CIBCEQUITY RESEARCH
November 4, 2024 Flash Research
WELL HEALTH TECHNOLOGIES CORP.
Acquiring Canadian Clinical Assets Of Jack Nathan Health
Our Conclusion
WELL announced the acquisition of the Canadian clinic assets of Jack
Nathan Medical Corp (JNH), including a network of 16 clinics that generate a
run-rate of $10MM (currently unprofitable), and 62 licensee clinics that
generate $2.2MM in revenue. WELL paid $5MM in cash for the network of
owned and licensee clinics, or ~0.4x sales, and management expects the
clinics to be operating profitably by 2025. WELL has a strong track record of
improving the profitability of clinics acquired under its absorption program,
and as such we expect the acquired clinics to be operating positive EBITDA
within the next six months. The acquisition places WELL in 16 Walmart
Canada stores which should have high foot traffic, and if they are successful
we expect WELL could look to grow its footprint by expanding to additional
Walmart locations.
Key Highlights
Acquisition Details: WELL is paying $5MM in cash for the clinics and the
licensing business, and has also entered into an interim financing agreement
with JNH under which WELL will provide a credit facility of up to US$750k to
support JNH’s cash flow needs until closing. The financing agreement bears
interest at 12%. The transaction is subject to several closing conditions,
including granting WELL a right of first offer on the assets of the company’s
Mexican subsidiary, as well as a condition that JNH’s Mexican subsidiary and
Walmart enter into a profit sharing agreement on profit from JNH’s Mexico
business.
Places WELL In Walmart: On the close of the transaction, WELL will
acquire Jack Nathan’s right to operate medical clinics in Walmart Canada
stores. The 16 clinics are currently situated in 13 cities across Canada, and
will add 90 doctors to WELL’s network. With the newly acquired clinics
located within Canadian Walmart stores, we expect they are in higher density
regions and see strong foot traffic.
Expected To Be Profitable In 2025: The newly acquired clinics are currently
generating negative EBITDA, but WELL expects the clinics to be operating
profitably on an adjusted EBITDA basis in 2025 after leveraging its shared
services program and clinic transformation initiatives. WELL has a strong
track record of improving the margin profile of its acquired clinics, most
recently able to bring 10 clinics acquired from Shoppers Drug Mart to positive
EBITDA with ~4 months, and as a result we see this target as achievable.
Affiliate Clinic Model: WELL is also acquiring 62 licensee clinics across
Canada and introducing a new “Affiliate Clinic” business model for WELL.
Under the Affiliate Clinic model, WELL will recruit and place physicians into
smaller clinics that will be owned and operated by the physicians themselves, while WELL provides technical and operational support. As a result, the affiliate clinics will provide rental income to WELL without operational costs,providing WELL with an additional high-margin revenue stream.