AdaptHealth (AHCO) gains on AeroCare acquisition announcement

Shares of AdaptHealth Corp. (NASDAQ: AHCO) surged 15% in morning trade on Tuesday after the company announced its decision to acquire privately-held AeroCare Holdings and provided an updated guidance for FY2021.

AdaptHealth will acquire home medical equipment company AeroCare for approx. $2 billion, which includes $1.1 billion in cash and 31 million shares of AdaptHealth common stock. The deal is expected to close in the first quarter of 2021 and is expected to be financially accretive to growth, earnings and cash flow.

After the close of the acquisition, Luke McGee and Steve Griggs, the CEOs of AdaptHealth and AeroCare respectively, will lead the combined company as co-CEOs. The deal is expected to help AdaptHealth expand its geographic footprint and customer base as well as take advantage of new opportunities in the home healthcare sector.

AeroCare

AeroCare, which provides direct-to-patient equipment and services such as oxygen concentrators, home ventilators and other medical equipment products, is owned by private investors that include Peloton Equity, SkyKnight Capital, and SV Health Investors. The company provides its services through 300 locations across 30 states.

AdaptHealth

AdaptHealth is a provider of home healthcare equipment and medical supplies based in Pennsylvania. Its products include sleep therapy equipment, medical devices and supplies for the treatment of diabetes, acute care home medical equipment and oxygen therapy services. The company operates from 269 locations in 41 states.

Other M&A

AdaptHealth has also acquired diabetes management supplies provider New England Home Medical Equipment (NEHME) which is based in Massachusetts. For the trailing twelve months ended September 30, 2020, NEHME generated net revenues of approx. $31 million.

In October, AdaptHealth acquired Pinnacle Medical Solutions, which distributes medical devices and supplies for the treatment of diabetes. In July, the company acquired diabetes management supplies provider Solara Medical Supplies and urology products supplier ActivStyle Inc. for a combined consideration of approx. $487 million.

Recent quarterly performance

For the third quarter of 2020, AdaptHealth saw its revenues increase 108% year-over-year to $284.4 million. The company generated a net loss of $2.5 million, or $0.04 per share.

Updated guidance

Following the acquisitions of AeroCare and NEHME, AdaptHealth increased its guidance for fiscal year 2021. Revenue is now expected to come in the range of $2.05-2.20 billion versus the prior range of $1.30-1.40 billion and adjusted EBITDA is expected to be $480-$515 million versus the previous outlook of $260-280 million.

The company reaffirmed its guidance for FY2020 at revenue of $1.00-1.04 billion and adjusted EBITDA of $186-194 million.

Home healthcare market outlook

According to a report by Markets and Markets, the global home healthcare market size is estimated to reach $274.7 billion by 2025 from nearly $182 billion in 2020. The growing popularity of telehealth presents a significant growth opportunity while factors like limited insurance coverage and patient safety concerns serve as headwinds.

The COVID-19 pandemic has not been a major growth driver for the home healthcare industry as one would have expected. It would create demand for products like blood pressure monitors or pulse oximeters but not all medical device companies have benefited from the health crisis.

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