WELL Health Technologies Corp.
(WELL-T) C$7.00
Closes the Acquisition of CRH Medical Event
Yesterday after market close, WELL announced the closing of its acquisition of CRH Medical.
Impact: POSITIVE
Closes its largest acquisition to-date. Following the overwhelming approval by CRH securityholders last Friday (>97% voted in favour), WELL completed the acquisition of CRH for US$4.00/share in cash, implying an equity value of ~US$286.6 million and transaction value of ~US$372.9 million including CRH's credit facility.
The acquisition was funded in part by the $302.5 million subscription receipt financing that was led by Mr. Li Ka-Shing and his associates ($100 million investment; over $132 million invested to-date) and included management/Board ($1 million) and a number of significant institutional investors. The subscription receipts have automatically converted into common shares. The balance of the acquisition funding came from a new bank credit facility.
Significantly bolsters its revenue, Adjusted EBITDA, and FCF. Through the CRH Medical acquisition, WELL has more than doubled its revenue and dramatically improved its Adjusted EBITDA and FCF generation. We estimate that CRH accounts for ~55-60% of revenue and the vast majority of its EBITDA and FCF (pro forma and forecast), as WELL only just turned Adjusted EBITDA positive in Q4/F20. The strong FCF generation will help WELL and CRH continue their active M&A programs.
Looking at a U.S. IPO later this year. With the acquisition of CRH now closed, we estimate that close to two-thirds of WELL's revenue and almost all of its Adjusted EBITDA and FCF are being generated in the U.S. (including the modest contribution from Circle Medical). Given its large U.S. exposure and its increased size and scale with CRH, WELL is evaluating a potential U.S. IPO later this year, which could be a key catalyst for the stock.
TD Investment Conclusion
We have increased our target price to C$10.50 (from C$10.00) due to the acquisition of CRH Medical as well as a modest improvement in peer-group valuations. We believe that the recent share-price weakness has created an attractive buying opportunity, particularly given that it has just closed the highly accretive and strategic acquisition of CRH that positions it well to continue its active M&A strategy and pursue a potential U.S. IPO later this year.