The implications of AdaptHealth’s upcoming IPO

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10/01/2019
Following Adapt going public, will private equity-backed DME providers line up at the NASDAQ, eager to cash in their chips?
Bradley Smith
managing director/partner, Vertess

When AdaptHealth's plan to become a public company was announced in July, ears perked up throughout the HME industry. New IPO listings by DME providers are rare. That could change following Adapt’s IPO.

To recap, Adapt will combine with DFB Healthcare Acquisitions Corp., which is currently traded on the NASDAQ under symbols DFBH and DFBHW. Once the combination of companies is completed, it is expected that DFB will change its name to AdaptHealth Holding Corp. and remain listed on the NASDAQ under a new ticker symbol (yet to be determined). As a press release on the merger noted, this new entity intends to continue Adapt's aggressive acquisition strategy. Since 2012, the provider has acquired 56 companies with an aggregate purchase price of approximately $286 million and has identified a significant volume of potential acquisition opportunities it plans to target late this year into early 2020.

So, why is this news so significant? Compared to other industries, the number of publicly traded DME providers is below average. The DME providers that are publicly traded include well-known national companies, such as Lincare, Inogen, VieMed and Protech.

However, there is a significantly larger portion of national or regional providers that remain privately held. Many of these companies are backed by private equity. The majority, if not all, of these providers grow via a similar buy-and-build strategy that their private equity business partners accelerated. Adapt's success is greatly attributable to this strategy.

When Adapt goes public, I expect the market to respond favorably. Historically, public markets respond positively to companies that embrace a growth-through-acquisition strategy, with stock prices increasing incrementally with each successful acquisition. If this trend continues following Adapt's IPO, one can expect private equity-backed DME providers to line up at the NASDAQ, eager to cash in their chips. The most likely suspects include AeroCare, Apria, Rotech (again), Community Surgical and Shield.

Bradley Smith, ATP, CMAA is a former DME owner, and is currently a Managing Director/Partner with the international healthcare M+A firm, VERTESS.  Reach Brad directly at (817)793-3773 / bsmith@vertess.com.