Reporter’s notebook: When Adapt goes public, industry will be watching

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Monday, October 28, 2019

PLYMOUTH MEETING, Pa. ­–­ When AdaptHealth goes public later this year, other large players in the industry may consider doing the same, says Brad Smith, managing director/partner at Vertess.

“If AdaptHealth gets out of the gate and does well, will these other guys say, ‘Let’s follow suit,’” he said. “AeroCare, Rotech, maybe even Apria and other players who aren’t as big (will be watching).”

AdaptHealth first announced in July that it would combine with DFB Healthcare Acquisitions Corp., a company sponsored by Richard Barasch. Together, the two companies will represent an enterprise value of about $1 billion and a market capitalization of about $800 million.

AdaptHealth’s IPO could shine a brighter spotlight on HME for investors, says Smith.

“We could see that,” he said. “The problem is that public markets can be very fickle, though they do respond well to a buy-and-build strategy.”

That “buy-and-build” strategy is the secret to AdaptHealth’s success. The company formerly known as QMES has acquired approximately 56 companies since 2012, and has identified potential acquisition targets for early 2020.

“What gets investors excited is more market share,” said Smith. “They will be under pressure to continue to execute on that.”

Although HME isn’t “sexy,” like WeWork or Uber, its demographics—10,000 people turning 65 every day, the aging-in-place trend—are a safer bet for investors, says Smith.

WeWork, a startup that provides shared workspaces for technology companies, was set to go public this fall but pulled its IPO after scrutiny of its business model and management practices caused its valuation to decline from $47 billion to below $15 billion.

“HME is not as sexy as some of these other unicorns with the billion-dollar valuations,” he said. “It’s brick-and-mortar, but we know its numbers.”