Gentiva Expands Its Platform with Acquisition of Harden Healthcare Services


In a move to gain density in key geographies, diversify its revenue stream, add new services, and capitalize on the dual-eligibles opportunity, Gentiva Health Services (NASDAQ: GTIV), the largest provider of home health and hospice services in the U.S., announced a definitive agreement on September 19th to acquire the Home Health, Hospice, and Community Care businesses of Harden Healthcare Holdings for $409 million ($355 million in cash and $54 million in stock). The transaction is expected to be accretive within the first 12 months following closing, with combined 2014E revenues of $2.1-$2.2 billion and adjusted EBITDA of $210-$220 million. Gentiva shares increased ~10% on news of the acquisition.

Based in Texas, Harden is one of the largest providers of home health, hospice, and community care services in the U.S. In addition, Harden is one of the largest Medicaid managed care community care providers. Harden has operations in 13 states and has its largest presence in the south central states.

The acquisition makes strategic sense for Gentiva on multiple levels. First, the transaction rounds out Gentiva’s core home health and hospice business in key geographies by adding density in the south central market where Harden has a strong presence. Second, the transaction diversifies Gentiva’s revenue stream, reducing exposure to Medicare reimbursement cuts. According to Gentiva’s most recent 10-K, the Company experienced a 5.2% decrease in their Medicare home health reimbursement rates in 2012, and cuts are expected to continue as health reform takes full effect. As illustrated in the graph below, based on 2012 data, the transaction reduces Medicare revenue from 86% of total revenue for standalone Gentiva to 72% of total revenue for the Gentiva/Harden combined entity:



Third, the transaction expands Gentiva’s service offerings into community care services. Community care services, primarily reimbursed by Medicaid, are for patients with chronic or long-term disabilities who need help with routine personal care (e.g., bathing, dressing, household activities, etc.). Based on 2012 data, the combined entity would have 10% of its revenue derived from community care services:



The additional service offering is attractive to Gentiva as synergy opportunities exist between community care services and home health / hospice. For example, in the last year Harden received 30%+ of its home health referrals from its community care division in markets where they offered both services. As a result, Gentiva expects to realize significant referral synergies between community care and home health as well as between community care and hospice.

Lastly, Harden positions Gentiva to realize significant growth within the dual eligibles managed care opportunity. As we have previously opined, there is a significant growth opportunity as Medicare and Medicaid expand and states migrate their duals populations to managed care. As one of the largest Medicaid managed community care providers in the country, Harden brings strong existing relationships with MCOs, additional scale, and new service offerings that will enable Gentiva to offer cost-effective alternatives for duals in the pre- and post-acute care delivery system.

Let us know what you think.

Elliot Amundson
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