As you prepare for growth via acquisition strategy, you have likely created a case for the transactions through various approaches and developed a strategy for how to notice synergies. Something you may not have realized is what kind of buyer you are. Throughout this blog, we will discuss the differences between a strategic and financial buyer.

Strategic VS. Financial Buyers

Buyers typically fall into two categories: strategic and financial. Where your company falls depends on your approach to the transaction.

A Strategic Buyer Approach

Strategic buyers aim to buy a business in their industry that has a process, know-how, patents, workforce, or other appealing assets that can help the business grow. These processes could stem from the acquisition of new technology or the expansion of a product or service line. If you’re a strategic buyer, you should be aware of the ability to avoid redundancies that come from the transaction. These redundancies are primarily noticed in accounting but can also be identified within the company. The acquisition is undoubtedly an area that should be a priority

A strategic buyer is intrigued through a buying and holding strategy that identifies patterns between the existing company and the company they are going after. The better the “fit” between the buyer and seller, the bigger premium a buyer will be willing to pay to the seller. A financial buyer has the mindset of “buy low and sell high.” Strategic buyers want to purchase a business, drive efficiencies, and scale the entity. Financial buyers generally won’t be too concerned with synergies unless the acquisition is an add-on for an existing portfolio company.

Also, a large strategic buyer may have access to more considerable funds. The strategic buyer also has the benefit of being able to issue stock as part of the transaction. This allows the strategic buyer to offer various forms of payment for the business. It also gives the strategic acquirer an ability to be flexible when discussing the deal structure that a financial buyer does not have. A financial buyer is generally limited to the funds raised from investors. Also, to funding limitations, the financial buyer focuses on producing an ROI. The emphasis on returns means that financial buyers need to be careful not to overpay a company.

The Financial Buyer Approach

The financial buyer is not one specific type of buyer. Instead, the category encompasses a wide variety of mostly institutional buyers. Some of the most common include:

  • Venture Capital firms
  • Private Equity firms
  • Family offices
  • Holding Companies

While each of the above groups is different in both structure and how they operate, they share a commonality in the type of seller they attract. A strategic buyer looks to purchase a company and take over the operation. On the other hand, the financial buyer is more comfortable with a partial ownership stake or acting as a short to a mid-term financial sponsor. Due to this, the financial buyer is more susceptible to gain sellers who are looking to leave partially or who want to leave the business from an ownership perspective.

The financial buyer’s approach with the personnel already in place may be a key factor for some sellers. Business owners who are worried about their employees may be reluctant to work with a strategic buyer, notably when the owner founded the business. A strategic buyer may be able to produce some new synergies by eliminating the redundancies. However, a financial buyer is likely to leave the majority, if not all, of the personnel in place. Financial buyers may take an advisory team role and move the day-to-day operations to the current team.

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Across the Board Improvement for Home Health Stocks in June 

Across the Board Improvement for Home Health Stocks in June

The Stoneridge Partners Home Health Index (HHI) brings good news for home health stocks in June, which were up across the board by almost 7.2% compared to May according to the mergers and acquisitions advisory firm.

 This improvement tracks closely with stronger results in the broader market, with the S&P 500 up by 8.23% in June over the previous month.

 Stoneridge Partners President Rich Tinsley believes June’s strong performance may not be repeated in July, however, with the likely release of this year’s home health proposed payment rule by the Centers for Medicare and Medicaid Services (CMS) on the horizon. “Last year, CMS released the proposed payment rule in early July. I would expect similar timing this year,” Tinsley said. “It could mean big things for the industry, specifically in regard to the Patient-Driven Groupings Model (PDGM) and any changes to its behavioral assumptions.”

 The Stoneridge Partners HHI is based on the stock values of Amedisys and LHC Group, two of the country’s largest independent and publicly-traded home health companies. Stoneridge also tracks but does not include Addus in its final HHI calculations.

 Stock values for Frisco, Texas-based Addus HomeCare Corporation (Nasdaq: ADUS) recorded the biggest increase of the three last month, rising by 10.20% in June compared to May. On a year-over-year basis, Addus stock was up 31.33%.

 Meanwhile, stock values for Baton Rouge, Louisiana-based Amedisys Inc. (Nasdaq: AMED) rose 8.52% compared to the previous month. The home health, hospice and personal care giant was up by 45.27% year over year.

 Lafayette, Louisiana-based LHC Group Inc. (Nasdaq: LHCG) stock was likewise up in June — by 5.87%. Year over year, the company’s stock value was up 44.34%.

Quote Of The Month

“Our biggest obstacle right now is trying to attract, and recruit, and then retain quality nurses” – Marlana Follet, division director for BAYADA Home Health Care.

Read the Full Article Here:  Shortage of Home Care Nurses on Horizon

 

See It To Believe It!

The Stoneridge Partners Home Health Index (HH Index) is updated monthly and measures the performance of these two publicly traded home health companies, all listed on the NASDAQ:

  • LHC Group (LHCG)
  • Amedisys (AMED)

This graph compares the percentage of the Home Health Index to the percentage change in the S&P 500 Index going back to 2002.
[visualizer id=”8359″]
This is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart.
[visualizer id=”8361″]

This graph displays HH Index performance since 2002.

[visualizer id=”8363″]
This graph compares the HH Index to the price of Addus stock (non-Medicare).
[visualizer id=”8362″]

(Home Health Index June 2019 | Stoneridge Partners)

 

Here are the results of the stock prices for the past two years:

Company 6/30/19 1 mos change YTD change 6/30/18 6/30/17
Amedisys 121.41 +8.52% +3.91% 86.70 62.81
LHC Group 119.58 +5.87% +27.98% 85.34 67.89
HH Index* 120.50 +7.19% +14.60% 86.02 64.12
S&P 2978.5 +8.23% +19.36% 2706.92 2423.41
Addus 74.95 +10.20% +10.12% 56.7 37.2

Although we track the performance of Addus, they are not included in our HH Index because very little of their revenue comes from Medicare.

 

Enterprise Value (EV)

EV (in M) 6/30/19 6/30/18 6/30/17
Amedisys 4270 2880 2157
LHC Group 3770 2950 1313
HH Index Total 8040 5830 4479
Addus 945 637 436


Enterprise Value (EV), aka Selling Price, as Percent of Revenue

Company 6/30/19 6/30/18 6/30/17
Amedisys 247% 186% 149%
LHC Group 206% 266% 141%
HH Index Average* 227% 226% 152%
Addus 173% 149% 110%


Multiples of EV/EBITDA

Think of this as selling price as a multiple of EBITDA.

Company 6/30/19 6/30/18 6/30/17
Amedisys 24.27 20.81 26.7
LHC Group 21.67 29.56 15.8
HH Index Average* 22.97 25.19 21.45
Addus 23.05 19.60 15.01

The above calculations are based on selling price being defined as Enterprise Value (EV), with data provided by Capital IQ. Enterprise value is defined as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. EBITDA is calculated using methodology which may differ from that used by a company to it’s reporting. (Home Health Index July 2019 | Stoneridge Partners)

Recent Transactions From Around The Country

  • Atlanta-based Perimeter Healthcare acquired the former Sundance Behavioral & Mental Health Hospitals in Garland and Arlington
  • Marquis Home Care has acquired Living Resources Certified Home Health Agency in Albany

Exclusively Listed For Sale By Stoneridge Partners

Do you know of any acquisitions that have taken place?  We are interested in your comments.  At the top of this column is a “Contact Tab” with a section for comments.  These can be sent anonymously and the return email address can be left blank.

 

Another Cartoon Favorite 

   

 

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Home Health Index July 2019 | Stoneridge Partners

From Rich Tinsley, Publisher of “Home Health Index”. Rich can be reached at [email protected] or (239) 561-0826 and toll-free 800-218-3944

Previous editions of this monthly newsletter can be searched for at the bottom of the home page of the Home Health Index. Links to Google Finance: Amedisys | LHC Group

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AGENCIES FOR SALE

  • $5 million Mid-West based ABA provider
  • Day supports and counseling
  • Highly profitable and respected
  • CARF accredited
  • Contracted with State and Insurance companies
  • Established and clean home health provider number
  • Dallas market
  • $2 million Medicare home health agency in Austin, TX
  • Offers outstanding reputation and strong management & clinical teams
  • CHAP accredited
  • Consistently Top 100 or Top 500 Home Care Elite for past eight years
  • $1.7 million Medicare home health agency located in Southwest Houston
  • Well-established with predictable referral sources
  • Very profitable

 

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AGENCIES FOR SALE

NEW SOUTH-ATLANTIC: Stoneridge File #SBA-9973
  • 12+ Million in annual revenue
  • Home Health Agency (HHA) and Adult Day Care Center (ADC)
  • HHA (represents 85% of revenue)
  • ADC (represents 15% of revenue)
  • HHA is primarily Medicaid business but is Medicare-certified
  • Accredited
  • $2 million Medicare home health agency in Austin, TX
  • Offers outstanding reputation and strong management & clinical teams
  • CHAP accredited
  • Consistently Top 100 or Top 500 Home Care Elite for past eight years
  • $1.4 million Medicaid pediatric therapy company
  • Major metropolitan service area
  • Average daily census approximately 200
  • $1.7 million Medicare home health agency located in Southwest Houston
  • Well-established with predictable referral sources
  • Very profitable
  • Pediatric therapy company in Houston, TX
  • Census of 165
  • 75% Medicaid reimbursed
  • Systems and staff in place

 

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