TPG, WCAS-backed Kindred Healthcare fields buyout interest

Update: After this report was published, Humana announced an agreement to acquire the remaining 60 percent interest in Kindred at Home from TPG and WCAS. The acquisition assigns Kindred at Home an enterprise value of $8.1 billion, which includes Humana’s existing equity value of $2.4 billion associated with its current 40 percent minority ownership interest.

Humana said Kindred at Home’s home health business would be integrated into its Home Solutions business, while announcing that it intends to divest majority stake in its hospice and community care operations.

TPG and Welsh, Carson, Anderson & Stowe are evaluating a sale of Kindred Healthcare, after receiving inbound interest for the operator of transitional care hospitals and provider of rehabilitation care, according to four sources familiar with the matter. 

Deal conversations are occurring with a limited, single-digit-number of private equity groups, the people said.

Barclays and Guggenheim Securities are providing sell-side financial advice, they said.  

A potential transaction is expected to value the Louisville, Kentucky-based company at more than $1 billion, some of the sources said. 

Kindred Healthcare cares for medically-complex and rehab-intensive populations through its long-term, acute-care hospitals, inpatient rehabilitation facilities and contract rehabilitation services businesses. Also called transitional care hospitals, the LTAC facilities offer the same in-depth care patients would receive in a traditional hospital or intensive care unit, but for an extended recovery period, Kindred says. 

Although there has historically been more uncertainty around facility-based LTACs, a more capital intensive healthcare model, Kindred Healthcare has seen good organic growth under TPG and WCAS, sources said. The pandemic environment has been a boon for Kindred Healthcare, sources said, providing relief to overwhelmed short-term hospitals and supporting a growing number of patients recovering from covid and in need of facility-based rehab. 

TPG and WCAS have jointly owned the business since its acquisition of Kindred Healthcare alongside Humana, completed in July 2018. The deal valued the company at $4.1 billion including debt. 

Through the 2018 transaction, two separate companies were formed: Kindred Healthcare, which encompasses the LTAC and rehab assets, and Kindred at Home, which includes Kindred’s home health, hospice and community care businesses. 

While TPG and WCAS together own all of Kindred Healthcare, the firms own a combined 60 percent in Kindred at Home in partnership with Humana, which owns the remaining 40 percent. 

As disclosed at the time of the deal’s announcement, Humana ultimately will have the right to acquire the remaining ownership interest in Atlanta-based Kindred at Home through a put and call arrangement.

As disclosed in an SEC filing, “the agreement with the Sponsors includes a put option under which they have the right to require Humana to purchase their interest in the joint venture starting at the end of year three and ending at the end of year four post close.”  If the option is not exercised at the time – which implies July of this year – “Humana has a call option under which it has the right to require the Sponsors to sell their interest in the joint venture to Humana beginning at the end of year four and ending at the end of year five post close,” as per the agreement.

With the growth in demand for home health and hospice services, the assumption is that Humana wants and will acquire the remaining stake as soon as it becomes an option, sources said. 

One source pointed to a recent executive announcement at Humana that suggests home health is a top priority for the health insurer. Humana in March announced that Susan Diamond, who since 2019 has led Humana’s home-based care efforts, would assume the additional role of interim CFO, effective June 1. 

That said, Humana has made other notable pushes into the home. The company in February announced a partnership with DispatchHealth, a Denver startup that sends emergency and acute care medical teams to patients in their homes.

Of course, Humana would ultimately have the ability to explore different paths for the home healthcare and hospice care assets making up Kindred at Home. For example, sources said Humana could ultimately sell or take public the hospice business.

Kindred at Home, which includes the former Gentiva Health Services, has grown significantly under the consortium, sources have said, as demand for healthcare services in the home have only accellerated through the covid environment. Around the same time the Kindred transaction was completed in 2018, Humana, TPG and WCAS completed a $1.4 billion deal for Curo Health Services, combining it with the hospice business of Kindred.

TPG, Barclays and Humana declined to comment. WCAS, Kindred, and Guggenheim did not return PE Hub’s requests for comment.