BioScrip, Inc. (BIOS) has entered into a definitive agreement to acquire Critical Homecare Solutions (CHS), which slated to close on March 31, 2010. CHS is a provider of home infusion and care services for patients with chronic and acute illnesses. In the 12-month period ending September 2009, CHS generated $252M in revenue an adjusted EBITDA of $39 million. BIOS will pay $343.2M in cash and stock plus 3.4M warrants with a $10 exercise price and 5-year term or approximately 8.80x EBITDA, excluding the warrants. Depending on how one values the warrants, the deal could be valued at 10.0x EBITDA. (The stock currently trades at $8.17 as of March 3, 2010.) To finance the transaction, BIOS will issue $101.2 million in common stock to CHS shareholders, obtain debt financing to include a $50M revolving credit facility, a $100M term loan and a $255 million bridge facility. Post-close, this level of debt would bring the companies Debt/EBTIDAO (O being options) ratio to 4.2X. However, the combined companies should generate enough cash to bring this down to 2.2X within three years. (As a condition of closing, CHS will be required to pay off $132M in debt.)

Strategically, this acquisition serves to further BOIS presence in the home infusion market and their national profile. Additionally, the acquisition will serve to greatly increase BIOS margins once the deal closes at the end of 1Q10, as CHS business generates higher overall gross margins. However, management is aware of potential issues with integrating the companies, namely, integrating IT platforms. As part of the strategic acquisition and growth initiatives, BioScrip is actively seeking to increase the number of employees in field sales positions. Indeed, at the beginning of 2009, the company employed 25 sales professionals; following the acquisition, BIOS would have over 140 sales professionals. In addition to the sales force, management has recently added professionals to senior operational and sales positions. BIOS had been in search of a larger platform to build out its home infusion therapy platform for some time and the shareholders of CHS had been looking for an exit for since late 2008. This seems to be a good match and a further indication for the market that home infusion valuations have been reestablished at their “pre-crash” premiums. While management is currently interested in integrating the companies, they do acknowledge that additional, smaller scale acquisitions are likely in the next couple years, given the company’s revolver and $27M cash on hand.