Humana, private equity ink $4.1B deal for Kindred
- Kindred Healthcare on Tuesday announced it will be acquired by three companies: TPG Capital, Humana and Welsh, Carson, Anderson & Stowe (WCAS) in a deal valued at $4.1 billion.
- Immediately following the acquisition of Kindred, the home health, hospice and community care businesses will be separated from Kindred and operated as a standalone company owned 40% by Humana, with the remaining 60% owned by TPG and WCAS. Humana will have a right to buy the remaining ownership interest in Kindred over time through a put/call arrangement.
- Kindred’s long-term acute care hospitals, inpatient rehab facilities and contract rehab services businesses will be operated as a separate specialty hospital company owned by TPG and WCAS.
Under the terms of the agreement, Kindred stockholders will receive $9.00 in cash for each share of Kindred common stock they hold.
As 2017 comes to a close, the deal builds on a number of cross-sector deals.
Earlier this month, CVS Health announced it would buy Aetna in a $69 billion deal. Days later, UnitedHealth's service arm Optum unveiled a $4.9 billion bid to acquire DaVita Medical Group as it builds out its provider line.
Humana and Aetna had originally tried to merge, but plans fell through earlier this year when a federal judge blocked the merger and the companies dropped the idea. Aetna was set to pay Humana a $1 billion contractual breakup fee.
Medicare Advantage was a big reason the Humana-Aetna deal was spiked and is a large reason the Humana-Kindred deal makes sense. The insurer expects its MA plan members to approach the higher end of the projected growth range of 150,000 to 180,000 members.
"Our competitors view Medicare Advantage as an exciting growth area. I think they've invested a lot to grow their platforms and to expand their positions across the board, and it's just something that we're going to have to deal with," Brian Kane, Humana's CFO, stated on an earnings call last month.
MA members would fit in well with a home health and hospice strategy.
Clues on the deal have been hiding in plain sight as the companies trimmed their businesses. Humana in November announced it would reduce 5.7% of its workforce, or about 2,700 jobs. The Louisville-based insurer last month announced it would sell its long-term care insurance business KMG America.
Kindred, for its part, had taken on a debt load with its completed acquisition of Gentiva Health Services in 2015. The Louisville operator has been shuttering long-term acute care facilities this year, including the recent move to cease operations at Kindred Hospital Kansas City.
Mergers have continued throughout the industry. PwC found in Q3 long-term care remained the most active sub-sector in volume, with 71 deals in 2017 Q3. No deals in home healthcare were disclosed in Q3, according to PwC.
The industry is shaping up to ride a wave of vertical integration as different touch points in the care continuum align and merge. While these mergers tend to not share a large amount of overlapping customers, the number of such deals in the industry could poke the bear of federal antitrust regulators reviewing the deals.
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