On Tuesday, leaders of Addus HomeCare Corp. (Nasdaq: ADUS) defined the reasoning behind its pending acquisition of Gentiva's private care belongings. In addition they advised that extra acquisitions may very well be on the way in which.

In line with Dirk Allison, CEO of Addus, the primary drivers behind a extra aggressive acquisition technique are the Medicaid Entry Rule and value-based care capabilities.

“We imagine it’s important for private care suppliers to have scale and broad geographic protection within the states the place they function to achieve success, notably in Medicaid managed care states and because of the ultimate Medicaid Entry Rule,” Allison mentioned Tuesday in the course of the firm’s second-quarter earnings name. “This scale and protection helps facilitate the event of value-based contracting preparations, permitting these suppliers to unfold prices throughout a bigger income base and supply higher alternatives for significant advocacy with the states the place they function, whereas additionally fostering extra favorable hiring and retention dynamics. This perception led us to pursue this acquisition with Gentiva.”

Addus, based mostly in Frisco, Texas, gives house well being care, house healthcare and hospice companies to roughly 49,500 customers by way of 214 places in 22 states.

Addus agreed in June to accumulate Gentiva's private care belongings for $350 million. Gentiva consists of the non-public care and hospice belongings of what was previously Kindred at Dwelling. When Humana Inc. (NYSE: HUM) absolutely acquired Kindred at Dwelling, it retained the house care belongings and divested the non-public care and hospice belongings.

Gentiva now focuses extra on house palliative care and hospice care, permitting Addus to additional develop its private care providing.

As soon as the deal closes, Addus will develop into a number of new states and also will turn into the biggest supplier of house and community-based companies (HCBS) in Texas.

Addus has additionally paved the way in which for extra offers sooner or later, following its current secondary share providing that was accomplished on the finish of June.

“With the help of each Financial institution of America and Jefferies, together with different funding banking companions, we have been in a position to full a profitable fairness providing that resulted within the elevating of internet money proceeds of roughly $176 million after the prices of the fairness providing,” Allison mentioned. “Our intention, as we’ve got achieved beforehand following related fairness choices, is to make use of these funds over the subsequent 12 to 24 months to allow us to proceed to accumulate acquisitions of the scale and sort that may ship incremental worth to our shareholders.”

Within the quarter, Addus posted internet service revenues of $286.9 million, up greater than 9% year-on-year. Private care revenues accounted for $212.8 million of that, up 7.3% year-on-year.

Dwelling well being revenues rose to greater than $18 million, up 57% year-over-year. Hospice revenues, in the meantime, rose greater than 11% year-over-year to $56 million.

“As soon as the [Gentiva deal] has closed, Addus would be the primary supplier of non-public care companies within the state of Texas, which is primarily a managed Medicaid market,” Allison mentioned. “As well as, this transaction offers us a bigger presence in Arkansas, strengthens our non-public pay and Veterans Affairs companies in California and Arizona, provides a location in East Tennessee to our present operations within the state, and gives entry to each Missouri and North Carolina.”

Strike whereas the iron is sizzling

Addus' private care section continues to enhance when it comes to hiring. Within the second quarter, the corporate mentioned it set a document, averaging 86 hires per enterprise day. It additionally mentioned income remained at “traditionally low” ranges.

Medical recruiting, however, has lagged behind private care recruiting for the reason that top of COVID-19. However that space, too, has returned to a extra “normalized, pre-COVID recruiting setting,” Allison mentioned.

Allison additionally indicated that he believes the Medicare house well being cost setting will “reasonable over the subsequent a number of years.” The Facilities for Medicare & Medicaid Companies (CMS) has made cuts to house well being funds over the previous two years and has proposed new cuts by 2025.

Along with rising its measurement following the implementation of the Medicaid Entry Rule and increasing its value-based care capabilities, Addus sees this as a chance to accumulate given the dearth of competitors for belongings.

Since 2021, the variety of mergers and acquisitions in house care has declined, primarily attributable to excessive rates of interest.

“Realistically, we haven't seen plenty of competitors over the past 12 to 18 months,” Allison mentioned. “There's been the occasional smaller strategic participant that's purchased a number of offers on an area foundation. From a PE standpoint, it's been actually gradual when it comes to competitors just lately. Now, if charges come down in September, as everybody expects, there's clearly going to be a degree the place PE comes again and that's superb. It's a market the place we've all the time operated with competitors from these folks up till the final 12 months or so.”