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Four private-equity firms seen as possible Gentiva suitors


By Bob Herman
Posted: July 18, 2014 - 3:30 pm ET
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Gentiva Health Services' mystery white knight bidder is likely a private-equity firm, analysts agree. GTCR, Cressey & Co., Formation Capital, and even Wall Street powerhouse Kohlberg Kravis Roberts & Co. are among the leading candidates pinpointed by analysts as likely to be willing to pay roughly $635 million for Gentiva.

Still unclear is how Louisville, Ky.-based Kindred Healthcare, which has been pursuing the struggling Atlanta-based home health and hospice operator for months, will react to the news that another bidder has entered the fray.

Gentiva announced Thursday it had a new, unnamed suitor and so it was again spurning Kindred's overtures to buy a portion of its outstanding shares.

“Our assumption by the wording in the (Gentiva) press release is a private-equity firm that owns a home health/hospice business” made the alternative proposal, said Kevin Ellich, senior research analyst with Piper Jaffray.

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Gentiva had rejected a prior $16-per-share offer from Kindred for a portion of the company's stock, calling it “coercive.” Kindred has aggressively pursued Gentiva, wanting to create a more comprehensive system of post-acute-care services. But as often as Kindred pursued, Gentiva snubbed its offers. Accepting another offer would put an end to Kindred's quest for Gentiva.

Gentiva said a “recognized owner, operator and investor in the sector” offered $17.25 per share in cash. The deal would be worth more than $635 million based on the number of company common shares outstanding as of July 17, but Gentiva still must review it. Who the acquirer is has left many scratching their heads. Gentiva and Kindred officials have been tight-lipped since Thursday's announcement.

But private equity has consistently been mentioned.

“Private equity would make some sense,” said Toby Wann, founder of Obsidian Research Group. Gentiva would align well with a firm that has a portfolio of several post-acute providers—such as long-term acute-care hospitals, skilled-nursing facilities and inpatient rehabilitation facilities.

“Then you can create the synergies by ripping out a lot of the duplicative cost structure … amongst the disparate providers,” Wann said.

Ellich released a research note Thursday suggesting three specific private-equity firms could be behind the new proposal: GTCR, Cressey & Co. and KKR & Co.

GTCR owns Curo Health Services, a hospice operator. Its CEO, Larry Graham, previously was president of Amedisys, which has been a rumored takeover target for Gentiva.

Cressey & Co. has stakes in several providers, including Encompass Home Health, Select Medical and Hospice Compassus.

KKR is more of a long shot, Ellich said, but the company does own almost 30% of Amedisys' outstanding shares, according to Morningstar.

In an interview Friday, Ellich said Formation Capital also could be in the running. Formation has several healthcare investments, including Genesis HealthCare, a privately held provider of post-acute and senior-care services headquartered in Kennett Square, Pa. Genesis is the second-largest post-acute-care company in the country by revenue, according to Modern Healthcare research.

None of the private-equity firms returned calls for comment.

Wann said it's also “within the realm of possibility” that a large integrated health system could be making a run at Gentiva. A home health operator could help systems that want to further reduce readmissions rates and the penalties associated with them.

“That is certainly one way to have some sort of control of (readmissions)—own the home health provider as well,” Wann said.

The news has put pressure on Kindred, which now must evaluate whether it wants to place another offer or walk away from the pursuit it started this past spring.

“The last time I spoke with the folks at Kindred, they seemed very determined,” Wann said. “They wanted to consummate a transaction with Gentiva and build an integrated post-acute-care delivery services provider.”

The bidding war has placed a larger price tag on Gentiva, which recorded more than $1.7 billion in revenue last year. Analysts agree the latest offer is over Gentiva common's fair market value, especially since the company has more than $1.1 billion of debt.

“Increasing the equity component of this deal doesn't move the valuation multiple too much because Gentiva has so much leverage,” Ellich said.

Gentiva's shares were trading at $17.90 late Friday, almost 16% higher than Thursday's close and more than double their early May level.

Follow Bob Herman on Twitter: @MHbherman


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