Benzinga | Dec 1, 2020 06:04AM EST

AdaptHealth Corp. Announces Acquisition Of AeroCare Holdings; Total Purchase Price Of Approximately $2B, Comprised Of $1.1B In Cash And 31M Shares Of Adapthealth

* Expected to significantly enhance scale and geographic reach, providing access to new customers and strengthening relationships with referral partners, patients, manufacturers, and managed healthcare plans

* Greater managed care access, broader product availability, and enhanced customer service for patients

* Combination of two industry leading technology platforms will position the combined company to lead the shift to connected healthcare and value-based arrangements

* Total purchase price of approximately $2.0 billion, comprised of $1.1 billion in cash and 31 million shares of AdaptHealth

* Expected to be financially accretive to growth, earnings, and cash flow

* $50 million in estimated run-rate cost synergies identified

* Best-in-class senior leadership team with strong cultural alignment

AdaptHealth Corp. (NASDAQ:AHCO) ("AdaptHealth" or the "Company"), a leading provider of home healthcare equipment, medical supplies to thehome and related services in the United States, announced today that it has entered into a definitive agreement to acquire Orlando, Florida based AeroCare Holdings, Inc. ("AeroCare").

Founded in 2000, AeroCare is a leading national technology-enabled respiratory and home medical equipment ("HME") distribution platform in the United States and offers a comprehensive suite of direct-to-patient equipment and services including CPAP and BiPAP machines, oxygen concentrators, home ventilators, and other durable medical equipment products. AeroCare maintains extensive relationships with leading national manufacturers and managed healthcare plans, and services patients in over 300 locations across 30 states. AeroCare is currently owned by private investors including Peloton Equity, SkyKnight Capital, SV Health Investors, and AeroCare management and employees. The combined company will operate under the name AdaptHealth, and Luke McGee, CEO of AdaptHealth, and Steve Griggs, CEO of AeroCare, will jointly lead the company as Co-CEOs. Josh Parnes will continue to serve as President. In addition, AdaptHealth will expand its Board of Directors at closing of the transaction to 11 directors, with Steve Griggs and shareholder designee Ted Lundberg of Peloton Equity to join the Board.

Luke McGee commented, "We are very excited to welcome Steve and the AeroCare team to AdaptHealth. This highly accretive transaction pairs up two industry leaders with similar strategies and strong execution track records of growth and profitability, technology innovation, and patient service. Our combined company will further enhance our geographic reach with a footprint in 47 of the 48 continental US states, strengthening relationships with our referral partners, patients, manufacturers, and managed healthcare plans. Steve is a highly-regarded innovator in our industry and will bring exceptional leadership to AdaptHealth."

Steve Griggs added, "Joining forces with AdaptHealth strengthens our combined ability to transform our industry and positively impact the lives of chronically ill patients across the country. I am very excited to partner with Luke, Josh and the AdaptHealth team to build an even stronger business, sharing best practices across each organization to drive operational efficiencies and create enhanced opportunities for our employees, patients, referral sources and other stakeholders."

The transaction values AeroCare at approximately $2.0 billion on a debt-free, cash-free basis, with cash consideration of $1.1 billion, subject to adjustment as provided in the definitive agreement, and 31 million shares of AdaptHealth common stock. The share consideration will initially be a combination of Class A Common Stock (up to 19.9% of the outstanding Class A Common Stock) and non-voting convertible preferred, which converts to Class A Common Stock once AdaptHealth shareholders approve the issuance of the share consideration under NASDAQ rules. AdaptHealth will seek such shareholder approval after closing of the transaction. AdaptHealth intends to fund the cash portion of the consideration and associated costs through incremental debt and has committed debt financing from Jefferies Finance LLC.

The acquisition and financing transactions have received necessary board approvals and are expected to close in the first quarter of 2021, subject to certain customary closing conditions and regulatory approvals, including expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In connection with the closing of the acquisition of AeroCare, the Company will also simplify its corporate tax structure and convert all of the outstanding membership units of its subsidiary limited liability company, AdaptHealth Holdings LLC, and all of the outstanding shares of Class B Common Stock into shares of the Company's Class A Common Stock. The simplification transaction will reduce the Company's tax compliance costs, enhance its ability to structure future acquisitions and result in the Class A Common Stock being the Company's only class of Common Stock outstanding. In order to provide for the payment of capital gains tax obligations related to the conversion of management's membership units and Class B Common Stock, the Company has elected to satisfy with cash, in lieu of certain shares of Class A Common Stock, a portion of the membership units and shares of Class B Common Stock exchanged by certain members of the Company's management prior to the simplification transaction.

Jefferies LLC is acting as the lead M&A advisor to AdaptHealth and Truist Securities, Inc. is acting as financial advisor to AdaptHealth. Willkie Farr & Gallagher LLP and K&L Gates LLP are acting as legal advisors to AdaptHealth. Morgan Stanley & Co. LLC is serving as AeroCare's financial advisor and Goodwin Procter LLP and Brown & Fortunato, P.C. are serving as AeroCare's legal counsel in connection with the transaction.

Separately, AdaptHealth is pleased to announce it has closed its acquisition of Massachusetts-based New England Home Medical Equipment ("NEHME"), furthering the growth and expansion of its diabetes division. Founded in 2015, NEHME is a leading supplier of CGM and diabetes management supplies throughout New England and the Northeastern United States. For the trailing twelve months ended September 30, 2020, NEHME generated net revenues of approximately $31 million.

Reaffirms 2020 Guidance and Increases 2021 Guidance

In connection with the acquisitions of AeroCare and New England Home Medical Equipment, the Company is increasing financial guidance for fiscal year 2021 for net revenue from a range of $1.30 billion to $1.40 billion to a range of $2.05 billion to $2.20 billion, Adjusted EBITDA from a range of $260 million to $280 million to a range of $480 million to $515 million, and Adjusted EBITDA less Patient Equipment Capex from a range of $180 million to $200 million to a range of $300 million to $330 million. This guidance assumes the AeroCare transaction closes on January 31, 2021 and includes estimated financial results of the combined company beginning on February 1, 2021. AdaptHealth reaffirms its previously disclosed full year 2020 guidance.