Some DD on Wellness Lifestyles Inc Wellness Lifestyles Inc. (WELL) is an infant-stage medtech junior with a central focus on the health and wellness sector in Canada. The company is in the midst of rolling out plans to build a modern age, healthcare company starting from the ground floor level. The management team plans to achieve this goal through a series of synergistic and value-added acquisitions. Target acquisition companies will be across various vertical industries within the health and wellness space and will possess low capital requirements and high potential to exploit shifts in health trends.
Wellness Lifestyles Inc began its journey in March 2016 as Movarie Capital Ltd., a shell company on the TSX Venture Exchange. The company made its first acquisition, Shakti Activewear, during that same month. Shakti Activewear designs and manufactures apparel for the yoga, dance, fitness and life markets. In June 2016, the company made its second acquisition, Canada Yoga. This acquisition constituted a fundamental change of business and resulted in a change of the company name to Wellness Lifestyles Inc.
Wellness Lifestyles Inc has a proven board and management team with a track record of managing operational growth and strategic acquisitions. Two notable members of the management team are CEO Alex Read and independent director Hamed Shahbazi. Alex Read brings over 13 years experience in entrepreneurial hyper-growth enterprises such as 1-800-GOT-JUNK?, You Move Me, WOW! and other franchise businesses to the team. I recently had a chance to sit down with Alex to discuss his background and the company and I was thoroughly impressed with his vision for the company. Hamed Shahbazi, an independent director of the company, founded TIO Networks (TSXV:TNC) as a kiosk solution provider in 1997 and has transitioned TIO Networks into a multi-channel payment solution provider specializing in bill payment and other financial services. TIO Networks was acquired by PayPal (NASDAQ:PYPL) for $304 million in February 2017. After selling TIO networks to Paypal, Shahbazi turned his attention towards WELL. Mr. Shahbazi has done an excellent job of instilling confidence in WELL investors by having skin in the game. After purchasing an additional 2’000’000 shares in the latest WELL private placement, Mr. Shahbazi now owns a combined total of 10,103,855 WELL shares, or 18.85% of the total float.
Initially, the management team at WELL envisioned the business model would revolve around products and services that would support healthy aging and living, hence the company’s first two acquisitions of yoga and life-apparel companies. But as the Wellness team researched opportunities to solve problems and make an impact in major markets, their focus shifted towards modernizing the common brick and mortar medical clinic.
At the moment, a vast majority of clinics in Canada are underachieving from a technological perspective, which has resulted in numerous inefficiencies for the whole industry. An example would be the prescription process: patients are given a scribbled note by their doctor which they then give to a pharmacist who then picks up a landline to verify the prescription that their doctor has written. This is an outdated and inefficient process which can be simplified with relatively inexpensive technology. But this is just one example. There are numerous cost efficiencies open to the company that will have no negative impact on service quality, yet provide better investment returns. These range from shared backend services (i.e. accounting and finance), to increased vendor buying power, to centralized patient management services, and even shared professional resources (i.e. doctors being able to fill-in for vacations, etc at other clinics).
On November 30th, 2017, WELL announced the acquisition of six profitable and established primary healthcare clinics in the province of British Columbia. The transaction was highly accretive and is expected to contribute approximately $8,500,000 in revenue and $660,000 in yearly EBITDA to WELL’s business. The six clinics represented by this transaction currently include 34 doctors and drive over 200,000 patient visits per year but more importantly, these clinics will now serve as the foundation upon which the new business plan would be laid out. Target acquisition technologies will be implemented into these clinics in order to increase profitability.
Concurrently with closing of the transaction, Wellness also completed an oversubscribed private placement. The company initially planned to raise $3’500’000 to purchase the six clinics; however, the placement was upsized to $4’500’000 due to high demand. The company plans to use the additional to clean up the balance sheet of remaining debt. Although WELL has had many opportunities to raise easy capital in a hot market, management is taking a different, more shareholder-friendly approach. Alex stressed the point that WELL adheres to a just-in-time financing policy. They do not want a treasury overflowing with large amounts of unused cash. Thus, once target acquisition companies are chosen and acquisition costs are determined, WELL will proceed with a financing for the required amount.
Over the next 12 months, I expect the management team at Wellness will be very busy searching for new technologies to implement into the six clinics that were acquired in November. Alex Read, CEO of Wellness Lifestyles, has stated that the company is “currently reviewing a number of opportunities for technologies designed to improve the overall patient experience, from booking appointments to after visit care.” Some category examples include telemedicine, electronic medical records (EMR), personal health records (PHR), patient management systems, and AI integration.
The primary care clinic market is fragmented, meaning there is no single firm which dominates the sector. While the sector is quite crowded with independent owner operators, some of the company’s principal competitors are focused on clinic consolidation and consistent brand image. The primary goal for these firms is to provide clinical care to patients, it is not to improve the patient experience with new technologies. Also, the services and billings available in these clinics are all governed and regulated by MSP. If WELL is able to successfully implement new acquisition technologies into the six clinics that were purchased in November, I believe the company can gain an edge over its competitors. Below is a summary of WELL's main competitors:
1. Care Point - Multi location clinics based in Metro Vancouver and Victoria. - Offering standard primary care and additional wellness facilities and services.
2. HealthVue - Multi location clinics based in Metro Vancouver with additional clinics advertised as opening soon. - Offering integrated technology solutions such as “online booking” and telemedicine services for patients located in British Columbia.
3. Coast Medical - Multi location clinics based in downtown Vancouver, Olympic Village neighbourhood of Vancouver, and Whistler, British Columbia. - Mainly offering walk-in services. Currently testing a “user-pay” telehealth service.
4. Copeman Healthcare - Multi location clinics based in Vancouver, West Vancouver, Calgary and Edmonton.
One of the drawbacks of WELL stock is the lack of daily volume. After sitting down with Alex Read, I learned that the reason for the low level of daily volume is because there has not been any marketing directed at the retail market, and because of this, the shareholder base for WELL consists mainly of long-term institutional investors who are patient and do not engage in daily trading. The lack of liquidity in WELL stock can be looked at one of two ways. If you are a misinformed retail investor with liquidity problems and a large amount of stock, this could be a problem. But not for someone who understands the business plan and the time horizon required to fully roll out that plan. When I asked Alex how long it would take to roll out the business plan, he said they were looking at a 3-year window. In addition, he also made it clear that the WELL shareholder base is consistent with top institutional shareholders from firms like Haywood, Canaccord, and Gravitas, whom I believe will jump in on the opportunity to get in on another private placement. Thus, I see minimal financing risk for WELL.
In conclusion, Wellness Lifestyles offers small-cap investors an opportunity to be involved with a company that can not only be profitable over the long run, but also a company that is striving to improve the overall quality of healthcare in Canada.