LHC Group acquired by UnitedHealth Group: fairness opinion by Leerink Partners and Jefferies
Announced March 29, 2022 · One-step merger · All cash ·
DEFM14A filed May 17, 2022
Home-Based Services Home Health / Hospice
Enterprise value
$6.1B
EV / LTM EBITDA
20.8x
EBITDA $291M · 11% margin
EV / LTM revenue
2.26x
revenue $2.7B
DCF discount rate
8.5%–9.5%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$170.00
Premium—
Premium basisLHC closing price of $153.21 on March 25, 2022
StructureOne-step merger
Termination fee$180M
Reverse termination fee—
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $170.00 offer
Selected companies — EV / CY2022E Adjusted EBITDA-NCI (Leerink Partners) $130.25 – $166.50
Selected companies — EV / CY2023E Adjusted EBITDA-NCI (Leerink Partners) $137.25 – $163.50
Selected companies — P / CY2022E Adjusted EPS (Leerink Partners) $144.75 – $179.75
Selected companies — P / CY2023E Adjusted EPS (Leerink Partners) $153.25 – $177.00
Precedent transactions — EV / 2021 EBITDA-NCI (Leerink Partners) $83.50 – $109.25
Discounted cash flow (Leerink Partners) $102.50 – $176.75
52-week historical trading range (ended March 25, 2022) (Leerink Partners) $110.25 – $219.00
Wall Street analyst price targets (Leerink Partners) $143.00 – $190.00
Premiums paid analysis (one-day unaffected) (Leerink Partners) $168.75 – $246.75
Premiums paid analysis (30-day VWAP) (Leerink Partners) $150.75 – $177.50
Selected companies — EV / CY2022E Adjusted EBITDA (Jefferies) $145.26 – $163.97
Selected companies — EV / CY2023E Adjusted EBITDA (Jefferies) $144.98 – $167.40
Selected companies — P / CY2022E Adjusted EPS (Jefferies) $148.13 – $170.92
Selected companies — P / CY2023E Adjusted EPS (Jefferies) $160.06 – $181.40
Precedent transactions — EV / LTM EBITDA (applied to LHC CY2021 adjusted EBITDA) (Jefferies) $104.91 – $113.45
Discounted cash flow (Jefferies) $100.34 – $152.85
Premiums paid (informational) (Jefferies) $178.49 – $204.69
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Leerink Partners to the target board
Delivered March 28, 2022 · Fee $20.0M ($18.0M contingent on closing), $2.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate8.5%–9.5%
BasisWACC derived from capital asset pricing model
Terminal valuePerpetuity growth
Perpetuity growth2.5%–3.5%
Exit multiple—
Projection period2022E-2026E
Projections usedLHC management Forecast - two cases: Organic (no incremental acquisitions) and M&A (continued incremental acquisitions)
Implied value per share$102.50–$176.75
Two DCFs: organic case implied $102.50-$149.00 per share; M&A case implied $114.75-$176.75 per share. Cash flows discounted to present value as of December 31, 2021; stock-based compensation treated as a cash expense.
Selected public companies (8)
Amedisys, Inc. · Encompass Health Corporation · Chemed Corporation · Signify Health Inc. · Aveanna Healthcare Holdings, Inc. · Addus HomeCare Corp. · InnovAge Holdings Corp. · Pennant Group, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2022E Adjusted EBITDA-NCI | 7.4x | 14.0x | 21.0x | 17.0x–21.0x | $130.25–$166.50 |
| EV / CY2023E Adjusted EBITDA-NCI | 6.6x | 12.3x | 17.9x | 15.5x–18.0x | $137.25–$163.50 |
| P / CY2022E Adjusted EPS | 9.4x | 24.6x | 49.5x | 25.0x–31.0x | $144.75–$179.75 |
| P / CY2023E Adjusted EPS | 8.1x | 20.2x | 33.1x | 23.0x–26.5x | $153.25–$177.00 |
Selected precedent transactions (13)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2021-04 | Kindred Healthcare, Inc. | Humana Inc. | 12.5x EV/EBITDA |
| 2021-02 | Abode Healthcare, Inc. | BrightSpring Health Services, Inc. | 15.5x EV/EBITDA |
| 2020-11 | Simplura Health Group | Providence Service Corporation | 11.6x EV/EBITDA |
| 2020-10 | Care Hospice, Inc. | Thomas H. Lee Partners, L.P. | 15.0x EV/EBITDA |
| 2020-10 | St. Croix Hospice, LLC | H.I.G. Capital, LLC | 15.5x EV/EBITDA |
| 2020-09 | Help at Home, Inc. | Vistria Group, LLC and Centerbridge Partners, L.P. | 12.2x EV/EBITDA |
| 2019-10 | Hospice Compassus, Inc. | Towerbrook Capital Partners LP and AscensionHealth, Inc. | 11.8x EV/EBITDA |
| 2019-05 | AccentCare, Inc. | Advent International Corporation | 11.9x EV/EBITDA |
| 2019-02 | Compassionate Care Hospice Group, Inc. | Amedisys, Inc. | 12.6x EV/EBITDA |
| 2018-07 | CURO Health Services, LLC | Kindred Healthcare, Inc. | 14.1x EV/EBITDA |
| 2018-04 | Almost Family, Inc. | LHC Group, Inc. | 15.9x EV/EBITDA |
| 2014-11 | Encompass Health Corporation | HealthSouth Corp. | 10.0x EV/EBITDA |
| 2014-10 | Gentiva Health Services Inc. | Kindred Healthcare, Inc. | 11.1x EV/EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2021 EBITDA-NCI | 10.0x | 12.3x | 15.9x | 12.5x–15.5x | $83.50–$109.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-week historical trading range (ended March 25, 2022) | Low to high closing prices for LHC Common Stock during the 52-week period ended March 25, 2022. | $110.25–$219.00 |
| Wall Street analyst price targets | One-year forward price targets from fourteen analyst reports published within 60 days prior to March 25, 2022 of $143.00-$190.00; present value of such targets was $129.00-$171.75 per share. | $143.00–$190.00 |
| Premiums paid analysis (one-day unaffected) | All-cash transactions announced since January 2017 with transaction values of ~$4-6 billion (excluding financial services and real estate); applied 25th-75th percentile one-day unaffected premiums of 10.2% to 61.0% to LHC's March 25, 2022 closing price. | $168.75–$246.75 |
| Premiums paid analysis (30-day VWAP) | Applied 25th-75th percentile 30-day VWAP premiums of 8.4% to 27.4% to LHC's March 25, 2022 closing price. | $150.75–$177.50 |
Aggregate fee of $20 million, $2 million payable upon rendering of the opinion and the remainder contingent upon consummation of the Merger. SVB Securities previously advised LHC on its June 2021 Heart of Hospice acquisition and September 2021 HCA Healthcare asset acquisition.
Opinion of Jefferies to the target board
Delivered March 28, 2022 · Fee $20.0M ($18.0M contingent on closing)
Discounted cash flow assumptions
Discount rate10.6%–11.6%
Basisselected range of discount rates
Terminal valuePerpetuity growth
Perpetuity growth4.5%–5.5%
Exit multiple—
Projection period2022E-2026E
Projections usedLHC management M&A scenario forecasts
Implied value per share$100.34–$152.85
Present values calculated as of March 31, 2022; stock-based compensation treated as a cash expense; terminal value based on normalized CY2026 unlevered after-tax free cash flow.
Selected public companies (2)
Addus HomeCare Corporation · Amedisys, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2022E Adjusted EBITDA | 13.9x | 17.5x | 21.0x | 18.0x–20.0x | $145.26–$163.97 |
| EV / CY2023E Adjusted EBITDA | 12.7x | 15.3x | 17.9x | 15.0x–17.0x | $144.98–$167.40 |
| P / CY2022E Adjusted EPS | 21.2x | 26.2x | 31.1x | 26.0x–30.0x | $148.13–$170.92 |
| P / CY2023E Adjusted EPS | 19.1x | 22.5x | 25.9x | 22.5x–25.5x | $160.06–$181.40 |
Selected precedent transactions (12)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2021-04 | Kindred Healthcare, Inc. (Kindred at Home) | Humana Inc. | — |
| 2021-02 | Abode Healthcare, Inc. | BrightSpring Health Services, Inc. | — |
| 2020-10 | Care Hospice, Inc. | Thomas H. Lee Partners, L.P. | — |
| 2020-10 | St. Croix Hospice, LLC | H.I.G. Capital, LLC | — |
| 2020-10 | Help at Home, LLC | Centerbridge Partners, L.P./The Vistria Group, LP | — |
| 2020-09 | Simplura Health Group | The Providence Service Corporation | — |
| 2019-09 | FC Compassus LLC | Towerbrook Capital Partners, L.P./Ascension Health | — |
| 2019-05 | AccentCare, Inc. | Advent International Corporation | — |
| 2018-10 | Compassionate Care Hospice Group, Inc. | Amedisys, Inc. | — |
| 2018-04 | Curo Health Services, LLC | Humana Inc./TPG Inc./Welsh, Carson, Anderson & Stowe | — |
| 2018-04 | Jordan Health Services | Kelso & Company/Blue Wolf Capital Partners LLC | — |
| 2017-11 | Almost Family, Inc. | LHC Group, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to LHC CY2021 adjusted EBITDA) | 10.0x | 12.6x | 15.9x | 15.0x–16.0x | $104.91–$113.45 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums paid (informational) | Selected M&A transactions in healthcare providers and services and healthcare equipment and supplies industries; applied 25th-75th percentile one-day implied premiums of 16.5% to 33.6% to LHC's March 25, 2022 closing price of $153.21. | $178.49–$204.69 |
Aggregate fee of $20 million, of which a portion was payable upon delivery of the opinion and $18 million is contingent upon consummation of the Merger. Jefferies provided brokerage services to LHC in prior two years for aggregate commissions of less than $20,000.
3,000+ healthcare deal-level valuation multiples
The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $3.0B | $3.4B | $3.9B | $4.4B | 13.2% |
| Revenue growth | 12.7% | 14.0% | 13.2% | 12.5% | |
| EBITDA | $349M | $417M | $503M | $593M | 19.3% |
| EBITDA growth | 19.9% | 19.5% | 20.6% | 17.9% | |
| EBITDA margin | 12% | 12% | 13% | 14% | |
| Implied EV / EBITDA | 17.3x | 14.5x | 12.0x | 10.2x |
Year-1 growth is against LTM at announcement ($2.7B revenue, $291M EBITDA); later years are year over year.
LHC management prepared two non-public forecast scenarios for fiscal years 2022-2026: an "Organic" scenario assuming no incremental acquisitions and an "M&A" scenario assuming continued incremental acquisitions. Organic case: Net Service Revenue of $2,652M in 2022E rising to $3,549M in 2026E, with Adjusted EBITDA-NCI of $290M in 2022E rising to $474M in 2026E. M&A case: Net Service Revenue of $2,677M in 2022E rising to $4,380M in 2026E, with Adjusted EBITDA-NCI of $291M in 2022E rising to $593M in 2026E (2021A: revenue $2,220M, Adjusted EBITDA-NCI $266M).
Process notes
Two financial advisors, SVB Securities and Jefferies LLC, each delivered separate fairness opinions to the LHC Board on March 28, 2022 (oral, confirmed in writing same date). Each was paid a $20 million aggregate fee. SVB Securities ran two DCFs (organic and M&A scenarios) while Jefferies used only the M&A scenario. Jefferies was not asked to conduct a formal third-party solicitation process but contacted selected third parties at the Board's direction. No financing condition and no reverse/antitrust termination fee payable by UnitedHealth Group; LHC termination fee of $180,000,000 (a March 15, 2022 draft described a fee equal to approximately 4.63% of transaction equity value).
Other Home-Based Services fairness opinions
- Amedisys / UnitedHealth Group 2023 · 15.2x EV/EBITDA
- Enhabit / Kinderhook Industries 2026 · 10.0x EV/EBITDA
- Almost Family / LHC Group 2017 · 14.3x EV/EBITDA
- LHC Group / Almost Family 2017 · 15.5x EV/EBITDA
- Gentiva Health Services / Kindred Healthcare Services 2014 · 9.7x EV/EBITDA
- Lincare / Linde AG 2012 · 9.1x EV/EBITDA
All Home-Based Services opinions → · Leerink Partners opinions · Jefferies opinions