Merger casts 'positive' light on industry

ORLANDO - News of a merger between AeroCare and MergeWorthRx put a spring into the step of HME industry analysts.

“This a positive sign for the industry,” said Rick Glass, president of Steven Richards & Associates.

In the Oct. 15 announcement, AeroCare, which has been backed by private equity firm Ferrer Freeman & Company since its inception in 2002, and MergeWorthRx, a special purpose acquisition company with a healthcare focus, said they have agreed to an all-stock merger. MergeWorthRx will issue approximately 11.3 million new shares and .5 million options to existing AeroCare stockholders, according to a press release. Those stockholders will own 53% of the company, and will have the right to receive up to $30 million of additional shares of MergeWorthRx common stock.

“This gives them another avenue for growth, rather than relying on (their own) financial capacity,” said Don Davis, president of Duckridge Advisors. “They seem to have a nice business plan and they are bullish on our industry.”

AeroCare has been steadily rolling up HME companies—23 in 2013 alone—and plans to growth through further acquisitions as well as organically.

AeroCare, which has annual revenues of $150 million, has grown at an annual compounded rate of 31%, according to the release. The provider offers respiratory products and services to more than 150,000 patients through 175 locations in 20 U.S. states.

“Respiratory continues to be the part of HME that people view as scalable and can leave them to a successful model going forward,” said Glass. “MergeWorthRx is stepping up and saying, 'We've got a platform we think know how to be successful with at today's reimbursement levels and we want to take advantage of that.”

As to whether the overhang of another round of competitive bidding is a concern? AeroCare holds multiple competitive bidding contracts—mainly for CPAP and oxygen—but an official total was unavailable at press time.

“How much lower are the prices going to go?” said Davis. “That's problematic for everybody but I think there's a sense that there is still profit margin out there, and there can still be one going forward.”

The deal is expected to close by the end of the year. The common stock will be listed on Nasdaq.