Addus to Acquire Armada Home Health, Hospice for $29 Million

In a $29 million deal, Addus HomeCare Corporation (NASDAQ: ADUS), has signed a definitive agreement to purchase three affiliated entities: Armada Skilled Home Health of New Mexico, LLC, Armada Hospice of New Mexico, LLC and Armada Hospice of Santa Fe, LLC.

The Addus acquisition strategy is focused on co-locating its clinical hospice and home health operations in markets in which they already have a foothold with its personal care business. Addus launched as a personal care provider, and those services still represent about 80% of the company’s business. 

Shortly after CEO Dirk Allison came on board in 2016, the company began building up its clinical services, including hospice and home health. Addus has locations for all three business lines in the New Mexico and Ohio markets, with plans to grow that number in the coming years.

“We believe this acquisition is a great strategic fit for Addus, and we are very pleased to reach an agreement with Armada to expand our market coverage in New Mexico, which is an important and growing market for Addus,” Addus Chairman and CEO Dirk Allison said. “This proposed acquisition follows our strategy to grow our clinical services offering in home health and enhances our ability to provide all three levels of home care in New Mexico.”

The Albuquerque-based Armada cares for nealy 1,100 home health patients daily, as well as about 100 hospice patients, bringing in annualized revenues of $23 million. The deal is expected to close on Aug. 1, pending regulatory approvals and customary closing conditions.

Partially because of high valuations in the hospice space, Addus is leaning towards home health in its M&A plans for this year. Strategic buyers are turning their attention back towards home health transactions in 2021 after a lull while they waited for the dust to settle from a new payment system, the Patient Driven Groupings Model (PDGM).

Multiples in the hospice and home care space reached a record 26x, according to a research report by PwC’s Health Research Institute. Hospice and home health merger and acquisition activity buoyed the larger health care services sector last year, which saw a decline in transactions largely due to the fallout from the COVID-19 pandemic. Overall health care sector multiples hovered near 13.9x, up slightly from 13.8x the prior year, according to PwC.

The company also wants to help its home health segment catch up with some of its recent hospice expansion as well as keep the momentum going on its core personal care business, Allison indicated in an earnings call earlier this year.

Addus acquired Hospice Partners of America (HPA) in 2019 for a cash price of $130 million. In December 2020, the company bought Queen City and its affiliate Miracle City Hospice from the private equity firm Stonehenge Partners for a cash purchase price of $192 million. 

“Acquisitions continue to be an integral part of our growth strategy at Addus and complement our strong organic growth opportunities,” Allison said. “We are focused on transactions that will allow us to enhance our service offerings in each of our operating segments in target markets.”

Addus provides hospice, home health, and personal care services to nearly 44,000 patients through 215 locations in 25 states. Addus saw net service revenues of $205.3 million during the first quarter of 2021, a 7.9% increase from $190.2 million for the first quarter of 2020. The company’s hospice segment brought in nearly $36.1 million, up from $25.2 million in the prior year’s period.

Hospice utilization in New Mexico reached 49.6% among Medicare decedents in 2018, compared to a national average of 50.3%, according to the National Hospice & Palliative Care Organization.

“We believe this proposed acquisition will benefit everyone associated with Armada, especially the patients we serve,” Armada CEO Chris Tapia said. “We are excited to leverage the strength of our combined operations.”