DFB Healthcare Acquisitions Corp (NASDAQ: DFBH, DFBHU, DFBHW), a special purpose acquisition company sponsored by Deerfield Management and Richard Barasch, has entered into a definitive agreement for a business combination with AdaptHealth Holdings LLC, the third largest distributor of home medical equipment (HME) in the United States. Upon the closing of the transaction, it is expected that DFB will be renamed AdaptHealth Holding Corporation and remain NASDAQ-listed under a new ticker symbol.
The combined company will represent an initial enterprise value of approximately $1.0 billion and market capitalization of approximately $800 million.
Adapt’s management and major equity holders will roll their equity into AdaptHealth, and proceeds generated by the transaction will be used by AdaptHealth primarily to reduce debt and fund future growth and acquisitions. A fund managed by Deerfield has signed a subscription agreement to support the transaction to backstop redemptions and/or provide additional capital to the company. Adapt’s current management team is expected to remain in place, supplemented by Richard Barasch as newly appointed chairman of AdaptHealth.
Adapt’s History
Founded in 2012 and headquartered in Plymouth Meeting, Pa, Adapt offers a full suite of medical products for both rental and sale, with a focus on respiratory and/or mobility equipment, including CPAP sleep equipment, oxygen equipment, wheelchairs, walkers, and hospital beds. Adapt serves over 1.0 million patients and performs 7,000 deliveries per day across 49 states through more than 150 locations.
The Company utilizes a network of referral sources, including acute care hospitals, sleep labs, pulmonologists, skilled nursing facilities, and clinics; many of these referral relationships average 10+ years. Adapt maintains a payor mix, primarily comprised of commercial insurers, Medicare, and Medicaid.
Adapt’s Record
Adapt currently operates in a growing segment of the HME industry, which represents an estimated $12-$15 billion total market, within a broader HME industry representing $56 billion in total market value and forecasted to produce a CAGR of 6.1% through 2026. Multiple industry tailwinds are driving this expansion, including: favorable demographic trends, specifically the rise in individuals over the age of 65; increasing life expectancy; growing patient desire to receive care in the home; the economic advantages of home care versus institutional care; and the increasing prevalence of medical issues for which HME is indicated, such as chronic obstructive pulmonary disease, congestive heart failure, and sleep apnea.
The combination of industry growth and government mandates to reduce costs to patients in the largest HME spending categories has allowed Adapt to execute a strategy of organic growth, accretive acquisitions, and profitability in a fragmented industry landscape. Since 2012, Adapt has acquired 56 companies with an aggregate purchase price of approximately $286 million.
Adapt intends to continue to focus on increasing net revenue both organically and via accretive acquisitions and has identified a significant volume of potential acquisition opportunities it will target in late 2019 and early 2020.
Management Team and Board
Adapt’s management team is comprised of industry and financial professionals, led by CEO Luke McGee, president Josh Parnes, and CFO Gregg Holst.
Richard Barasch, who will be appointed chairman of AdaptHealth upon closing of the transaction, was chairman and CEO of Universal American, an NYSE-listed health insurance and healthcare services company until its sale to WellCare Health Plans in 2017.
“We believe that in order to be successful in the evolving HME marketplace, companies must possess scale and technological expertise without sacrificing service and product diversity,” says McGee in a release. “We expect to remain an active participant in the consolidation of our industry, while adhering to our core principles of providing tailored healthcare products and services that empower patients to live their best lives. We look forward to this next, exciting phase of our growth.”
Barasch says, “Healthcare is increasingly moving into the home and we believe Adapt occupies a unique place in the home-based healthcare value chain as the most efficient provider in the space. “We believe the company’s multiple touch points for patients with chronic conditions and its demonstrated ability to provide efficient solutions should become increasingly valuable as health care continues to migrate to the home. I am eager to work with Luke, Josh, and their team as they continue their growth.”
This news is not a proxy statement or solicitation of a proxy, consent or authorization with respect to any securities or in respect of the proposed transaction and shall not constitute an offer to sell or a solicitation of an offer to buy the securities of DFB or Adapt, nor shall there be any sale of any such securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. No offer of securities shall be made except by means of a definitive document.
