
Many health systems are shedding their home health businesses and forming joint ventures with national for-profit operators.
Catholic-sponsored Christus Health of Irving, Texas, formed a joint venture in early August with LHC Group, which will manage its 21 home health, hospice and long-term hospitals. In June, Dallas-based Baylor, Scott & White of Dallas formed a new home health group through a joint venture with AccentCare. Tenet Healthcare sold its home health and hospice business to Amedisys.
“Systems are looking to coordinate the post-acute space so they can compete in that market in addition to opening ambulatory surgery centers and other points of care to control costs,” said Kenya Woodruff, chair of the healthcare practice group at the law firm Haynes and Boone.
Joint ventures have regulatory hurdles to clear in safe harbors, governance, credit and liquidity limits, but they provide quicker access to market and avenues to alternative payment models, said Christopher Donovan, partner at Foley & Lardner who focuses on post-acute transactions.
“Most providers will find that both acquisition and joint venture models work, but it is dependent on the market,” he said. “It’s important to deploy the correct strategy in the correct market.”
The LHC Group and Almost Family all-stock deal will combine two major players in that segment of the industry that is expected to grow along with the aging baby-boom population, longer life expectancies, growing rates of chronic conditions and the shift to move care from the hospital.
Under the agreement, Almost Family shareholders will receive 0.9150 shares of LHC Group for each existing Almost Family share. Upon closing of the transaction expected in the first half of next year, LHC Group shareholders will own 58.5% of the combined company and Almost Family shareholders will own 41.5%.
The deal would put the combined entity behind Kindred Healthcare and its $2.5 billion in annual home health revenue, according to Modern Healthcare data. The transaction would produce about $25 million in cost savings that will allow them to pursue other partnerships and acquisitions and expand their geographic footprint and service portfolio, executives said. Its combined gross leverage is expected to be 1.5 times based on 12-month adjusted earnings before interest, tax, depreciation and amortization of $145 million.
It will position both firms as logistical partners to other providers, Donovan said.
“The push to value-based care, which requires care coordination, cost tracking and outcomes management across the continuum, in many cases requires significant resources and investment in technology and personnel,” he said. “Most of the time, this can only be accessed with a large scale and size.”