with all the chatter about the transaction being accretive, i thought i would chime in. long time CRH Medical shareholder here.
despite the premium, CRH was purchased for a low 6.5X EBITDA (2021 Estimates) and I would think with the "tech" angle that WELL trades at a much richer multiple, making this immediately accretive to the share price.
the real hidden value here is that CRH has a pipeline of 500 acquisitions (yes, 500) that they purchase at 4-5X EBITDA. these are bite-sized transactions from Doctors, not large publicly listed companies or even national/multinational companies. there is little to no competition on the purchases as CRH is the only entity of scale consolidating GI anesthesia.
historically, CRH has depoyed about $25-$30MM dollars in acquisitions every year, funded by their free cash flow and a cheap credit line. i think with WELL's capital raising abilities and the involvement of Li Ka Shing, CRH can accelerate their purchases which would be even MORE accretive to shareholder value given the multiple WELL trades at.
a couple overhangs on CRH:
- margin pressures - revenues are susceptible to pressures as Insurers look to pay lower reimbursement on anesthesia. an entity called CMS sets pricing guidelines every year and a few years ago there was a big reset on reimbursement which absolutely cratered the stock (high of $12 CAD). if you look at their revenue run rate over the last couple years, revenues are blowing up from acquisitions but margins are not holding. CRH has been making inroads in the last year trying to contract their revenue with insurers, so as to provide more stable margins. the bigger they grow, the more power they have to do this.
- customer loss - their biggest customer, United Digestive, announced in December 2020 that they were looking to shop the CRH contract. this is the ONLY contract CRH has where they are more of a "vendor" (100% owner) and not a parner in the anesthesia business. typically, CRH joint ventures with the doctor who performs the colonoscopies and the doctor also owns a minority share in the anesthesia business. this effectively prevents the contract from ever being cancelled.
i think both of these issues are easily overcome. margins will stabilize and the customer loss can be made up by new acquisitions (accelerated under WELL) *or* they don't lose the United Digestive contract and end up saving it in some way.
in any event, there is a lot of hidden value in CRH as their margins are high and they print a lot of free cash flow which can be leveraged.