CIBCSimilar to RBC but they raised their target from $5.25. GLTA
EQUITY RESEARCH
December 12, 2024 Earnings Update
WELL HEALTH TECHNOLOGIES CORP.
$50MM Private Placement Leads To Higher SOTP Multiples
Our Conclusion
This morning, WELL announced the company is rebranding its WELL
Provider Solutions Segment (WPS) as WELLSTAR after completing two
tuck-in acquisitions and raising ~$50MM in private capital in support of a
planned spinout of the segment, targeted for before the end of 2025. The
idea of a spinout of WPS was proposed in Q2, and the two acquisitions were
disclosed with Q3 results as signed LOIs that would increase proforma
revenue to $70MM. Aside from the name change, the key new datapoint
from today’s update is the $50MM in private capital raised from a
combination of institutional investors and WELL/WELLSTAR management
that values WELLSTAR at a pre-money EV of $285MM or ~4x projected
2025 sales. While there are some moving parts, the 4x multiple is
approximately twice what we were using to value WELLSTAR in our SOTP,
where we were clearly too conservative. After adjusting our SOTP to reflect
the new WELLSTAR valuation, increase our target multiples on WELL’s
Circle Medical and WISP businesses, and to re-mark WELL’s stake in
HEALWELL to market, we raise our price target to $7.00 (from $5.25). While
it looks as if we had been undervaluing WELL’s technology businesses and
missed the run-up as a result, the significant appreciation in WELL shares
over the last three months still leaves us at a Neutral rating as shares remain
in line with our updated SOTP valuation.
Key Points
$50MM Private Placement: WELLSTAR closed a $50MM preferred share
private placement supported by three institutional investors alongside
WELL/WELLSTAR management. The investment values WELLSTAR at a
pre-money EV of $285MM, or ~4.0x 2025 sales and 20x 2025 pro forma adj.
EBITDA. This is well above our prior sum-of-the-parts valuation for WELL’s
SaaS and Tech segment of $169MM, which included ~$20MM of
cybersecurity revenue that won’t be part of WELLSTAR, which we were
valuing at 10x EBITDA or 2x sales at a 20% EBITDA margin.
Closed Two Acquisitions: WELL also announced that WELLSTAR has
closed two acquisitions for $17.9MM in cash, $3.9MM in WELLSTAR shares
and $6.2MM in deferred consideration for total proceeds of $28MM. WELL
expects WELLSTAR to generate proforma revenue of $70MM in 2025, with
EBITDA margins of ~20%. The acquisitions generated $15MM in LTM
revenue at 20% EBITDA margins, equating to a 2x-3x EV/S multiple.
More M&A Expected: WELL disclosed it was considering a spin-out during
its Q2 earnings call, and provided an update on its targets during the Q3 call.
Plans to increase the size of WELLSTAR via M&A remain ongoing, with a
majority of the private placement proceeds still available and likely to be
used on acquisitions. We also expect WELLSTAR to use equity and deferred
consideration to further finance M&A, and would not be surprised if
WELLSTAR was approaching $100MM in sales by the end of 2025 by
deploying somewhere in the range of $60MM at a 2x sales multiple to
acquire additional businesses