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OUR TAKE: Positive. Last week, WELL announced (link) that it had closed an ~$50M preferred share private placement to help fund its SaaS business, now branded as WELLSTAR, ahead of its spinout planned to occur by the end of 2025. The financing values WELLSTAR at +4.0x PF 2025 Sales, higher than the ~2.5x our prior sum-of-the-parts valuation was reflecting. We’ve updated our model to include two acquisitions WELLSTAR made concurrent with the financing ($15M of LTM revenue at 20% Adj. EBITDA margins), in addition to increasing our target multiple used for WELLSTAR to 4.0x sales. Our target for WELL moves to $7 (prior $6), but we see potential for further upside from many of the company’s other businesses, including Canadian Clinics (M&A pipeline has been increasing) and at Wisp and Circle Medical (strategic reviews at both were recently noted as progressing well during Q3’s earnings call).
KEY POINTS
WELLSTAR Financing Supports Pre-Spinout Growth Plan: WELL’s high-growth SaaS business, WELLSTAR (previously known as WELL Provider Solutions), closed a $50.4M private placement ahead of its planned spinout, currently set to occur before the end of 2025. Financing in the form of preferred shares was supported by Mawer, EdgePoint, and PenderFund (collectively $45M), with the remainder from management of both WELLSTAR and WELL. Concurrent with the financing, WELLSTAR closed two acquisitions for ~$28M ($17.9M cash, $3.9M WELLSTAR shares, $6.2M deferred payments and earnouts) that delivered $15M in LTM revenue. One of the acquisitions is a Canadian-based EMR (100% purchase), with the other a control acquisition (51%) for a national healthcare tech services firm. WELLSTAR was noted as being valued at a pre-financing EV of ~$285M or ~4.1x 2025 Sales of $70M (inclusive of the two acquisitions). WELL’s majority economic and voting interest in WELLSTAR is expected to remain for the long-term.
Building a HealthTech SaaS Leader: WELLSTAR is a leading healthtech SaaS provider primarily focused in Canada, with multiple opportunities for growth both on an organic and inorganic basis. WELLSTAR offers a broad suite of solutions targeted at healthcare providers including EMR, Digital Health Apps (such as OceanMD), Billing-as-a-Service (BaaS), and Revenue Cycle Management (RCM). During WELL’s Investor Day (link) earlier this year, management disclosed that WELLSTAR delivered a 3-year revenue CAGR of 51% reaching ~$38M in 2023, with a gross margin profile ~86% and Adj. EBITDA margins ~28%. Our estimates suggest organic growth in 2024 and 2025 (~20%) alongside the above-mentioned acquisitions to drive run-rate revenue of at least $70M next year.
Valuation Update: We were previously valuing WELL’s SaaS & Technology Services segment at 2.5x Sales (this includes Cybersecurity, which is not part of WELLSTAR). Our updated valuation now splits out WELLSTAR, which we value at 4.0x Sales, with Cybersecurity at 3.0x. We’ve also updated our model for our initial assumptions for the two recent acquisitions ($15M revenue and +$3M EBITDA, which could see upside on organic growth - we’ll await more details on these assets before making further adjustments). Our target moves to $7 from $6, reflecting ~15.5x shareholder EV/EBITDA on C2025E (prior ~14.5x).
Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated. Source: FactSet; company reports; Scotiabank GBM estimates.
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