DFB Healthcare Acquisition Corp. (DFBH), announced this morning that they have entered into a definitive business combination agreement with AdaptHealth Holdings, LLC (“Adapt”), 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 (“AdaptHealth”) 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.

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 has created a scalable, purpose-built, and centralized operating platform that optimizes client service and delivery, improves compliance, drives operational and financial efficiencies, and increases enterprise-wide profitability.

The Company utilizes an extensive and highly diversified 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 an attractive payor mix, primarily comprised of commercial insurers, Medicare and Medicaid.

Quick Takes:  DFB’s combination with AdaptHealth has some very nice looking comps with sizeable discounts to the peer groups. Plus, it’s got a record of growth, both organically and via acquisition.  Home health care is already hot, but as Baby Boomers age, it’s only going to get hotter. So the fact that AdaptHealth is already the third largest distributor and has a proven history as a consolidator (56 acquisitions since 2012), it’s an auspicious sign.  So far, this looks like a pretty good transaction.  Let’s see what management has to say on today’s call.

KEY TRANSACTION TERMS

The transaction will be funded by cash from the DFB trust account (currently approximately $253 million) and Deerfield has committed to participate for up to a maximum of $100 million in a private placement of common stock at $10.00 per share. Adapt’s management and major equity holders will roll their equity into the new public company, and proceeds generated by the transaction will be available to AdaptHealth to fund future growth. The Company anticipates rolling its existing senior credit facility as part of the transaction.

• • Cash from the DFB trust account (currently approximately $253 million)
  • Deerfield has committed to participate for up to a maximum of $100 million in a private placement at $10.00 per share.
    • $50 million with a potential to go up to $100 million, depending on redemptions
  • AdaptHealth’s management and majority shareholders will roll their equity into the new company – will not receive any cash
  • $50 million to go to minority shareholders for liquidity
  • DFB will issue approximately 49 million shares to current Adapt equity holders, valued at $10.00 per share, as part of the transaction.

Earnout:

Adapt equity holders will be entitled to receive an additional earn out payment of up to 3 million total AdaptHealth shares

• • 1 million shares vesting if the average stock price is at least $15.00 in December 2020
  • 1 million vesting if the average stock price is at least $18.00 in December 2021
  • 1 million vesting if the average stock price is at least $22.00 in December 2022

CONFERENCE CALL

The management of Adapt and DFB will make a presentation regarding the transaction on July 8, 2019 at 11:00 AM ET. 

• Domestic toll-free access number is (888) 820-4544
• International toll-free access number is (470) 279-3876.

Once connected with the operator, please provide the Conference ID number of “DFB250” and request access to the DFB Healthcare Acquisition Corp Investor Call.

A replay of the call will be available from July 8, 2019 through August 8, 2019. To access the replay, the domestic toll-free access number is (855) 213-8235 and the international toll-free access number is (571) 982-7683 and participants should provide the pin code of 61055# and request access to the DFB Healthcare Acquisition Corp call.

ADVISORS

• Deutsche Bank Securities and Goldman Sachs are acting as financial advisors and capital markets advisors.
• Jefferies and Leerink are also acting as capital markets advisors to DFB.
• Stifel is acting as financial advisor to Adapt.
• Greenberg Traurig, LLP and McDermott Will & Emery are acting as legal advisor to DFB
• Paul Hastings is acting as legal advisor to Deerfield
• Willkie Farr & Gallagher LLP is acting as legal advisor to Adapt