Acquisitions, Divestitures, and Joint Venture Activities

12 Months Ended

Dec. 31, 2021

Acquisitions, Divestitures, and Joint Venture Activities

2021 Acquisitions

On July 1, 2021, the Company purchased Heart n' Home Hospice for $50.1 million, which included seven wholly-owned hospice locations in Idaho and two wholly-owned hospice locations in Oregon. In addition, the Company purchased Casa de la Luz on July 1, 2021 for $48.0 million, which included two wholly-owned hospice and palliative care locations in Arizona.

On September 1, 2021, the Company purchased Heart of Hospice for $278.0 million, which included 24 wholly-owned hospice locations in Arkansas, Louisiana, Mississippi, Oklahoma, and South Carolina.

On November 1, 2021, the Company purchased Brookdale Health Care Services' agencies from the recently formed home health, hospice, and outpatient therapy venture between HCA Healthcare and Brookdale Senior Living, Inc. The wholly-owned purchased agencies included 23 home health locations, 11 hospice locations, and 13 main therapy agencies across 22 states. Total consideration for this acquisition was $197.0 million, of which $178.8 million was paid in cash, net of working capital adjustments.

In separate acquisitions, the Company acquired the majority-ownership of four home health agencies, three hospice, and one home and community-based agencies during the twelve months ended December 31, 2021 for an aggregate purchase price $17.8 million. The purchase prices were determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows.

Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying financial information includes the results of operations of the acquired entities from the date of acquisition.

Transaction costs associated with acquisitions are expensed as incurred. During the twelve months ended December 31, 2021, the Company incurred $9.1 million in acquisition-related transaction costs, which was recorded in the consolidated statements of income as general and administrative expenses.

The Company's net working capital adjustments for Heart of Hospice and Brookdale Health Care Services' agencies are being finalized and remain preliminary in accordance with the requirements of ASC Topic 805, Business Combinations. The final determination of the fair value of assets acquired and liabilities assumed will be completed in accordance with the applicable accounting guidance. The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the twelve months ended December 31, 2021 (amounts in thousands):


Consideration
Cash	$	570,935
Net working capital	890
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash	$	1,352
Patient accounts receivable	14,299
Other receivables	209
Prepaid expenses	441
Other current assets	155
Property and equipment	2,614
Trade names	39,942
Certificates of need/licenses	40,221
Non-compete agreements	7,257
Operating lease right of use asset	9,494
Other assets	168
Accounts payable and other accrued liabilities	(10,378)
Salaries, wages, and benefits payable	(7,582)
Current operating lease payable	(3,600)
Amounts due to governmental entities	(4,364)
Current liabilities - deferred employer payroll tax	(1,692)
Operating lease payable	(5,897)
Total identifiable assets and liabilities	$	82,639

Noncontrolling interest	113
Goodwill, including noncontrolling interest of $78	$	489,299

Trade names, certificates of need and licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.

2021 Divestitures

During the twelve months ended December 31, 2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture and sold its pharmacy location which was wholly-owned. The total consideration for these controlling interest sales was $1.5 million and resulted in a loss of $0.1 million, which was accounted for as a loss on the sale of entities and recorded in general and administrative expenses.

2021 Joint Venture Activities

During the twelve months ended December 31, 2021, the Company purchased additional controlling membership interests in four of our equity joint venture partnerships, whereby the agencies became wholly-owned subsidiaries of the Company. The total consideration for these additional controlling interest purchases was $2.1 million. The transactions were accounted for as equity transactions.

During the twelve months ended December 31, 2021, the Company sold noncontrolling membership interests in two home health agencies. The total consideration of the sales of noncontrolling membership interest was $1.9 million. The transactions were accounted for as equity transactions.

2020 Acquisitions

The Company acquired the majority-ownership of 13 home health agencies, six hospice agencies, four home and community-based agencies, and one physician practice during the twelve months ended December 31, 2020. The total aggregate purchase price for these transactions was $42.1 million.

The Company funded three of these acquisitions in 2019 by paying cash consideration of $16.4 million.

During the twelve months ended December 31, 2020, the Company received $3.1 million from an equity joint venture partnership for the partner's noncontrolling interest for one of the Company's acquired home health and hospice agencies. In separate transactions, the Company received $3.9 million for consideration of two equity joint venture partnerships, whereby the Company acquired home health, hospice, and home and community-based agencies for $6.6 million and sold membership interests in these agencies for $4.4 million. The transactions for the sale of the membership interests were accounted for as an equity transaction. The total cash consideration includes adjustments for assets acquired and liabilities assumed. The allocation of the purchase price of these acquisitions were allocated to goodwill of $40.1 million, indefinite lived intangibles trade names of $4.8 million, certificates of need/licenses of $6.0 million, and other assets and assumed liabilities of $0.5 million. Acquired noncontrolling interest was $9.4 million.

2020 Joint Venture Activities

During the twelve months ended December 31, 2020, the Company purchased a portion of the noncontrolling membership interest in two of our equity joint venture partnerships, which prior to the purchase was classified as a nonredeemable noncontrolling interest in permanent equity. As a result of the purchases, the Company retained its controlling financial interests in the joint venture partnerships and the noncontrolling interest of our partner will continue to be classified as a nonredeemable noncontrolling interest in permanent equity. Total consideration for these noncontrolling interest purchases was $24.3 million.

During the twelve months ended December 31, 2020, the Company sold minority ownership interests associated with seven home health agencies and one hospice agency. The total consideration for the sale of such ownership interests was $5.1 million, of which $4.9 million was paid in cash and $0.2 million was a contribution of a trade name. The transaction was accounted for as an equity transaction.