Healthcare clinic and tech company WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) just received a target raise from Laurentian Bank Securities analyst Nick Agostino, who likes WELL’s latest acquisition.
In an action note to clients Wednesday, Agostino reiterated his “Buy” rating with the new target of $3.50 (previously $3.25), which at press time represented a projected 12-month return of 17.8 per cent.
WELL Health owns and operates 20 primary healthcare clinics, has the country’s third-largest EMR (electronic medical records) business and operates a national telehealth service. The company announced on Wednesday a definitive asset purchase agreement with Ontario-based Cycura to acquire its cybersecurity business. The deal, expected to close in two months, is pegged at $2.55 million.
WELL CEO Hamed Shahbazi said the cybersecurity pickup as in-line with WELL’s overarching capital allocation theme, the digitization of healthcare.
“WELL is committed to providing cyber security protection and patient data privacy across all of its businesses including primary care, EMR, telehealth and digital health solutions. We’ve already been working with the talented team of experts at Cycura for more than a year and are very pleased to now bring their proficiency in cyber security, data protection and privacy within WELL,” said Shahbazi in a press release.
In his update, Agostino noted that WELL has been working with the cybersecurity team at Cycura for over a year now in undertaking cybersecurity penetration testing exercises on potential M&A targets. Agostino said WELL will be gaining through the acquisition a team of six cybersecurity personnel operating a division that generated about $1.7 million in LTM sales, which equates the deal to 1.5x sales.
The analyst said discussions with WELL management revealed that the company wanted to increase its in-house cybersecurity expertise and to in-source its penetration testing exercise capabilities as a cost-saving measure as it continues with its M&A strategy. As well, management felt the Cycura acquisition would add a layer of cybersecurity services to its expanding digital services offerings to its healthcare clinic base and EMR network clinics.
“We highlight the value-add for WELL as: (1) WELL enters a new market estimated at $300-500 million annually; (2) It positions the company to tackle cybersecurity attacks that have increased in recent years, particularly within the healthcare industry; (3) With WELL’s end-to-end healthcare offering, it is uniquely positioned within the fragmented healthcare cybersecurity market,” Agostino wrote.
“While the above transaction is outside the norm of acquisitions completed by WELL over the last two-plus years, the transaction is in keeping with the strategy of expanding its digital services offering (which includes telehealth, online booking, automated check-in, billing as a service, clinical assistance and now cybersecurity), while clinic and EMR acquisition targets still remain in WELL’s pipeline,” he said.
Agostino thinks WELL will generate fiscal 2020 EBITDA of negative $0.5 million on sales of $45.4 million and fiscal 2021 EBITDA of $5.7 million on a top line of $60.3 million.
Disclaimer: Nick Waddell and Jayson MacLean own shares in WELL and the company is an annual sponsor of Cantech Letter.