LHC Group sale is at top of March M&A activity

By: G.F. Gay Le Breton and Alexander Aguilar April 20, 2022
https://bit.ly/3NRbym5

Louisiana’s fourth largest public company, LHC Group, agreed in March to sell to UnitedHealthcare Group. The Lafayette-based provider of home health and hospice services is the latest significant deal linking a home health business to a managed care health insurance company.

UnitedHealth will pay $170 in cash for each share of LHC’s stock in a deal expected to close later this year. This was an 8% premium on LHC’s closing stock price the day before announcement, and a 21% premium on its 30-day volume weighted average stock price.

In total, UnitedHealth will spend $5.4 billion to acquire LHC Group and assume $0.6 billion in debt. Using LHC’s 2022 adjusted EBITDA guidance of $270-$290 million, this implies an enterprise value to EBITDA purchase multiple of approximately 22x.

UnitedHealth, which runs the nation’s largest health insurer, will add LHC Group to its Optum Health business. UnitedHealth sees LHC as a good strategic fit for Optum because of the growth potential of home health care and UnitedHealth’s Medicare Advantage coverage. Optum operates primary care clinics and surgery centers in the US.

Medicare Advantage plans are privately run versions of government-funded Medicare coverage for people who are 65 or older or those who have certain severe disabilities.

Demand for home health services has been increasing because of an aging U.S. population and the reluctance among some families, especially amid the Covid-19 pandemic, to turn to nursing homes. Roughly 10,000 people become eligible for Medicare each day. That rate is expected to remain steady until the year 2030, according to a report by the Medicare Payment Advisory Commission.

Health insurers such as UnitedHealth are also working to increase the role of home health as a lower-cost alternative to nursing homes and a tool to reduce hospital stays. In addition, technology improvements have allowed more care to be provided at home. Roy Jakobs, chief business leader of Connected Care at Philips, predicts that 40% of providers will shift 20% of hospital beds to the home within the next three years.

The LHC deal is not entirely surprising given the industry-wide focus on the long-term potential for home-based care. This deal follows one in 2021 by Humana, UnitedHealth’s biggest rival in the Medicare business. Humana spent approximately $5.7 billion for the 60% of Kindred at Home it did not already own.

LHC is well set up to serve the aging baby boomers. The company reaches about 60% of the country’s 65 and older population through its 964 locations in 37 states. LHC says that it cares for more than 500,000 patients annually.  In 2021, home health made up 70% of LHC’s revenue, hospice was 14% and miscellaneous smaller businesses made up 16%. Many of the company’s home health and hospice operations are owned in partnership with hospital systems.

Keith G. Myers, LHC Group’s chairman and CEO, believes LHC’s sale to UnitedHealth fits into his company’s mission.

“Since our founding in 1994, ‘it’s all about helping people’ has been the core of our mission, and as part of the Optum team and its value-based capabilities, we will be able to expand our patient-centered mission and help drive best care practices across the country,” he said.

G.F. Gay Le Breton is managing director for Chaffe & Associates Inc., responsible for the merger and acquisition activities of the firm. Alexander Aguilar is a financial analyst with the firm.

Investment banking services are provided by Chaffe Securities Inc., member FINRA/SIPC.