AdaptHealth Snaps Up AeroCare In $2B Deal; Shares Pop 19%

AdaptHealth Corp. has entered into a definitive agreement to buy Florida-based AeroCare Holdings in a cash and stock deal valued at $2 billion, sending shares up 19% at the close on Tuesday.

As part of the transaction, AdaptHealth (AHCO) will pay $1.1 billion in cash and 31 million of its common stock to buy the respiratory and home medical equipment provider. The US provider of home healthcare equipment and medical supplies said it will fund the cash portion of the deal and associated costs through incremental debt and has secured debt financing from Jefferies Finance.

AdaptHealth expects the deal to generate $50 million in estimated run-rate cost synergies, and to be financially accretive to growth, earnings, and cash flow.

“This highly accretive transaction pairs up two industry leaders with similar strategies and strong execution track records of growth and profitability, technology innovation, and patient service,” AdaptHealth CEO Luke McGee said in a statement. “Our combined company will further enhance our geographic reach with a footprint in 47 of the 48 continental US states, strengthening relationships with our referral partners, patients, manufacturers, and managed healthcare plans.”

The acquisition and financing transactions have received necessary board approvals and are expected to close in the first quarter of 2021, pending closing conditions and regulatory approvals, the company said.

Separately, AdaptHealth lifted its sales forecast for fiscal year 2021 to a range of $2.05 billion to $2.20 billion from a range of $1.30 billion to $1.40 billion. Adjusted EBITDA was raised to a range of $480 million to $515 million from a range of $260 million to $280 million.

AHCO shares have already ballooned 223% so far this year and analysts still have a Strong Buy consensus backed by 7 unanimous Buy ratings. Meanwhile, the average analyst price target of $36.36 implies 2.5% upside potential lies ahead in the coming 12 months.

Commenting on the deal, Canaccord Genuity analyst Richard Close raised the stock’s price target to $39 from $36 and reiterated a Buy rating.

“The acquisition of AeroCare is very encouraging as the acquired asset has highly effective processes that are complementary to Adapt and should facilitate an acceleration of organic growth,” Close wrote in a note to investors. “We are intrigued with AeroCare’s solid organic growth (~12% 2020 YTD) and geographic presence in the Southeast and Midwest, which provides Adapt added scale in these regions.” (See AHCO stock analysis on TipRanks)