eResearch| WELL Health Technologies Corp. (TSX: WELL) announced a $369.2 million acquisition of CRH Medical Corporation (NYSE: CRH|TSX: CRH), working out to $4.00 per share in cash. The deal price represents an 84% premium to CRH Medical’s closing share price on February 5, 2021, of C$2.78 and a US/CAN f/x rate of 1.279.
The news follows an extensive list of accretive transactions in the past year, growing WELL Health’s top-line revenue and EBITDA growth. CRH Medical is one of the most significant additions to the WELL Health portfolio.
To fund the acquisition, Well Health raised C$302.5 million in equity, led by Mr. Li Ka-shing and participation from several large institutional investors, and obtained a credit facility from CIBC and HSBC Bank Canada.
CHART 1: WELL Health Investments & Price Movement
CRH Medical
CRH Medical is a US-centered company that differs considerably from previous WELL acquisitions because it is not in the digital health technology space. CRH Medical provides innovative products and services for the treatment of gastrointestinal diseases, including anesthesia services for patients undergoing endoscopic procedures, at 69 ambulatory surgery centers and gastroenterologist clinics across 13 states, and a hemorrhoid removal system.
IMAGE 1: CRH Medical’s O’Regan Ligator
The acquisition will add revenue and provide an opportunity to cross-sell digital technologies to a wide network of 3,000 gastroenterologists.
Hamed Shahbazi, Chairman and CEO of WELL noted:
“…CRH generates over US$120M in annual revenues at approximately 40% operating EBITDA margin and more than 25% free cash flow margin. It is a unique asset that owns strong IP and once closed, it will generate significant cash flow for WELL for many years.”
IMAGE 2: Hamed Shahbazi, Chairman and CEO of WELL
Digital Health
According to Research and Market, growth in the digital health segment is expected to continue at a 21.8% CAGR over the next decade, eventually hitting over $880 billion in 2030.
The market includes Electronic Medical Record “EMR” software, patient-facing applications, health analytics, and telemedicine.
Spending is driving the sector’s growth. Centers for Medicare & Medicaid Services peg US health spending at 17.7% of GDP, whereas the Canadian Institute for Health Information cites Canadians spending 11.5%.
Healthcare is a highly regulated space that can be a slow change. Digital products and services offer significant and rapid productivity gains without tedious training.
Recent research cited that physicians spend 24% of their working hours on administrative duties rather than patient care. This administrative burden led to burnout and lowered patient volumes. Digital solutions help to streamline efficiency and could lead to better care.
The health space is highly fragmented and cluttered with regional players and regulatory hurdles. Another company on the consolidation path is Nova Leap Health (TSXV:NLH). Headquartered in Halifax, Nova expanded its homecare operations in Massachusetts, Arkansas, Ohio, and New England in 2020.
WELL Health
WELL Health Technologies is a digital health company headquartered in Vancouver. WELL Health seeks to improve both productivity and care by integrating EMR and patient-facing applications.
WELL Health‘s strategy is broken into five steps: acquire, integrate, optimize, productize, and scale.
Operating 20 primary care centres, WELL is positioned to understand clinician needs and integrate its digital products into truly productive tools.
This deal comes on the heels of several acquisitions and investments in the last year, including:
- Circle Medical Technologies is a telehealth provider based out of Silicon Valley using artificial intelligence to boost patient satisfaction.
- Adracare practice management platform with a global footprint, from New Zealand to the United Kingdom, serving cannabis, physiotherapy, and mental health verticals.
- Insig Corporation offers digital solutions for primary care providers to automate notes and build a virtual practice. Used by over 500,00 patients to date.
- Doctorcare is a billing technology to optimize revenue streams for Canadian physicians.
- Pillway is an online pharmacy serving most of Canada.
- Source 44 is a healthcare cybersecurity consulting firm.
WELL Health closed the day at C$8.47 with a Market Cap of C$1.24 billion.
