Pennant Group Purchases Open Heart Hospice

The Pennant Group, Inc. (NASDAQ: PNTG) has acquired Amarillo,Texas-based Open Heart Hospice. The organization will rebrand as Kinder Hearts Hospice of Amarillo. Financial terms are confidential.

The Pennant Group’s  (NASDAQ: PNTG) acquisition strategy is fueling growth in both the near- and long-term for the company’s home health and hospice segment. Pennant has been very active in the M&A market during the past two years, with additional transactions waiting in its pipeline. 

“We are excited to expand our presence into the Texas Panhandle,” said Pennant CEO Danny Walker. “With affiliate operations in Abilene, Lubbock, and Wichita Falls, this acquisition is an excellent fit for our cluster model and opens the door to further expansion and long-term growth opportunities in the region.”

Demographic tailwinds have been fueling a thriving hospice market in Texas. The Lone Star State has the third largest elderly population in the nation, according to the Texas Demographic Center, a state institution. The number of Texans 65 or older grew by 49.5% between 2000 and 2014. Only California experienced a higher rate of increase among their senior population.

Texas ranks 15th among the states in hospice utilization, with 52.8% of Medicare decedents electing hospice in 2018, according to the National Hospice & Palliative Care Organization. Utah had the highest rate of utilization at 60.4%.

Pennant, which owns and operates hospice provider Cornerstone Healthcare, was spun off in 2019 from The Ensign Group (NASDAQ: ENSG). Pennant retained Ensign’s hospice, home health and senior living operations. The company in February increased its revolving line of credit by $75 million to a total $150 million, pledging to apply those resources to buying new operations.

Among acquisition targets, Pennant seeks smaller, financially stable operations that need more resources or capital to support their expansion. Many of the companies operate with single-digit margins at the time they are acquired, but start to see increases within the first three years, according to Walker. These growth trends often continue for as long as a decade.

“These acquisitions have strong reputations in their local communities and represent key growth opportunities for these markets,” Chief Investment Officer Derek Bunker said in a second quarter earnings call. “This process can be a drag on results as field leaders temporarily direct some resources from existing to newly acquired operations. It’s important to emphasize that each agency we acquire multiplies our short- and long-term growth opportunities.”

Pennant operates 65 home health and hospice agencies, 51 senior living operations, and mobile diagnostics and lab operations located across 14 states, with 23 of the senior living assets subject to leases with third-party landlords, as well as mobile diagnostic services and clinical laboratory operations. Pennant also manages 28 senior living communities pursuant to new, long-term triple-net leases with Ensign subsidiaries.

The company’s Home Health and Hospice Services segment revenue reached $78.1 million in the second quarter of 2021, up $20.1 million or 34.7% from the prior year’s period. Pennant’s hospice business brought in $36.8 million in Q2, up from $32.6 million in the second quarter of 2020.

The Pennant Group’s recent deals include the purchase of Sacramento, Calif.-based First Call Hospice. Pennant completed several transactions during the second half of 2020. Last October brought the acquisition of Harmony Hospice in Las Vegas, which had been affiliated with two other hospices that Pennant had purchased: Prime Hospice, located near Phoenix, and Harmony Hospice of Arizona. Financial terms of these deals were undisclosed.

In July last year, Pennant also acquired hospice and home health assets of Signature Health Care at Home for an undisclosed sum, each with multiple locations throughout southeastern Idaho and northern Utah. Pennant also completed a number of home health acquisitions.

“We are excited about the prospects in our home health and hospice deal pipeline, and our ability to continue growing through the acquisition of strategic and underperforming agencies,” Bunker said in an earnings call. “Overall, we’re positioned to do very well and to continue our acquisition strategy.”