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Why AdaptHealth Shares Are Blasting Higher Today

By Eric Volkman - Jan 6, 2021 at 3:41PM

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The company's about to tap a source of funding for an important deal.

What happened

Home medical equipment (HME) specialist AdaptHealth ( AHCO 5.49% ) was up a robust 12% in mid-afternoon trading Wednesday. This followed a company announcement about the details of a new funding source for its big acquisition.

So what

AdaptHealth priced its previously announced secondary issue of common stock. All told, 8 million shares of the company will be floated at a price of $33 per share. A total of 7.25 million of those shares will be sold by the company itself, with the remainder coming from selling stockholders. The issue's underwriters also have a 30-day option to purchase up to an extra 1.2 million shares. The issue is expected to close this Friday, Jan. 8.

Stethoscope atop 100 dollar bills and pennies.

Image source: Getty Images.

The healthcare company said it will use roughly half of its proceeds from the issue -- which should be a gross $239.25 million if the current pricing holds -- to help finance its deal for AeroCare Holdings. Last month, AdaptHealth and AeroCare agreed to a merger (in reality, more of an acquisition), under which the two will combine under the AdaptHealth name in a cash-and-stock arrangement valued at roughly $2 billion.

Now what

Although the dedicated amount comprises only around 11% of the total cash consideration, it's a sign that the acquisition is proceeding smoothly, with some handy interest-free funding coming in.

AeroCare is a highly complementary asset, and the two companies should be much stronger together than as competitors. It's no coincidence that today's stock pop is similar to that when the deal was announced last month.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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