After months of rumors swirling about a deal, Brookdale Senior Living (NYSE: BKD) has announced the divestment of a majority stake in its home health and hospice business, Brookdale Health Care Services. The senior living giant is selling an 80% interest in its home health and hospice business (including its outpatient therapy business) to HCA Healthcare (NYSE: HCA), the Tennessee-based health system.
The sales price is $400 million, implying a $500 million valuation for 100% interest. This comes to about 1.36x revenues for the trailing four quarters ended December 30, 2020, and perhaps 18x to 20x 2021 normalized EBITDA. Last year, our colleagues at The SeniorCare Investor wrote that it would be a home run if Brookdale could get any price north of $400 million, so maybe this is a grand slam since they got that price and get to keep a 20% share.
Revenues at this division, which has 57 home health agencies and 22 hospice agencies across 26 states, plus 84 outpatient therapy locations, have been declining sequentially nearly every quarter for a year and a half. After a near-term peak of $114.4 million in the second quarter of 2019, revenues have dropped 19% to $91.9 million in the fourth quarter of 2020. Likewise, average daily home health and hospice census has decreased from 17,506 in 2019’s second quarter to 14,812 in last year’s third quarter, representing a 15% drop. Historically, about 50% of the home health and hospice patients have come from within Brookdale communities, and 50% outside. Obviously, HCA wants to maintain a close relationship. Outpatient therapy revenues represent just 6% of the total in the health care services division.
This is a good move for Brookdale since it provides some much-needed cash, and by keeping a 20% interest the company can participate in any upside, which most industry analysts believe will be accruing to home health and hospice providers. The other reason for selling was that the profitability of the division was extremely uneven, and for three quarters in 2020, it operated at a loss. All of the trends had been negative for Brookdale, so this lets management focus on turning around its core seniors housing business and start to get census back on track.
For HCA Healthcare, this is a big jump into the home health and hospice industry. The health system has traditionally focused on building its network of hospitals through M&A, according to our Healthcare M&A Deals Database. But now with this new acquisition, it can create a dynamic network of hospital-based care and home care for its patient base.