Gentiva Health Services acquired by Kindred Healthcare Services: fairness opinion by Barclays
Deal terms
$14.50 in cash plus 0.257 of a share of Kindred common stock per Gentiva share; exchange ratio agreed October 3, 2014 based on the 10-trading-day VWAP of Kindred common stock, implying $19.50 per Gentiva share ($5.00 of stock value). Based on Kindred's December 15, 2014 closing price, the consideration represented $19.19 per share. Gentiva stockholders expected to own approximately 12% of Kindred after closing.
Implied value per share by method vs. $14.50 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Barclays to the target board
Discounted cash flow assumptions
After-tax unlevered free cash flows calculated from tax-affected EBITDA less capital expenditures and adjusted for working capital changes; net debt as of June 30, 2014 subtracted; shares computed under treasury stock method.
Selected public companies (10)
Amedisys Inc. · Chemed Corp. · Almost Family Inc. · Addus HomeCare Corp. · LHC Group, Inc. · The Ensign Group, Inc. · Select Medical Holdings Corp. · Skilled Healthcare Group, Inc. · HealthSouth Corp. · Kindred Healthcare, Inc. (KND)
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / Expected 2014 Adjusted EBITDA (Gentiva peers) | 8.6x | 9.1x | 12.9x | 8.5x–9.5x | $14.36–$19.25 |
| EV / Expected 2015 EBITDA (Gentiva peers) | 7.4x | 8.8x | 11.1x | 8.0x–9.0x | $15.78–$21.15 |
| EV / Expected 2014 EBITDA (Kindred peers) | 6.2x | — | 8.5x | 7.0x–8.5x | $18.29–$27.18 |
| Adjusted EV / Expected 2014 EBITDAR (Kindred peers, rent capitalized at 6.0x) | 6.6x | — | 8.0x | 6.5x–8.0x | $18.24–$30.42 |
Selected precedent transactions (13)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2006-01 | The Healthfield Group | Gentiva | 9.7x TV / LTM EBITDA |
| 2010-05 | Odyssey HealthCare | Gentiva | 11.5x TV / LTM EBITDA |
| 2011-04 | Regency Hospice | Curo Health Services | 9.5x TV / LTM EBITDA |
| 2011-08 | Professional HealthCare | Kindred Healthcare | 9.0x TV / LTM EBITDA |
| 2011-11 | SouthernCare | Kohlberg & Company | 9.5x TV / LTM EBITDA |
| 2011-11 | SeniorBridge Family Companies | Humana | 10.0x TV / LTM EBITDA |
| 2012-06 | Community Hospice | Curo Health Services | 10.8x TV / LTM EBITDA |
| 2012-08 | IntegraCare Holdings | Kindred Healthcare | 8.3x TV / LTM EBITDA |
| 2012-10 | Celtic Healthcare | The Washington Post | 9.3x TV / LTM EBITDA |
| 2013-01 | Guardian Healthcare Group | Envision Healthcare | 9.1x TV / LTM EBITDA |
| 2013-09 | Harden Healthcare | Gentiva Health Services, Inc. | 11.1x TV / LTM EBITDA |
| 2013-11 | SunCrest Healthcare | Almost Family | 9.9x TV / LTM EBITDA |
| 2014-04 | Great Lakes Caring | Wellspring Capital | 8.5x TV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| TV / LTM Adjusted EBITDA (LTM ended June 30, 2014 of $180 million) | 8.3x | 9.5x | 11.5x | 9.0x–10.5x | $14.65–$21.62 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis - Gentiva | Intra-day trading prices of Gentiva common stock ranged from $7.35 to $13.85 during the 52 weeks preceding Kindred's public offer (May 14, 2013 to May 14, 2014), and from $13.30 to $18.93 from May 15, 2014 to October 7, 2014. | $7.35–$18.93 |
| Historical Share Price Analysis - Kindred | Intra-day trading prices of Kindred common stock ranged from $13.13 to $26.81 from October 7, 2013 to October 7, 2014, and $18.80 to $26.81 from May 15, 2014 to October 7, 2014; Kindred priced a nine million share public offering at $23.75 on June 16, 2014. | $13.13–$26.81 |
| Analysis of Equity Research Analyst Price Targets - Gentiva | Analyst price targets for Gentiva ranged from $7.00 to $11.00 before the May 15, 2014 tender offer and from $17.25 to $20.00 after the tender offer, in line with the $19.50 implied merger consideration. | $17.25–$20.00 |
| Analysis of Equity Research Analyst Price Targets - Kindred | Post-announcement Kindred analyst price targets implied an equity value range of $17.00 to $27.00 per Kindred share (with an outlier at $42.00), versus Kindred's October 7, 2014 closing price of $19.96. | $17.00–$27.00 |
| Pro Forma Merger Analysis | Barclays reviewed the capitalization of the pro forma combined company and the pro forma impact of the transaction on current and future financial performance and credit profile, including projected 2015 and 2016 combined company EPS, taking into account expected synergies estimated by Kindred management. | — |
$12 million payable on completion of the merger; $2 million paid upon delivery of the Barclays opinion. Barclays is a lender to both companies' credit facilities and administrative agent for Gentiva; prior financing roles for both Gentiva (Harden acquisition, $925 million senior secured credit facilities) and Kindred ($1,750 million senior secured credit facilities, $500 million senior secured notes, interest rate swap counterparty).
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $2.0B | $2.1B | $2.1B | $2.2B | 2.6% |
| Revenue growth | 2.1% | 2.1% | 2.4% | 3.3% | |
| EBITDA | $208M | $221M | $236M | $258M | 7.4% |
| EBITDA growth | 10.1% | 6.3% | 6.8% | 9.3% | |
| EBITDA margin | 10% | 11% | 11% | 12% | |
| Implied EV / EBITDA | 8.8x | 8.3x | 7.8x | 7.1x |
Year-1 growth is against LTM at announcement ($2.0B revenue, $189M EBITDA); later years are year over year.
Barclays relied on the Gentiva management "business model case" projections covering the third and fourth quarters of fiscal 2014 through fiscal 2018. Gentiva's expected 2014 Adjusted EBITDA (based on actual results plus the business model case) was $189 million and expected 2015 EBITDA was $208 million; LTM Adjusted EBITDA for the twelve months ended June 30, 2014 was $180 million. Kindred figures used in the comparable company analysis (2014E EBITDA of $382 million and 2014E EBITDAR of $712 million) were based on Wall Street research estimates, and expected synergies were based on Kindred management estimates.
Process notes
Other Home-Based Services fairness opinions
- Lincare / Linde AG 2012 · 9.1x EV/EBITDA
- Almost Family / LHC Group 2017 · 14.3x EV/EBITDA
- LHC Group / Almost Family 2017 · 15.5x EV/EBITDA
- Odyssey Healthcare / Gentiva Health Services 2010 · 9.8x EV/EBITDA
- LHC Group / UnitedHealth Group 2022 · 20.8x EV/EBITDA
- Amedisys / UnitedHealth Group 2023 · 15.2x EV/EBITDA