Humana takes different tack in partnering with PE on healthcare deals

  • Inbound interest: Talks were held with 2 more strategics
  • Underscores Humana’s intentions to funnel patients through its own doctor groups
  • Hospice-services company posts $100 mln-plus Ebitda

Thomas H. Lee’s $1.4 billion sale of hospice-services provider Curo Health Services offers a seemingly handsome outcome for the Boston buyout shop, while it also reinforces Humana’s intentions to proactively drive growth through vertical integration.

Humana, TPG Capital and Welsh, Carson, Anderson & Stowe — the same group that teamed to buy Kindred at Home, Kindred’s home-health and hospice business — is now buying one of the country’s largest independent hospice-services companies.

THL declined comment. The $1.4 billion valuation is almost twice the $730 million price the company reportedly traded hands for in 2014, when the firm bought the provider from GTCR in a secondary buyout.

Additional financial information was not provided by the parties. Curo generates adjusted Ebitda in the $100 million to $120 million range, a person with knowledge of the matter said.

Inbound interest

The deal is the result of inbound strategic interest fielded earlier this year, the source said, adding that Curo began exploring options after a party made an overture in February.

Discussions with three strategic parties were held, including the Humana consortium, the person said.

The Humana buyer group, which joined later in the sales process, moved fast as soon as Kindred shareholders on April 5 approved the company’s $4.1 LBO, the person added.

In the pending Curo and Kindred at Home transactions, Humana is poised to take a 40 percent interest in the companies, with TPG and WCAS owning the rest. In connection with the Kindred LBO, the sponsors will separately own and operate Kindred’s specialty hospital operations.

Sources have speculated that publicly traded home-health and hospice company Amedisys was one of the other parties around Curo in the limited process. Curo’s CEO, Larry Graham, is the former CEO of Amedisys, while COO Alice Ann Schwartz also came from Amedisys.

Besides further validating a sector producing significant buzz in the past several months, the Curo transaction emphasizes Humana’s growth strategy.

After its $37 billion deal with Aetna fell apart in 2017, Humana has taken a different approach than other insurers. Rather than pursuing an alternative megadeal, the health insurer has pushed to vertically integrate with healthcare providers in a manner similar to UnitedHealth’s Optum.

Other companies in the fallout of busted health-insurer deals have chosen different paths.

After health insurer Anthem last year walked away from its $48 billion merger with Cigna, the latter in March struck an even larger deal, agreeing to buy pharmacy-benefits manager Express Scripts for $67 billion.

Aetna, meanwhile, agreed to be taken out by CVS for $69 billion after its deal with Kindred died.

Humana’s approach may have to do partly with the fact that CEO Bruce Broussard has a provider background, the source said.

Broussard formerly led US Oncology, a physician-practice-management company serving oncologists, through Welsh Carson’s $2.16 billion sale of the asset to McKesson in 2010.

The insurer’s strong push into home health and hospice also aligns with a broader trend of managed-care providers doing deals to better manage costs across the healthcare system.

Because Humana is one of the largest Medicare Advantage providers, buying up home-health and hospice providers is a means to improve care coordination, funnel patients to its own providers and ultimately bend the cost curve.

Humana also recently launched a new company called Conviva to house primary-care practices in South Florida and Texas.

Jefferies offered sell-side financial advice to Curo, while Evercore provided banking advice to Humana.

Fried, Frank, Harris, Shriver & Jacobson and Manatt, Phelps & Phillips offered counsel to Humana. Debevoise & Plimpton and Mintz Levin provided counsel to TPG and WCAS; Ropes & Gray offered additional counsel to WCAS; and Kirkland & Ellis provided counsel to Curo.

Representatives of TPG and THL declined to comment on Monday, while those with Welsh Carson and Humana didn’t immediately return requests for comment.

Action item: Read more about other sector activity on the horizon – Frazier Healthcare nears sale of Abode Healthcare.

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