“They don’t have the leadership or the proper strategy for growth, and now there’s just too much pressure being put on them by shareholders,” said Andre Ulloa, executive advisor at M&A Healthcare Advisors, speaking to McKnight’s Home Care Daily Pulse.
McKnights Home Care
By Adam Healy
Home health and hospice giant Enhabit disclosed late Wednesday that it is seeking strategic alternatives in the form of a merger, sale, acquisition or other transaction, following continued declines in its revenues and stock price. Poor leadership and corporate pressure led to the move, according to one financial expert.
“They don’t have the leadership or the proper strategy for growth, and now there’s just too much pressure being put on them by shareholders,” said Andre Ulloa, executive advisor at M&A Healthcare Advisors, speaking to McKnight’s Home Care Daily Pulse.
He noted that many investors are critical of the board and its business strategies. “How is it that LHC Group or Amedisys or even some integrated hospital systems are growing in this market and Enhabit isn’t? I think it all comes down to leadership and management,” he said.
Enhabit isn’t failing, it’s just not fulfilling expectations, another expert said.
“It’s not a fire, it’s just that they’re not growing and they’re not making money,” said Tom Lillis, a partner at healthcare merger and acquisition advisory firm Stoneridge Partners, in an interview with McKnight’s Home Care Daily Pulse. “I think they’re getting better, but I just think the leadership team ran out of runway, particularly from their investors.”
The move to explore a strategic move was not unexpected, Lillis pointed out.
“[Growth has] been flat in an overall growing-opportunity market,” he said. “When you look at their numbers year over year, it’s just been a struggle, and their predictions for the future are worse.”
Enhabit reported year-over-year declines in profits and revenues in the first quarter of 2023. It reported a profit loss of $74 million in the second quarter. The company’s stock price has declined almost 50% since going public, urging some investors to call on Enhabit to sell.
“Enhabit didn’t meet its earnings expectations for the second quarter of this year, so as a result, the valuation is less if you’re looking at it from an earnings perspective,” Ulloa noted.
In a second quarter earnings call earlier this month, Enhabit CEO Barbara Jacobsmeyer cited the shifting consumer enrollment from traditional Medicare to Medicare Advantage as a key reason for the company’s declining performance. Other market events, such as a proposed behavioral rate adjustment by the Centers for Medicare & Medicaid Services and ongoing workforce shortages are all perceived headwinds.
What’s to come
There remain opportunities for Enhabit to grow, Lillis said. The company’s hospice arm, he noted, hasn’t expanded much year over year — a good area for future growth. The segment’s net service revenue increased by 1.5%, but adjusted earnings before interest, taxes, depreciation and amortization shrank more than 22%, according to its second quarter earnings report.
Enhabit’s solicitation of strategic alternatives may yield an acquisition in the form of a buyout, according to Ulloa. He predicted that the home care giant will either get completely absorbed by a parent company, or exist as a privatized subsidiary, operating as a support or integrated component of a larger home health company. The buyer could likely be an insurance vendor, following market trends such as UnitedHealth’s recent acquisitions of LHC Group and Amedisys, he said.
Private equity firms observing the growing expansion and success of home healthcare may also be interested, said Lillis. He noted that this process will be orchestrated by investment banking company Goldman Sachs.
“I think this is a great opportunity for whoever would purchase,” Lillis said. “There’s still a number of folks out there with dry powder for investment, but this is going to be a large bite. It’s going to be interesting to see who comes to the table and how they propose.”