‘Personal Care Is Ripe for Disruption’: Providence to Acquire Simplura in $575M Deal

‘Personal Care Is Ripe for Disruption’: Providence to Acquire Simplura in $575M Deal

The Providence Service Corporation (Nasdaq: PRSC), one of the nation’s largest managers of non-emergency medical transportation programs, has entered into a definitive agreement to acquire home-based care organization Simplura Health Group.

Expected to close in the fourth quarter of this year, the all-cash transaction places an enterprise value of $575 million on Simplura, which is owned by One Equity Partners. Strategically, the move allows Providence to combine its existing transportation and nutrition services with Simplura’s in-home care offerings, positioning the Atlanta-based company as a key player in the social determinants of health movement.

“Above all, Simplura advances our vision to create the nation’s preeminent social determinants of health company,” Daniel Greenleaf, president and CEO of Providence, said during a Tuesday morning conference call.

Providence delivers transportation and other care management services through its wholly owned subsidiary, LogistiCare Solutions LLC.

On its end, the New York-based Simplura operates a growing network of both home health and non-medical personal care agencies, employing roughly 14,000 caregivers. Its network currently spans seven states.

“We view Simplura as the third leg of the stool,” Greenleaf said. “We already are the leader in providing reliable, non-emergency transportation for patients to and from point of care. This year, we started to offer valuable food delivery programs for food-insecure members. With Simplura, we’re adding non-medical personal care in the home to our repertoire.”

Simplura provides over 20 million hours of non-medical personal care services annually, primarily to Medicaid-eligible patient populations, including seniors and individuals with disabilities.

Providence is just the latest to shift focus to social determinants of health, or the non-medical factors that influence a person’s overall health and well-being. Researchers believe social determinants influence more than 80% of all health outcomes.

Simplura’s financial upside

Providence’s pre-existing relationship with One Equity Partners and desire to expand into home-based care made Simplura a perfect acquisition target, according to Greenleaf. The company’s decision to go after Simplura has only been further solidified amid the ongoing COVID-19 emergency.

“Care is moving away from institutions and into the home,” he said. “Not only is the home the lowest-cost site of care, it is the safest site of care and the one most preferred by patients.”

Financially, Providence expects the transaction to be immediately accretive to its adjusted earnings per share. It additionally projects a relatively short payback period due to Simplura’s “attractive cash flow profile.”

With nine deals over the last five years, Simplura Health Group is normally the one spearheading a strategic acquisition. Its most recent acquisition was for Personal In-Home Services, announced in January 2019.

“I couldn’t be more thrilled to join forces with Providence, as we aim to take Simplura to the next level and maximize the value of the franchise we’ve built,” Dave Middleton, president and CEO of Simplura, said during the conference call.

Simplura’s revenue for the trailing 12 months ending June 30 was $463.1 million, with an EV multiple of 11.6 times. LogistiCare’s revenue over that same period was $1.428 billion, in comparison.

Apart from its ability to create a social determinants of health powerhouse, the deal made sense for Providence due to the remaining financial upside Simplura brings to the table. Simplura’s valuation is “well-below the corresponding multiple averages” for some of its peers, including Amedisys Inc. (Nasdaq: AMED), LHC Group Inc. (Nasdaq: LHCG) and Addus HomeCare Corporation (Nasdaq: ADUS), according to Providence CFO Kevin Dotts.

“Simplura’s closest public peer — Addus HomeCare — trades at a comparable multiple of approximately 19 times,” Dotts said on the conference call. “We see an opportunity for multiple expansion of the combined businesses going forward.”

Following the completion of the Simplura deal, Providence’s overall revenue mix will be 76% non-emergency transportation and 24% home care. Its payor mix will be 53% managed care organization and 47% state Medicaid agencies.

Jefferies LLC is serving as lead financial advisor to Providence, with Deutsche Bank Securities Inc. also providing financial advice. Gibson, Dunn & Crutcher LLP is serving as Providence’s legal advisor.

Guggenheim Securities LLC is serving as exclusive financial advisor to Simplura, with Kirkland & Ellis LLP serving as legal advisor.

A ‘massive market’

While COVID-19 has created some near-term speed bumps for Simplura, Providence is confident in its long-term outlook. About 21% of the total U.S. population is projected to be older than 65 by 2030, with Medicaid speeding on home- and community-based service also projected to rise moving forward.

The personal care market is estimated to grow to about $100 billion by 2024, growing at an annual rate of between 9% and 14% after that, according to supplemental information prepared by Providence.

“We see a massive opportunity here,” Greenleaf said.

That dwarfs non-emergency transportation, which has an addressable market of about $8 billion.

“Our entrance into home care significantly expands a total addressable market in a faster growing segment of health care with favorable tailwinds,” Greenleaf added, noting that Providence’s board is “intimately” familiar with the home health space.

Of course, not all in-home care providers are able to capitalize on demographic tailwinds and skyrocketing demand. The recruitment and retention of in-home care workers remains a challenge, though many businesses have begun to offer “upskilling” and perks programs to encourage staff members to stick around.

That’s not as big of a concern with Simplura, which has a strong track record of retaining its employees.

“The lower than [the industry average] turnover rate is particularly important for a staffing-driven business and underscores their excellent relationship with their caregivers,” Greenload said.

In addition to transportation and nutrition, Providence’s existing portfolio of supportive care services includes medication management, behavioral health and remote monitoring services. The company also has “unique technology, risk and data capabilities,” leadership pointed out.

Providence believes those technology capabilities will be particularly valuable in driving growth in the future, especially as more payers look to enter into value-based arrangements with home-based care entities.

“Personal Care’s particularly ripe for disruption with an opportunity to leverage technology and data to drive quality, improve efficiency and drive out waste,” Greenleaf said. “Over time, we believe many of these services will be bundled into a more integrated, value-based solution suite, which will drive ease of access and better outcomes for payers and consumers alike.”

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