On a recent Q3 earnings call, Addus HomeCare Corporation in a sense stated that its “short pause” on M&A activity was now over. And to prove it, the hospice company open its wallet to make a purchase. The Texas-based provider announced it has signed an agreement to acquire Queen City Hospice and its affiliate, Miracle City Hospice. The price is $192 million in cash.

Combined with the company management’s comments on the earnings call, the acquisition is an early signal that the provider of in-home personal care services is growing what it calls “a three-legged stool” in markets where it already has a footprint. The stool consists of personal care, home health, and hospice services.

“We want to continue to look at the clinical side of our business, adding home health and hospice in markets,” Addus CEO Dirk Allison said on the earnings call. “Because we find that as we have all three legs of the stool, so to speak, that is something that our managed care providers and Medicaid providers … are very interested in.”

Queen City Hospice is a portfolio company of the private equity firm Stonehenge Partners. It operates in the major Ohio markets of Columbus, Dayton, and Cincinnati. It’s based in the state and has annualized revenues of approximately $56 million.

Queen City Hospice serves an average daily census of about 900 patients across the state, and its 600 employees will also be added to Addus’ staff.

The Deal Sends Signal in Hospice Industry

The $192 million price tag represents $162.8 million of value.
This value is net of the present value of $29.2 million in estimated tax benefits, according to Addus. The Queen City Hospice purchase, coupled with two other closed acquisitions in 2020, now totals Addus’ acquired annualized revenues to about $82 million.

Addus expects the transaction add to its financial results immediately. Observers will also see the deal as the first in more home health transactions in the days ahead.

“This proposed acquisition is aligned with our strategy of providing hospice and home health care in markets where we already have a significant personal care presence,” Allison said in a press release. “With this acquisition, Ohio becomes the second state where we have the capability to provide all three levels of home care.”

Addus Eyes Several States

Addus thinks that it’s unrealistic to have all three service lines bolstered in every state it in which it operates. As a result, the company is looking at “four or five states” to complete that three-legged stool.

Addus already has eight home care locations in Ohio. The acquisition of Queen City Hospice will go a long way to completing that three-legged stool in the state.

Currently, Addus provides home care services to about 44,000 consumers in 214 locations across 25 states. It also provides home health and hospice care.

Addus is already one of the top providers of home care in the U.S.. Its ambition to create three levels of care in its biggest markets makes the company even more significant. One of the giants in home care is seeking to become a comprehensive leader of home-based care.

“We have strategically maintained a strong capital structure, which allows us to pursue acquisition opportunities as they occur,” Allison said in a press release announcing yesterday’s news. “We are now fully engaged in the process of identifying and pursuing acquisition opportunities in each of our three operating segments.”

The company also is planning to bolster its clinical side to about 25% of its business, Allison told the media. That means more acquisitions are coming.

In Q3, personal care services represented just over 85% of the company’s net service revenue,. Hospice and home health is roughly 12% and 2%, respectively.

CEO Looks at the Future in the Industry

“Down the road, we will look at other opportunities on the clinical side,” Allison said. “I would say in 2021, we’ll be really looking at home health opportunities. We’re thinking that after we get through some of the COVID environment, some of the smaller agencies may be looking to see what they want to do in the future — and we’ll certainly be looking at that. But I would say all three levels of care would both stay in our framework, as far as acquisitions.”

The valuation for Queen City Hospice is a jaw-dropping $192 million. That’s likely a sign of an M&A trend — particularly in hospice — moving forward.

Experts say that other companies are likely to be pursuing similar strategies in 2021. That year that could be record breaking in M&A. One analysts remarked that “everyone on the health home health services spectrum is seeking hospice agencies right now.”

That said, there is only a finite number of opportunities. CEO Allison said Addus will be diligent and careful in its M&A searches, it will also be opportunistic.