With $350 Million Gentiva Deal, Addus Puts Its Money Where Its Mouth Is

On Monday, Addus HomeCare Corp. (Nasdaq: ADUS) announced what would be the biggest transaction of 2024 thus far. Its $350 million deal for Gentiva’s personal care business could reflect a tide change in the recently slow home-based care M&A market. It’s also reflective of Addus’ impressive ability to deliver on its strategic vision.

Though the Medicaid Access Rule was recently finalized – including the 80/20 provision – personal care is still insulated from the larger stroke-of-the-pen risks that exist in Medicare-certified home health care.

Perhaps it’s unsurprising, then, that the largest transactions in 2024 have been in personal care. Waud Capital acquired the home care franchise Senior Helpers for an undisclosed sum earlier this year. HouseWorks acquired AccordCare’s personal care business in Connecticut. Addus offloaded its New York personal care locations to HCS-Girling, and now has agreed to acquire Gentiva’s personal care business.

Addus’ two biggest deals of the year also reflect its strategy. It wants to expand its personal care footprint, which is its bread and butter, but not at all costs. It left a New York market fraught with regulatory landmines, and is now set to become the largest personal care provider in Texas – a state where it previously only operated hospice locations.

While highly saturated, Texas is also a home health market that providers like operating in. That means, in addition to a few other states, it could represent another value-based care market for Addus down the road. Addus sees value-based care opportunities in large personal care markets where it can operate its three service lines: personal care, home health care and hospice. It now has the first and third in that equation in Texas.

“We are optimistic that we will see additional attractive acquisition opportunities in 2024,” Addus CEO Dirk Allison said on the company’s fourth-quarter earnings call in February. “We are currently in the process of looking at personal care opportunities, which would give us a larger presence in a number of our current states. We are also looking for opportunities where we can enter new states in a material way.”

After laying out a very specific vision over the last two years, Addus has put its money where its mouth is. And halfway through 2024, it has given life to an M&A market that it may continue contributing to in the near-term future.

That’s the topic of this week’s exclusive, members-only HHCN+ Update.

Strategic prowess

Addus leaders have, over the past few years, never strayed from a very specific vision.

That vision was to continue expanding its personal care presence, and to find markets where it could – again – overlay home health on top of personal care to up its value-based care capabilities.

That vision only slightly changed with the 80-20 provision, which may or may not be implemented in six years. Allison said the company would exit markets where the provision would make it harder to operate a profitable business. It may have already gotten one of those out of the way when it exited New York.

“It wasn’t a stable environment. … We felt we could take our capital and move it to other states that were more appropriate for our programs,” Allison said earlier this month. “When we were approached to look at selling it, we decided to make that move. While we hate to leave New York, from a standpoint of financial implication, and the time we’ve had to put in, it’s a good move for us.”

Based in Frisco, Texas, Addus provides home-based care services to over 49,000 consumers through 214 locations spanning 22 states. Its personal care business currently makes up 74% of its revenue, with hospice and home health representing about 20% and 6% of revenue, respectively.

Let’s take stock of what the company has done to execute on the aforementioned strategic vision.

It acquired Tennessee Quality Care last year for $106 million, which added at least 14 home health and hospice locations to its footprint in the state, on top of eight existing personal care locations. Of importance is the fact that Tennessee is a Certificate of Need state, meaning Addus was able to both achieve the three legs of the stool in the state, while also entering a home health market with less competition.

The year prior, it acquired the Chicago-based Apple Home Healthcare. While not a huge deal – Apple Home Healthcare reportedly did around $10 million in annual revenue at the time of the sale – it aligned with the strategy: more home health care in solid personal care markets.

Even with home health care remaining a small part of overall revenue, Addus can now enter into value-based care contracts that include all three of its services in multiple states. Illinois, New Mexico and Arizona already fall into that category, and now Texas will likely be next.

“ADUS is pursuing strategic expansion in its core personal care services (PCS) business with the acquisition of Gentiva’s PCS operations for ~$350 million,” the investment banking company Stephens wrote in an analyst note. “The seven-state operation generates ~$280 million in annualized revenue serving ~16K patients per day. The deal includes three new markets for ADUS (i.e., TX, MO and NC) with TX representing a #1 market share entry and accounting for ~79% of the acquired revenues.”

As noted Monday, Addus will also be entering into Missouri and North Carolina. Even after leaving New York, the Gentiva deal has already significantly expanded the company’s footprint year to date.

Value-based care remains a small portion of Addus business, too. But those capabilities are a future-facing, nice-to-have result of recent acquisitions.

Addus’ ability to say what it’s going to do, and then doing it, unsurprisingly has worked out for the company. As of Wednesday afternoon, the company’s stock price is up 28% year over year, and up over 100% since 2020 lows.