Shareholder Activism and Valuation Arbitrage in Underperforming Healthcare Plays: The Forager-Quipt Saga Unveils Governance Risks and Undervaluation in the Home Medical Equipment Sector

The home medical equipment (HME) sector has long been a battleground for valuation arbitrage, where activist investors and private equity firms seek to unlock value in underperforming companies. The recent unsolicited $3.10-per-share offer by Forager Capital for Quipt Home Medical (NASDAQ: QUIP) exemplifies this dynamic, exposing both governance vulnerabilities and pricing inefficiencies in a sector grappling with regulatory headwinds and margin pressures. For investors, this case offers a masterclass in how activist strategies can force boards to confront misaligned incentives—and how undervaluation can persist even in companies with strong operational fundamentals.

Governance Risks: A Clash of Agendas

Forager's bid, announced on May 21, 2025, was met with a defensive posture by Quipt's board, which labeled the offer “unsolicited” and refused to engage further. This standoff highlights a critical governance risk: the lack of clear shareholder alignment in decision-making. Quipt's board had entered a non-disclosure and standstill agreement with Forager in February 2025, explicitly prohibiting Forager from making acquisition proposals for six months. By circumventing this agreement, Forager tested the board's commitment to its own governance protocols, raising questions about the board's ability to act in shareholders' best interests.

The board's response—refusing to comment on the offer and emphasizing its focus on “long-term value creation”—suggests a preference for strategic autonomy over immediate shareholder demands. However, this approach risks alienating investors who view Forager's premium as a legitimate catalyst for unlocking value. The board's 72.87% shareholder approval at its March 2025 AGM (with CEO Gregory Crawford securing 80.62% of the vote) indicates strong support for its leadership, but it also underscores the board's reliance on a narrow base of institutional shareholders. Forager's intervention could force a broader debate about whether the board's governance framework is sufficiently responsive to market realities.

Valuation Arbitrage: A Premium in a Declining Sector?

Quipt's Q2 2025 results reveal a company with resilient margins but declining top-line growth. Revenue fell 6% year-over-year to $57.4 million, driven by the loss of a Medicare Advantage contract and a non-renewed supply agreement. Yet, the company maintained a 23.3% Adjusted EBITDA margin, outperforming many peers in the HME sector. With a Net Debt to Adjusted EBITDA ratio of 1.5x and $30.7 million in credit availability, Quipt's balance sheet is robust, providing flexibility for strategic initiatives.

Forager's $3.10 offer—approximately 12x 2025E Adjusted EBITDA—appears modest compared to the sector's average 15–18x multiples. However, the offer's timing is critical. Quipt's recurring revenue (81% of total revenue) and recent investments in Medicare-approved devices and health system partnerships suggest a path to margin expansion. If Forager's bid is accepted, the premium could catalyze a re-rating of Quipt's stock, particularly if the acquirer leverages its capital to accelerate growth in high-margin segments like respiratory care.

Strategic Implications for Investors

Forager's move underscores a broader trend: activist investors are increasingly targeting HME companies with strong cash flows but undervalued balance sheets. Quipt's case is instructive because it combines a governance dispute with a valuation gap. Investors should consider three factors:

1. Board Responsiveness: A board that resists activist overtures may be protecting its own interests, but it could also be ignoring market signals. Quipt's refusal to engage with Forager raises red flags about transparency.
2. Margin Resilience: Quipt's 23.3% EBITDA margin is a competitive advantage in a sector plagued by pricing pressures. If Forager can scale operations or reduce costs further, the company's intrinsic value could exceed the $3.10 offer.
3. Regulatory Tailwinds: The HME sector is poised for consolidation as Medicare reimbursement rules evolve. A buyer with deeper pockets (like Forager) could position Quipt to capitalize on these changes.

Conclusion: A Catalyst-Driven Opportunity

The Forager-Quipt saga is a textbook example of valuation arbitrage in action. While the board's governance stance is defensible, the $3.10 offer represents a compelling floor price for a company with durable margins and a scalable business model. For investors, the key question is whether Forager can convert its premium into a binding agreement—and whether Quipt's board will ultimately recognize that shareholder activism, while disruptive, can be a force for value creation. In a sector where regulatory uncertainty and margin compression are the norm, catalyst-driven plays like this one offer a rare combination of risk and reward.