WELL Health Technologies Corp.
(WELL-T) C$4.24
Clinic Expansion into Manitoba in the Works Event
Earlier this week, the Free Press reported that WELL Health has agreed to acquire the Manitoba Clinic.
Impact: NEUTRAL
Our take. We believe WELL continues to take advantage of very attractive clinic- consolidation opportunities in Canada, as it looks to rapidly grow its clinic footprint across the country and further extend its lead as the largest owner/operator of outpatient medical clinics in Canada. We believe the large shortage of family doctors, physician burnout, and inefficiently run clinics are allowing WELL to rapidly consolidate the very fragmented clinic market at very attractive valuations of <2x-3x EBITDA (or essentially free in some cases of clinic absorption), with WELL able to fund these acquisitions from its FCF. We believe the potential Manitoba Clinic acquisition fits this profile, and expect to see many more clinic acquisitions/ absorptions in the months/years ahead.
Details. Late Monday afternoon, the Free Press reported that a court-appointed monitor had reached an asset-purchase agreement with WELL to purchase the Manitoba Clinic, with the deal set to be finalized on December 1, pending court approval (expected on November 24).
No sale price was disclosed, but given that the business is bankrupt and was losing money (since it moved into a new building in 2018, as it could not attract enough physicians to fill its leased space), we believe the purchase price is relatively low. We believe it could be close to the ~0.07x revenue it paid for MCI's Ontario clinics in July, or possibly less if it is a clinic absorption.
The Manitoba Clinic was Manitoba's largest private clinic and one of the largest in Canada, with 70 physicians working at the multi-specialty clinic before it entered creditor protection last November. Over half of the physicians have retired or left following the bankruptcy filing, with 34 still working at the clinic. We believe a key part to improving the profitability will be convincing the remaining physicians to stay post-closing.
Although the pending acquisition/absorption would be slightly dilutive to margins in the near term, we highlight WELL's proven track record of quickly boosting profitability levels of no-/low-margin businesses, particularly within the first year.