Encompass Health Corp.’s (NYSE: EHC) recently closed acquisition of Alacare Home Health & Hospice for $217.5 million spurred significant revenue growth in the third quarter. The company’s hospice segment earnings rose 53.7% between Q3 2019 and Q3 2018.
A nearly 6% rise in same-store admissions also boosted Encompass Health’s third quarter performance. The company’s average daily hospice census reached 3,843 in the third quarter, up 15% from the prior year period.
Through the acquisition of Birmingham, Ala.-based Alacare, Encompass Health gained 23 hospice and 23 home health locations in Alabama, which collectively earned $117 million during 2018. This acquisition, funded with cash on hand and borrowings under its revolving credit facility, marked the entry of Encompass Health into the Alabama hospice and home health market.
Integration of the new asset into Encompass Health’s portfolio is proceeding without a hitch, according to April Anthony, CEO of Encompass Home Health & Hospice.
“We are pleased with the Alacare integration and how that is going so far, ” Anthony said during an earnings conference call. “Although we are pleased with the progress, we also recognize that integrating an organization the size of Alacare with the base scale that they have across Alabama is going to take longer than 90 days, so we’ll continue down the integration process.”
Encompass Health operates hospitals and inpatient rehabilitation facilities in the state that will feed referrals to Alacare, which the company will rebrand as Encompass Health. The acquisition made the company the nation’s 10th largest hospice provider.
Demographic tailwinds and availability of capital have been driving a robust market for companies looking to acquire hospice and palliative care companies. From 2016 to 2018, the space saw more than 10 transactions of $250 million or higher in total enterprise value, with at least five transactions individually exceeding $700 million of value, the highest ever in the industry, according to the M&A advisory firm Cain Brothers.
This trend is expected to continue into 2020, with larger companies in the space building up their hospice portfolios, particularly those who can co-locate with home health operations.
“It’s really no surprise that you did see a lot of growth in that segment. People who are in the home health care business continue to vertically integrate into the hospice space, which is another specialized form of home care for the most part,” said Frank Morgan, managing director, health care services equity research, at RBC Capital Partners. “It’s part of a movement where more and more of the publicly traded home health care companies are increasing their exposure to the hospice space. I wouldn’t be surprised if the interest continues, and there is a lot of interest in the private equity space for people looking for platform acquisitions. The outlook for hospice is good.”