Brookdale Senior Living looks to unload home health and hospice segment

A divestiture would help the senior living company improve its liquidity, sources said.

Nursing home giant Brookdale Senior Living is evaluating the divestiture of its home health and hospice segment, four sources familiar with the process said. 

BofA is providing sell-side financial advice on the process, three of the people said. 

While still in the very early stages, sources said the process could ultimately produce a range of outcomes, including a sale to a PE-backed or pure play strategic buyer. “I wouldn’t rule out a PE-strategic consortium,” one person added. 

The rationale is simple for Brookdale, the largest operator of senior living communities in the United States, sources said. With the senior living industry hit hard through covid, Brookdale needs to divest the business to improve liquidity, sources said. The divestiture would be accretive and help Brookdale to pay down debt. 

Brookdale had outstanding long-term debt obligations with a carrying value of $3.9 billion and $3.6 billion as of September 30, 2020 and December 31, 2019, respectively. Liquidity was $491 million as of September 30, with two refinancing transactions completed during the latest quarter resulting in no significant debt maturities until 2022.

Complicating a potential transaction, the majority of Brookdale’s home health and hospice business is derived from the company’s core nursing home business. That said, whoever carves out and buys the segment, in theory, will need some sort of contract with Brookdale to ensure that its No.1 customer and revenue stream doesn’t go away, sources said. 

Brookdale’s home health and hospice businesses make up the lion’s share of Brookdale’s health care services segment serving 17,000 patients as of September 30. The segment also includes outpatient therapy services, as well as education and wellness programs.  

The entirety of the health care services segment produced nearly $450 million in revenue off of $25 million in operating income in 2019, according Brookdale’s financial reports. Home health and hospice made up 95 percent of revenue.  

Through the first three quarters of 2020, the segment’s adjusted EBITDA is a loss of more than $3 million, with operating income just over $1 million and revenue totaling almost $275 million.

In comparable activity this year, Amedysis, in a continued effort to bulk up its hospice business, agreed to acquire AseraCare from nursing home provider Golden Living. The deal commanded a net purchase price of $203 million.

While the Brookdale home health and hospice carve-out is unique given its ties to the parent company’s SNIFF assets, non-medical home care and hospice businesses have continued to garner robust interest from private equity sponsors through the pandemic. At the same time, publicly traded players like Amedysis are trading at robust multiples.

On the end-of-life care side, Thomas H. Lee in October inked a deal for Martis-backed Care Hospice at a roughly $750 million value. Around the same time, H.I.G. Capital struck a $580 million deal for Vistria Group’s St. Croix Hospice. Elsewhere, Advent International’s AccentCare bought Season’s Hospice & Palliative Care last month for an undisclosed price. 

Non-medical home care has also created noise in the market, with Centerbridge Partners and Vistria teaming up in a $1.4 billion deal for Help at Home. In related activity, Providence Service Corp, the nation’s largest provider of non-medical transportation services, agreed to buy Simplura from One Equity Partners in an all-cash deal valuing the operator of personal home care services at $575 million.

Brookdale declined to comment, while BofA did not return requests for comment.