AdaptHealth boosts financial and strategic wherewithal in multipart deal

In an intricate deal in the middle of a complicated deal environment, OEP and Linden join Deerfield and BlueMountain as investors in the rapidly growing DME company.

A slate of PE investors have gotten behind AdaptHealth, a company that has quietly struck dozens of acquisitions in recent years on a path that sources say will help it break out of the traditional durable-medical-equipment category. 

The publicly-traded company said Tuesday it would buy Solara Medical Supplies from Linden Capital Partners and ActivStyle from Riverside Co, all the while bringing new financial sponsors into the shareholder mix. The acquisitions are valued at $425 million in cash and stock and $62 million in cash, respectively. 

Whereas Solara is the largest direct-to-patient provider of continuous glucose monitors for diabetes management, ActivStyle is in the business of distributing incontinence products and related supplies.

Concurrently, One Equity Partners is leading a PIPE deal in AdaptHealth, committing a $190 million equity check. Brad Coppens, managing director of the New York mid-market firm, will join AdaptHealth’s board. 

AdaptHealth is also set to receive a $35 million equity commitment from existing investor Deerfield Management, while Linden will join the shareholder base as it rolls equity. BlueMountain Capital Management is also an investor, having led its $250 million recap in May 2019.

Linden, for its part, is set to make more than 3x its money while generating a more than 100 percent IRR on Solara, less than two years into its investment, according to a source. AdaptHealth is issuing $62.5 million in common stock to Solara shareholders including Linden.

Finally, the company’s lenders have agreed to up it term loan by $240 million. 

Growth mode 

Led by CEO Luke McGee, the company once known as QMES has long flown under the radar. 

But AdaptHealth, making its public debut in July when a Deerfield Management-sponsored SPAC acquired the distributor of home medical equipment, has been deploying an aggressive M&A playbook. All this while PE attention in DME has ramped up. 

In the middle of the downturn, Solara and ActivStyle mark AdaptHealth’s fourth and fifth deals of the year. The company clinched 21 and 18 acquisitions in 2018 and 2019, respectively. 

AdaptHealth, serving at-home patients with high-cost chronic diseases, found itself in a good spot in the middle of covid-19, sources said. 

“The comorbidities of diabetes, the at-home delivery model and sheer fact that people need supplies and need their tests monitored, put businesses like AdaptHealth and Solara in a really good spot,” one source close to the deal said. 

The company as it scales and diversifies also has an opportunity to play an increasing role in health management with its connected devices in the home. This ought to support its shift to a fee-for-value model, from the traditional fee-for-service model of reimbursement.

In what has been a somewhat sleepy market [DME], “you can start to see how you could have a bundle for someone that is a complex patient at home and drive clinical interventions before they go to the hospital,” another source commented. 

Having scale in categories where there are direct comorbidities has its benefits. If you can reach all commercial and government payers on a national level, that gives you a strategic seat at the table with payors, said one of the sources.

AdaptHealth, for its part, now serves chronic conditions including sleep apnea, diabetes and respiratory issues – major pain points for insurers. 

AdaptHealth has drawn sponsor interest for various reasons, including its 40 percent-plus CAGR in the last three years and good margins. It also has far less CapEx versus many other DME players due to its low exposure to oxygen-related therapeutic equipment, sources said. Importantly, AdaptHealth has minimal competitive bidding risk, which has historically led many investors to shy away from DME.  


Adding to the complexity of the multi-pronged transaction, Linden, only 18 months into its investment, wasn’t looking to exit Solara, sources said. Solara itself was in consolidation mode. 

But Solara began fielding significant inbound interest as peers hit the auction block early this year, including CCS Medical, which PE Hub wrote in March was evaluating a sale.

The unsolicited interest ultimately sparked Solara to enlist Robert W. Baird to conduct a strategics-only process. 

CSS has yet to trade hands, but strategic interest in the category persists, sources said. 

Such players are seeing tremendous growth as the diabetes market shifts to continuous glucose monitors, away from diabetes test strips. In turn, AdaptHealth in buying Solara immediately gains a big foothold in an exploding market.  

“CGM is now the next layer of innovation of managing Type 1 diabetes, and becoming more relevant for Type 2. When you look at the innovation horizon, CGM is in a nice defensible spot in a category that’s not going anywhere,” one source said. 

ActivStyle, meanwhile, engaged Cain Brothers for a process that encompassed both strategic and financial buyers, another source told PE Hub

Deutsche Bank served as M&A advisor to AdaptHealth, while RBC Capital Markets provided financial advice.

AdaptHealth declined to comment.

Action item: Check out AdaptHealth’s 8K for more info.