Vancouver-based WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analyts, Financials TSX:WELL) took a hit on Friday with the emergence of a short-seller report claiming the company’s successful M&A track record is not what it seems, with specific criticism directed at WELL’s just-completed acquisition of CRH Medical. But investors should take such attacks with a hefty dose of skepticism, says fund manager Andrew McCreath, who disparages the motives behind this and similar shorts.
WELL Health, a health tech company with business in a number of verticals including primary healthcare clinics, Electronic Medical Records, telehealth, an innovation hub for digital health apps, along with billing and cybersecurity solutions for the healthcare field, saw its share price pulled lower on Friday after the release of a research report by Grizzly Reports. The report called WELL a “toxic roll-up” and said it overpaid for some of its more recent acquisitions, adding that WELL is “not a digital-first” company as it claims to be.
“The individual who, of course, remains anonymous calls himself Grizzly, but I know that he happens to be one of these report writers who gets paid to write reports, something that I don’t understand why regulators don’t look at hedge funds hiring people to write short reports.” -Andrew McCreath
“There are good roll ups and there are bad – WELL neatly fits into the latter: in our opinion, sustainable and successful roll ups don’t overpay for acquisitions, have clean reported profitability numbers, focus on cash flow, have clear IRR hurdles and stick to their knitting. This is not what WELL has done over the last 12 months,” the report says.
Grizzly Reports has been flagged in other recent short-seller instances, with the group on a number of occasions going after Chinese online tutoring company GSX Techedu, most recently, on April 8, 2021, while in late 2019 it posted an attack against US medical cannabis company Trulieve Cannabis.
In attacking GSX, Grizzly joined with fellow shorters Citron Research and Muddy Waters Research to claim that the company falsely fabricated the majority of its online sales, leading to a Securities and Exchange Commission reportedly investigating GSX as of last September. GSX has traded wildly over the past year, with the stock currently down about 15 per cent for the past 12 months.
In the case of Florida-based Trulieve, Grizzly claimed it had misled shareholders numerous times including about the company’s profitability and funding sources, while also alleging that the company’s product is of low quality and “prone to infestation and weather damage.”
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Trulieve responded in early 2020 with a libel lawsuit against Grizzly; meanwhile, Trulieve led the way among US cannabis companies in 2020 with a 162 per cent return for the year, one in which the company had year-over-year revenue growth of 106 per cent and adjusted EBITDA growth of 99 per cent.
On the WELL Health short report, McCreath, of Forge First Asset Management and a markets commentator on BNN Bloomberg, said it was likely paid for by a hedge fund.
“WELL is a stock here in Canada that was a favourite last year. It traded three-and-a-half times its average daily volume [on Friday] based on a short report that came out of the United States,” said McCreath, speaking on BNN Bloomberg on Friday.
“The individual who, of course, remains anonymous calls himself Grizzly, but I know that he happens to be one of these report writers who gets paid to write reports, something that I don’t understand why regulators don’t look at hedge funds hiring people to write short reports,” he said.
“Of course, the hedge funds are going to get short before the report gets published,” McCreath said. “I’m not going to opine on the report at this point in time, but the bottom line is the stock’s not down that much. It’s only down about three per cent today but on heavy volume.”
On WELL’s purported M&A mistakes, Grizzly claimed WELL overpaid for recent acquisitions such as INSIG, a telehealth platform, cybersecurity company Source 44, US telemedicine platform Circle Medical and allied health practice management platform Adracare.
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In the case of Adracare, the report pointed to the company’s past, which included a bankruptcy and misrepresented financials in a previous iteration, OrbCare, as reasons WELL should have avoided the company rather than buy it.
“In reality, despite a mere ten-per-cent increase in revenue and no significant operational improvements, WELL paid a 300-per-cent premium to acquire a business that, again, nobody else wanted. We sincerely question the logic behind this acquisition and demand the company to stipulate exactly how synergetic it is,” the report said.
The ‘unwanted asset’ claim was levelled at CRH, as well, with the report claiming the gastroenterology and anesthesia company, which owns 33 clinics in the US and serves 72 ambulatory surgical centres across 15 states, has “dim business prospects and lacklustre technology.” Moreover, Grizzly said CRH had a suitor previous to WELL which dropped out of the running after looking under the hood, according to the report.
“Upon a closer look, there are obvious problems at CRH. Most notably the temporary loss of a key customer announced in December 2020. This event led to the exposure of many internal control issues that we believe contributed to the termination of the previous acquisition,” the Grizzly report said.
CRH shareholders approved on April 16 the acquisition by WELL Health by 97.3 per cent of votes cast, while WELL announced the closure of the US$372.9-million deal, the largest in WELL Health’s history, on April 22.
The short-seller attack on WELL is the latest against a Canadian tech company. E-commerce tech giant Shopify has endured a number of short critiques over the years, including a 2017 attack by Citron Research which temporarily dropped the stock by over ten per cent, but ultimately resulted in a humiliating failure for Citron.
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Disclaimer: Jayson MacLean owns shares in Trulieve Cannabis and Nick Waddell and Jayson MacLean own shares in WELL Health, which is an annual sponsor of Cantech Letter.
About The Author /
Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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Andrew owned Concordia and defended it while Valiant crashed then he lost a bundle on Concordia’s collapse. Andrew also highly recommend Meg a year ago before it’s collapse.
If Andy owns it no matter what he backs it. Well Health is going down town Georgia Brown.