Rising tide: Sponsors get behind AdaptHealth as DME space grows up

Healthcare deals ramp up following holiday weekend.

Happy Thursday!

While I was busy getting my first sunburn of the year over Memorial Day weekend, it appears several healthcare dealmakers were busy working through the three-day break to wrap up an intricate multi-part deal.

Reinventing DME
The continued private equity support behind one well-performing public company is another sign that people are getting over the durable-medical-equipment sector’s historically tainted reputation.
AdaptHealth, formerly QMES, has long flown under the radar, but the company has been scaling quickly with an aggressive M&A playbook: 65 closed acquisitions since 2012, as of January… not bad. All this while PE attention in DME has ramped up.

The result? Healthcare sponsors have taken notice.
AdaptHealth this week unveiled its plans to snap up both Linden Capital’s Solara and Riverside’s ActivStyle. All this while One Equity Partners executes a $190 million private investment in the public company. Deerfield Management, who sponsored a SPAC last summer to acquire and take AdaptHealth public, committed a $35 million equity check. BlueMountain Management is also an investor, as will be Linden as it is set to roll equity in the deal.
Check out my story for all the financial deets and more.

Essential supplies: From an operational perspective, AdaptHealth, serving at-home patients with high-cost chronic diseases, found itself in a good spot in the middle of covid-19, sources said.

Moreover, AdaptHealth, which distributes medical products serving sleep, diabetes and respiratory conditions, is now better positioned to break away from the traditional DME category. The company can leverage its connected medical devices in the home to help complex patients manage their health.

As investors in recent years began looking at consolidating different [DME] specialties, “the evolution and maturity [of DME] has become more interesting to PE,” one source told me. “All chronic conditions have really acute comorbidities. Payers were looking at these DME areas and were looking at ways to build related comorbidities or almost light care management.”

In fact, what AdaptHealth has the opportunity to do is not unlike digital health startup Livongo, two sources said. Livongo, whose shares have more than doubled YTD, is a chronic disease management company known for its wearable remote monitoring devices.

The tech-enabled company has a diabetes focus – an area that AdaptHealth just got major exposure to via Solara. Solara distributes high-growth technology serving a massive diabetes population that isn’t going anywhere: continuous glucose monitors. (Diabetes, btw, is the most costly chronic disease in the US, with medical costs and lost productivity reaching $327 billion annually, AdaptHealth said in its 8k.)

It’s also worth noting that DME is another way for investors to find opportunities in lower-cost settings of care like the home. Non-medical and medical home care and hospice care have all seen tremendous PE investment. OEP, for its part, is also an investor in Simplura.

On the public company front, AdaptHealth also has good or better margins than home health players such as Amedisys, Addus and LHC, sources pointed out.
Now, Deerfield also looks pretty smart, riding AdaptHealth’s growth since its IPO last summer. That includes a more than 50 percent share rally this year so far.

Top Scoops
Healthcare productivity: Central Logic, a software company that improves the management of patient transfers, is nearing a sale to an unknown private equity firm, according to three sources familiar with the sale process. Check it out.

The anticipated deal comes as Francisco Partners pursues the sale of QGenda, a SaaS provider that helps doctors optimize scheduling processes. Read more.

On the move: Karthic Jayaraman has joined TPG Capital as a co-head of the private equity firm’s healthcare practice and will lead the team’s investment efforts in Europe. Jayaraman joins TPG after nearly 20 years at Carlyle, where he most recently worked as a co-head of Carlyle Global Partners.

That’s it for today’s rundown, as always, send me a note at springle@buyoutsinsider.com with your comments, feedback and tips.

See you next week!