Kindred Sells on the Cheap

Strange Tony,

Kindred executives and board began exploring the sale of the company to private equity firms in Spring 2016.  Kindred purchased Gentiva and Centerre in early 2015 in order to become America's premier post acute care company.  Just over a year later they began a sale process that will result in the fracturing of the company's core strategy.

Kindred executives had the gall to use Wall Street analyst comments as support for their sellout

"There still isn't a clear strategy here other than survival."--Mizuho Securities 11-7-2017 

That statement is rather damning to senior executives and the board as they are responsible for corporate strategy.

"Even after the SNF business sale, KND remains highly leveraged" -- Bank of America/Merrill Lynch  11-7-2017

Leverage soared because of the botched sale of the nursing home division.  Dumping the SNF business on the cheap hurt Kindred's balance sheet.  Kindred executives and the board loaded the company with debt.  The irony is they will sell a levered Kindred to private equity firms who utilize even higher leverage. 

The buyout process was marked by an unusual development.  The longer the bidding went on the lower the offers became.   They ticked up slightly at the very end.

The consortium is buying Kindred for 8x projected 2018 EBITDA.  When Humana goes to buyout the 60% owned by TPG and WCAS it will pay 10.5 to 11.5 EBITDA.  Should EBITDA remain stable the two private equity firms will garner a premium of 31 to 44% relative to their initial investment.  How much cash will the consortium have pulled out of Kindred prior to the parties exercising their put/call option?

Kindred employees have been told there is no raise again this year and the new owners will be exploring benefits and compensation.  Gentiva employees experienced a significant benefit reduction prior to joining Kindred.  Kindred's core value is taking care of their people, but that does not seem to include employees.

Humana CEO Bruce Broussard said Kindred's cash would be used for acquisitions.

On the home side, we'll continue to build out geographic presence over time. It's not an urgency for us today, but we would do it through the Kindred platform. They, traditionally, as you probably know, have always been in the market of buying smaller agencies and being able to expand their geographic coverage. And so we would do it through the capital that would be coming from the cash flow of the Kindred and use it from that particular capital base.

Also, the consortium will set aside up to $10 million for retention bonuses to entice Kindred leaders to stay until the end of 2018.  Rest assured this pot of money will be targeted toward the executive suite, which will be richly rewarded in the buyout.  But that's for another post. 

Anonymous (hoping for a Humana like raise and bonus)