Desjardins likes WELL Health’s new tuck-in acquisition

Desjardins analyst David Newman is solidly behind WELL Health Technologies Ltd. (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), giving the company a reiterated “Buy” rating and $11/share target price in an update to clients on Thursday.

An omni-channel digital health company with a number of business segments and operations in Canada and the United States, Vancouver-based WELL Health has put an emphasis on acquiring digital and physical healthcare assets since pivoting to the field in 2018, largely acquiring properties through various mergers and acquisitions. Among its segments, WELL has physical medical clinics, virtual medical platforms in the US and Canada, an Electronic Medical Records business and a health app marketplace.

Newman’s most recent analysis comes after WELL Health announced the full tuck-in acquisition of CognisantMD, whose Ocean platform includes a full suite of virtual patient engagement tools, including online appointment booking, secure messaging, appointment reminders and digital forms as well as in-clinic check-in kiosks and tablets.

The Ocean platform powers the provider networks in Ontario as part of a consortium led by Think Research, as well as having recently launched a proof of concept eConsult with the Nova Scotia Health Authority.

“We view the deal favourably as it tilts the scale toward Virtual Services revenue and aligns with WELL’s focus on tuck-ins after building out its four key pillars,” Newman said.

The acquisition includes $10.6 million in cash due at closing, $7 million in time-based payments and a $7 million performance-based earn-out, the achievement of which would suggest adjusted EBITDA of less than 5x. CognisantMD itself produces adjusted EBITDA, as well as generating around $4 million in SaaS revenue for a pre-synergy multiple of 2.7x revenue, along with having 95 per cent gross margins and roughly 50 per cent organic growth.

WELL’s Virtual Services business has proven prosperous for the company, generating approximately $110 million in run-rate revenue with more than 50 per cent year-over-year organic growth, more than 50 per cent adjusted gross margins and positive adjusted EBITDA.

“WELL has been impressed with CognisantMD and its leadership from the very beginning of our journey together,” said Amir Javidan, Chief Operating Officer of WELL Health in the company’s December 2 press release. “Watching CognisantMD develop from an app partner to the progression of joining the WELL family as a tuck-in acquisition shows the power of WELL’s platform and industry connectivity. With Ocean now powering the Provider Network platform of two provinces, we believe they are well positioned as the category leader for eReferral and eConsult purposes across Canada.”

Newman sees the deal benefiting both sides for a number of reasons, chief among them the fact that CognisantMD will be able to leverage WELL’s capital allocation and shared services expertise to continue its expansion while remaining a standalone operation.

In addition, Newman notes multiple potential revenue growth drivers for CognisantMD, including prioritized integrations with its reseller partners to market and sell Ocean solutions across Canada, expanding TAM by integrations into other EMRs, including WELL’s Intrahealth and Cerebrum, and WELL potentially providing Ocean across its clinical and specialty businesses.

At press time, Newman’s maintained $11.00 target represented a projected one-year return of 106.4 per cent.

Overall, WELL Health’s stock price is down 33.3 per cent for the year to date, hitting a high point of $9.23/share on February 24 before going back and forth for the majority of the year. However, the stock has dropped by 24.2 per cent since November 11 alone.

Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health and WELL is an annual sponsor of Cantech Letter.