Footprint Capital client, Stonehenge Partners, earned headlines recently in Columbus Business First for the acquisition of Queen City Hospice and Capital City Hospice. The announcement comes after the closing of the deal in January 2018. The details of the transaction are available here. Read the full text article below or subscribers can visit Business First here. We also extend our gratitude to Columbus Business First for mentioning Footprint Capital in the article.
Private equity firm Stonehenge acquires hospice company, plans hiring, not cuts
An Ohio hospice seeking a private equity buyer broke off talks with one firm once it started talking about cutting staff to boost profit.
Instead, Queen City and Capital City Hospice found a local buyer, Columbus-based Stonehenge Partners Inc., that embraced its model of shaving a few points off margin so nurses spend more time at a dying patient’s bedside. In fact, Stonehenge wants to expand the model.
The deal – facilitated by Columbus-based Footprint Capital LLC, a consultant that works to keep Central Ohio mergers and acquisitions local – closed in January for undisclosed terms. Two owners were bought out and additional capital was infused toward hiring in Columbus and Cincinnati, plus geographic expansion.
“We see expansion opportunities throughout the Midwest certainly,” said Andrew Bohutinsky, managing partner at Stonehenge. “The investment was on the smaller end for us at this point, but we would anticipate there’s a strong possibility we could put more capital to work.”
Jim Vannelle stays as president to drive the growth: He plans to start a Dayton satellite this year.
The previous owners recruited Vannelle as an equity investor and top executive four years ago from publicly traded Kindred Healthcare Inc., and he started looking for private equity six months ago when they wanted to focus on a home-health business.
“Stonehenge came in and said, ‘What can we do to help? How can we use capital influx to enhance care?’ ” Vannelle said. “That’s why Stonehenge was a perfect fit. Their commitment to quality … they blew me away.”
Small hospice agencies nationwide are merging or seeking buyers as reimbursement rates shrink, said Kathy Royer, hospice regulatory director for the trade group Ohio Council for Home Care & Hospice. Medicare increased its rates by 1 percent in October, following several years of 2 percent raises, making it harder to keep up with wages and supplies.
“That’s probably been a trend for the past 10 years,” she said.
An aging population and a nationwide push to lower health costs makes the industry attractive to private equity. Hospice focuses on comfort, emotional support and pain relief for patients with a terminal diagnosis and avoids extraordinary resuscitation efforts.
“Even with potential pressure on Medicare, we think hospice will stay strong because hospice in the end saves money,” Bohutinsky said. “They’re not in the hospital getting expensive treatments.”
Profit margins average about 20 percent in some 4,200 hospice agencies nationwide, Vannelle said. At Queen and Capital city, it’s less than 15 percent, with the difference going to keep nurses to about seven or eight patients at a time. (The median is about 11 patients, according to the latest available national statistics.)
“Our nurses have smaller caseloads and spend more time at the bedside,” Vannelle said.
“We take phenomenal care of our patients,” he said. “It puts us in a position to reach additional patients and families.”
Patient satisfaction scores reported on the federal Hospice Compare website put the Queen City location at or slightly below the national average; Columbus wasn’t recorded in the latest statistics through early 2017. At the time, the Cincinnati office had since-corrected electronic medical records issues that didn’t collect needed data, hurting its scores, Vannelle said.
A married couple who worked in the hospice industry founded the company in Cincinnati in 2012, then sold to business partners Bob James and Tony Izquierdo. Vannelle opened the Columbus office in early 2016, and it quickly grew to 90 employees, larger than Cincinnati. He’s moved the headquarters here.
The company, still incorporated as Queen City Hospice LLC, has 156 total employees and likely will add 75 jobs this year over the two cities and Dayton.
As well as directly hiring, the agency can grow through acquisition. Vannelle wants to keep other branches within a five-hour drive. The company will soon adopt a unifying brand but keep a local identity in each office’s name, such as “of Capital City.”
“When we infuse our model in a struggling hospice program, we’re able to right that ship pretty quickly … ultimately benefiting patients and families,” he said. “The size (of the entire company) isn’t going to matter as long as our patient-caregiver ratios stay the same.”
This is just the fourth active investment in a health-care company in Stonehenge’s portfolio, which is heavy in manufacturing. The firm tends to hold companies for a long time to grow them. It looks for a good mix of management, market and performance, Bohutinsky said.
“This spoke to us as an investment opportunity in the beginning not because it was hospice, but because of the management team,” he said. “With what Jim has built and the team … he’s done a great job of attracting high-quality people.”