Encompass Health Agrees to Purchase Alacare for $217.5 Million

Encompass Health Corp. (NYSE: EHC) has entered into a definitive agreement to purchase all of the assets of privately owned Alacare Home Health & Hospice for $217.5 million. With this acquisition, Encompass Health will become the 10th largest U.S. hospice provider, based on Medicare reimbursements. EBITDA multiples were not disclosed.

Birmingham, Ala.-based Alacare operates 23 hospice and 23 home health locations in Alabama, earning $117 million during 2018. This acquisition, funded with cash on hand and borrowings under its revolving credit facility, marks the entry of Encompass Health into the Alabama hospice and home health market and positions the company for further growth. Encompass currently operates hospitals and inpatient rehabilitation facilities in the state that will feed referrals to Alacare, which the company will rebrand as Encompass Health.

“This increases our scale and density in Alabama and provides us the opportunity for overlap with our inpatient business,” April Anthony, CEO of Encompass Health-Home Health and Hospice, told Hospice News. “This transaction will create further expansion of our clinical collaboration rate, which will help us care for patients seamlessly.”

The clinical collaborate rate measures the rate of patient transitions from the company’s inpatient rehabilitation division to hospice or home health.

The $217 million Alacare transaction was competitively bid, lead by the investment banking firm Cain Brothers, which drove the valuation upwards. Other hospice providers in the acquisitions market are likely considering the potential impact of this and similar transactions could have on their own valuations.

“There are still a lot of buyers for good assets out there. If you are a seller or if you are representing a seller you are going to be looking around at other transactions in the marketplace, and it definitely does influence valuations,” Dana Hambly, C.F.A., research analyst for the independent financial services firm Stephens, explained. “[The hospice space] has been a very competitive and expensive market for hospice deals over the last few years.”

Acquisitions contributed significantly to Encompass’ strong 2018 financial performance for its hospice segment. The company acquired 22 new hospice locations last year, with the majority coming from the purchase of Camella Healthcare for $135 million in May. Acquisitions will continue to be a part of the Encompass-Home Health and Hospice growth strategy for the duration of 2019.

“We do anticipate that we will do more tuck-in acquisitions as the year goes on and will likely hit something exclusive of the Alacare transaction where we’ll spend something in the $50 to $100 million range,” Anthony said.

The Alacare transaction is expected to close in the second quarter of 2019, subject to certain customary closing conditions and regulatory approvals. Upon closing, Encompass Health’s national footprint will include 81 hospice locations, 243 home health locations, and 130 hospitals in 36 states and Puerto Rico.  “I think this is a highly strategic acquisition for Encompass from both a growth (especially on the hospice side) and alignment of post acute services standpoint across Alabama,” said Cory Mertz, managing partner of the investment firm Mertz-Taggart. “Given the momentum in the sector this demonstrates the continued appetite for these types of assets.”

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