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As UnitedHealth Group (NYSE: UNH) and Amedisys (Nasdaq: AMED) work on a divestment strategy that will satisfy regulators, a lot hangs in the balance.
For one, UnitedHealth Group and Optum’s deal for the home health and hospice provider Amedisys is one of the largest deals in the industry’s history, only trailing Optum’s deal for Amedisys’ peer, LHC Group, last year. The former deal is worth $3.3 billion and still pending, while the other was worth $5.4 billion and is finalized.
Getting the deal done is important to both parties. UnitedHealth Group is banking on home-based health care for its value-based care strategy, but is under significant and widespread antitrust scrutiny. Amedisys, on the other hand, has a good deal in place – in this market – for its shareholders.
A Jefferies analyst note suggested that, if the deal were to fall through, Amedisys’ stock price would likely fall. The agreed-upon purchase price is $101 per share, but Jefferies sees that coming down to $74 per share without the deal getting done.
All the while, if Amedisys offloads 100-plus of its locations to avoid antitrust litigation, the buyer has the chance to bolster its footprint and capabilities considerably. A regional provider could become a nationwide one. A top-10 home health provider could become a top-5 provider.
With news last week that the divestment strategy has hit a snag, there’s still a lot of dominos yet to fall.
What dominos need to fall, and where they may fall, is the topic of this week’s exclusive, members-only HHCN+ Update.
Divestment dynamics
To put things into perspective, about 1% of the entire home health market could change hands in the Amedisys divestment.
There were 11,353 active home health agencies in 2022, according to the Research Institute for Home Care (RIHC). That number has likely slightly dwindled since, due to Medicare Advantage (MA) penetration and Medicare fee-for-service rate cuts.
In a fragmented home health industry, over 100 locations changing ownership is no small deal. If the Optum-Amedisys deal is completed, Optum will become the largest provider of home health care with just about 10% of the market underneath its belt.
The divestment will likely decrease Amedisys’ footprint by about 20%. Currently, the company has 522 locations across 37 states and the District of Columbia.
Initially, Amedisys had what appeared to be a perfect partner for the divestment: a private equity-backed home health provider looking to scale.
Capitol Forum reported last week, however, that the partner had walked away from the Amedisys deal. Based on information I gathered from industry sources, I later reported that partner was, in all likelihood, the April Anthony-led Vital Caring.
The Vistria Group and Nautic Partners each own one-third of VitalCaring, with Anthony owning the final third.
VitalCaring President Luke James said earlier this year at HHCN’s Capital + Strategy conference that he thought now – despite the headwinds – was a great time to scale in home health care.
“If you have a long-term vision, and your sponsors aren’t looking to exit tomorrow, then you’ve got the patience to be able to buy when it’s tough and be really well positioned when they’re looking to exit,” he said.
Whether the divestment partner was VitalCaring or another entity, the change of heart is interesting for a couple reasons. Given how long it appears talks persisted, for example, it seems likely that the interested parties hit a snag later down the line in talks. So why is that?
One source told me that the buyer may have wanted assurance that the Amedisys referral sources that exist today would exist post-acquisition. Or, if that assurance wasn’t there, that the parties would come to an agreement on a lower price.
There’s also a lot that goes into this significant of a carve-out deal. The buyer would need to have the right leadership in place to integrate seamlessly – or risk the “snake eating an elephant” analogy.
Of course, acquiring a large home health footprint could also infuse leadership talent into the buyer’s organization.
James also mentioned the need for more home health talent at VitalCaring earlier this year.
“We’re not at a point yet where we feel like we have all the talent we need,” he said. “When we’re looking at deals that have real go-getters within, talented people that have a seat at the table within the organization – that adds a lot of value.”
If the Amedisys-divestment buyer does come back to the table, it’s likely they’ll have some leverage.
As of right now, it’s a tough time to solicit offers for around 100 home health and hospice locations. Private equity money mostly remains on the sideline. Payers – like UnitedHealth Group and Humana Inc. (NYSE: HUM) – have antitrust concerns. There aren’t a ton of home health providers who fit the bill as potential suitors, for a variety of reasons.
The locations could be split up, but the Capitol Forum did suggest Amedisys is still looking for a single buyer.
And that’s why, in my view, VitalCaring would have been perfect.
