Oak Hill hires banks for upcoming AccentCare sale

Oak Hill Partners has tapped a pair investment banks to explore the sale of AccentCare Inc after successfully turning around the home-health-services company it scooped up about seven years ago, according to three sources familiar with the matter.

The Menlo Park, California, PE firm hired JP Morgan Securities and Harris Williams to sell the company, but a formal process has not yet launched, the sources said. While nothing is imminent, an auction is anticipated to kick off in the fourth quarter of this year or Q1 2018.

Including its purchase of Sta-Home Home Health & Hospice earlier this year, AccentCare is projected to post EBITDA for 2017 approaching the $70 million range, according to one of the sources and a fourth familiar with the company.

The company ought to trade for an EBITDA multiple of at least 10x, one of these people said, suggesting a $700 million-plus valuation. A process is likely to produce a sale to another sponsor, the source added.

AccentCare through its subsidiaries provides post-acute home health services including skilled home health, personal care, hospice care, private duty nursing and care management.

The Dallas company has a presence in 11 states, including what sources described as important certificate-of-need states in the South. At the same time, AccentCare has large concentration in Texas, which is considered a tough geography to operate.

Home-health operators in states that have certificate-of-need programs benefit from a competitive standpoint, as the law prohibits players from entering the state by opening new locations. Rather, you have to buy into the state.

One of AccentCare’s certificate-of-need states is Mississippi, through which it gained a presence earlier this year when it bought Sta-Home for an undisclosed price. The home-health and hospice provider encompasses about 50 locations, making it the biggest home-care provider in Mississippi.

Turnaround

AccentCare is also considered an appealing asset due to its joint ventures with health systems and a strong management led by CEO Steve Rogers. Rogers joined AccentCare in 2012 from UnitedHealth Group‘s OptumHealth Collaborative Care. The executive was brought in alongside a new CFO, Jeff Reynolds, to lead a turnaround of the company following its disastrous merger executed a couple years earlier.

While sources say the company is running well today, AccentCare has had to overcome challenges, primarily relating to its merger with Guardian Home Care in 2010.

Shortly after buying AccentCare through its 2007 vintage buyout fund of $3.8 billion, Oak Hill bought Guardian from FFL Partners and combined the two.

The fusion of the two home-health companies didn’t go well. The combined company faced integration issues, specifically relating to the streamlining of the businesses’ separate IT and HR management systems.

AccentCare’s profitability was said to have suffered, with EBITDA rumored to have dropped to the $20 million-to-$30 million range from roughly $60 million, according to two of the sources.

While AccentCare is back in growth mode, investors are still wrapping their heads around how a recently proposed rule by the Centers for Medicare & Medicaid Services to overhaul the home-health-payment system could affect assets in the space.

Other activity

The sales process for the Oak Hill-backed company comes as JP Morgan conducts an auction for AccentCare’s New York-concentrated peer, Premier Home Health.

First-round bids for the founder-led company were submitted from about five parties at an EBITDA multiple of about 7x to 8x, Buyouts has reported. The process is said to have since narrowed to a few players. The provider of primarily nonmedical senior home-care services is projecting about $55 million in 2017 EBITDA.

Palladium Equity’s Jordan Health Services, which is projecting $65 million to $75 million in 2017 EBITDA, has also selected an investment firm for what will make its third sales process, two of the sources said.

An Oak Hill spokesperson declined to comment, while representatives of JP Morgan and Harris Williams didn’t immediately return requests for comment.

Action Item: Contact Oak Hill’s head of investor relations, Andrea Joseph, at ajoseph@oakhillcapital.com

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