Addus HomeCare Corporation (Nasdaq: ADUS) is selling its New York personal care business, along with its fiscal intermediary services for the state’s consumer-directed care program.
The company announced Tuesday that it will offload its New York operations to HCS-Girling, another home-based care provider. The divestment will be worth “up to” $23 million for Addus, the company said, and the transaction is not yet closed. Addus will use the money to reduce the outstanding balance on its revolving credit facility.
“We are pleased to reach this agreement with HCS-Girling to divest our New York personal care operations and exit the state,” Addus CEO Dirk Allison said in a statement. “This has been a challenging market for Addus and no longer fits our growth strategy. We do not have the opportunity to offer all three levels of home care services there, and the well documented program challenges and start-and-stop changes in the state’s approach have consumed a disproportionate amount of management resources for limited financial contribution.”
Based in Frisco, Texas, Addus provides home care, home health and hospice services to more than 49,000 consumers across 214 locations spanning 22 states.
Though personal home care makes up the majority of its revenue, Addus wants to layer home health and hospice services on top of its personal care footprint to enable value-based care capabilities.
As Allison also mentioned, New York has had significant issues with its Consumer Directed Personal Assistance Program (CDPAP), a program where home care providers act as fiscal intermediaries to seniors and their chosen caregivers.
Outside of CDPAP, the state generally has been a difficult one to operate in for home care providers. Wage mandates, rate issues and other factors have contributed to that.
“We expect exiting New York will be immaterial to our consolidated earnings and will lead to a modest expansion in our margin profile,” Allison said. “We believe we can have a greater impact for both our clients and our shareholders by focusing on and growing other more strategic markets. HCS-Girling has a solid reputation for personalized, professional care for customers in their own homes, and we are confident that our customers in the New York market area will continue to receive excellent care.”
Addus plans to be active in M&A in 2024, mostly by expanding its existing personal care footprint and, again, layering home health and hospice capabilities on top of that.
In this case, New York’s juice didn’t appear to be worth the squeeze.
“We look forward to the opportunity to expand our personal care service coverage in the New York market,” Agnes Shemia, the co-founder and co-CEO of HCS-Girling, said in a statement. “Addus and HCS-Girling have a shared commitment to provide safe, quality care to more customers in the preferred home setting, and we will build upon the excellent reputation that Addus has already established in our market. We welcome the dedicated Addus employees and caregivers to the HCS-Girling team as we bring together our shared expertise and experience and extend our market reach.”
The investment banking company Jefferies noted on Tuesday that the move also allows Addus to insulate itself from further risk in the New York market.
“Addus’ decision to sell its operations in the state of NY allows management to exit a market and book of business that has seen fundamental degradation in recent years caused primarily by changes to state regulations, particularly in the CDPAP program,” the Jefferies analyst note read. “Given other upcoming changes to NY State’s personal care program and the relatively minimal EBITDA contribution/margins the business brings to Addus, management’s move to exit is prudent, in our view.”
Companies featured in this article:
