Vancouver-based healthcare tech company WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) just boosted its virtual care expertise through a new acquisition, according to Laurentian Bank Securities analyst Nick Agostino, who delivered an update on the company to clients on Monday. Agostino has maintained his “Buy” rating and $10.50 target price, saying higher sales for WELL will be balanced by a higher share count as a result of the deal.
WELL Health provides medical services through a network of 20 clinics (19 wholly-owned) in BC and has OSCAR-based electronic medical records (EMR) technology currently serving about 2,000 clinics in BC and Ontario. The company is now the third-largest EMR provide in Canada with an over 12-per-cent share of the addressable market, while WELL also launched a telehealth platform VirtualClinic+ earlier this year.
WELL announced on Monday entering into a definitive agreement to acquire the remaining 60 per cent of shares in INSIG Corporation, a SaaS-based marketplace platform for patient documentation automation solutions currently serving 2,800 healthcare professionals along with a wholly-owned virtual care solution called Tia Health. INSIG’s platform has been used by over 100,000 patients over the past year and over 500,000 patients since its inception in 2015 (and 200,000 appointments in the last three months), while the Tia Health service currently has 400 doctors on-boarded and also supports Walmart and Rexall.
The deal, which follows from WELL’s 40-per-cent investment in INSIG in March of this year, involves about $22.1 million in WELL shares at $7.79 per share, a 60-day holdback amount of $1.4 million payable in WELL shares and $7.1 million in earnouts. Expected closure date has been put at late fourth quarter, whereupon INSIG founders Matthew Mazzuca and David Del Balso will continue to lead INSIG as a wholly-owned subsidiary of WELL and aim to develop its telehealth service and grow its market share.
“We are looking forward to acquiring the remaining portion of INSIG which will boost WELL’s virtual care and product development expertise,” said Hamed Shahbazi, Chairman and CEO of WELL, in a press release. “The INSIG team has proven to be resourceful and nimble innovators, operators and market leaders in the virtual care sector in Canada. We believe the combination of INSIG’s Tia Health and WELL’s VirtualClinic+ will position WELL as one of the top providers of telehealth services in Canada. I’m also very pleased that Matt and Dave will be bringing their innumerable talents to WELL not only as key leaders in the organization but also as aligned shareholders.”
Agostino said the deal will bring about $6.5 million in additional annual recurring revenues to WELL, with double-digit growth fueled by pandemic-driven demand.
“We remind readers that INSIG was very instrumental in helping WELL’s development of its VirtualClinic+ (VC) platform, with VC+ sitting over INSIG’s full-stack platform. INSIG’s virtual care services are also fully integrated with WELL’s EMR network and used widely by practitioners, with INSIG’s virtual care app on WELL’s apps.health marketplace also among the most used apps. We believe this transaction allows avenues for further collaboration going forward,” Agostino wrote.
The analyst has slightly rejigged his estimates on WELL, now calling for 2020 revenue of $46.8 million (previously $46.3 million) and an EBITDA loss of $985,000 (previously a loss of $973,000) and for 2021 revenue of $76.7 million (unchanged) and EBITDA of $4.70 million (previously $4.66 million).
Agostino’s $10.50 target represented at the time of publication a projected one-year return of 44.8 per cent.
“Our target price is unchanged as higher sales are offset by a higher share count,” Agostino wrote. “WELL currently trades at 14.7x pro-forma NTM EV/Sales including a full-year contribution from INSIG, which helps backfill growth expectations, and vs. high-growth Medical Technology companies at 10.0x. We believe the market continues to factor in near-term M&A activity.”
WELL’s share price was down on Monday but the stock remains up over 385 per cent for 2020.
A little over two weeks ago, WELL completed a bought deal offering of about 11.9 million common shares including about 1.6 million in over-allotment for gross proceeds of about $80.5 million, with the funds to be used to support its inorganic growth strategy and general working capital.
Around the same time, WELL announced a definitive share purchase agreement to acquire 51 per cent of shares of BC-based Easy Allied, a network of allied health professionals in the fields of physiotherapy, occupational therapy, kinesiology and counselling. Already a partner service to WELL’s clinics, the $1.1-million Easy Allied purchase includes the right for WELL to buy the remaining 49 per cent pursuant to a call option.
In September, WELL announced a definitive agreement to buy a majority of shares in Circle Medical, a US-based telemedicine business, for US$14 million. (All figures in Canadian dollars except where noted otherwise.)
Disclaimer: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and the company is an annual sponsor of Cantech Letter.