Gentiva Health Services' agreement to buy home healthcare and hospice provider the Healthfield Group signals the company's plans for rapid growth at a time when favorable federal reimbursements have increased sales in the home health industry.
Gentiva Chief Executive Officer Ron Malone made it clear to investors that more purchases are on the horizon for the Melville, N.Y.-based company, which is the largest national provider, public or private, of home nursing care.
"We intend to maximize every opportunity to launch the hospice business in other markets where we have home healthcare operations, with an immediate emphasis on areas that do not require certificates of need," Malone told investors in a conference call last week. "And while DME (durable medical equipment) is a much smaller piece of the business, we'll also have a chance to evaluate opportunities in this field if they make sense for us."
On Jan. 5, Gentiva said it would acquire Atlanta-based Healthfield for $454 million in cash and stock, which it said would make Gentiva one of the nation's top 10 providers of hospice care, integrate the company with a compatible organization and expand its geographic presence.
This would be Gentiva's entry in the hospice business, said Gentiva spokesman David Fluhrer. The deal, subject to financing and federal antitrust approval but not stockholder consent, is expected to close this quarter, Fluhrer said. The purchase price consists of shares of Gentiva common stock with a value of about $55 million and about $399 million in cash, a portion of which will be used to refinance privately owned Healthfield's existing debt, Gentiva said.
The move was a change for the company. "Historically, they (Gentiva) were reticent to do acquisitions because they felt they could achieve growth organically," said Steve Braff of the Braff Group, a merger-and-acquisition firm. Eric Gommel, an analyst with Stifel, Nicolaus & Co., agreed that Gentiva has been conservative on acquisitions in the past few years. He also said the deal improves Gentiva's competitiveness.
"Gentiva's acquisition is positive (for the company) because it diversifies risk away from its dependence on Cigna, it increases the percentage of revenues from better margins in the Medicare home nursing business, it makes (Gentiva) a significant provider of hospice (care), and it is indicative of a consolidation in the industry taking place," Gommel said. Gentiva's largest managed-care contract is with Cigna Corp., he added.
Industry experts have noted that a more favorable government reimbursement environment has left this industry ready for consolidation (Nov. 21, 2005, p. 14). "I think what makes this industry attractive from an acquisition standpoint is that it's highly fragmented and provides an opportunity for larger companies to fuel growth by acquiring smaller companies," Gommel said.
To that end, Amedisys, a large, publicly traded home health agency, made eight acquisitions last year; Northwestern Memorial Hospital in Chicago sold its home health division to TLC Health Care Services in September; and Gentiva acquired Heritage Home Care Services in May 2005.
"The thinking was among financial analysts that Amedisys was willing to embrace a strategy of growth that included acquisitions," Braff said. "That did not go unnoticed by Gentiva."