WELL Health Technologies Corp T.WELL

they bought Oceean/CognisantMD for $10.57MM + $7MM Earn Out

[monty613]

and they just announced today that it is on a $9.3MM revenue run rate with 95% gross margins 

that's a good acquisition

https://www.newswire.ca/news-releases/well-health-provides-update-on-the-organic-growth-of-its-virtual-services-business-and-announces-tuck-in-acquisition-of-cognisantmd-s-ocean-platform-canada-s-leader-in-patient-engagement-technology-and-ereferral-software-853709017.html


The consideration paid by WELL in connection with the acquisition of CoginsantMD was approximately $10,570,000, in cash at closing. In addition, WELL will pay $7,000,000 in time-based payments, as well as a conditional earn-out based on overall operating performance of up to approximately $7,000,000. The consideration is subject to standard closing adjustments and a working capital holdback. Full achievement of the performance based earnout would imply an acquisition multiple of less than 5X future EBITDA. 

[HotDiggityDogg]

I have to say these are very impressive figures. Specially the margins. If this was last February, stock would be up 6% on this NR alone. Do you know what the analysts expectations are for the Earnings in March?

[monty613]

I don't have the consensus targets yet - most banks will do an earnings preview closer to the release date. I am willing to bet that WELL will likely exceed expectations. they guided with that NR back in January and I am thinking they will likely beat. they would kill all credibility if they didn't meet these figures, at minimum. a key will also be the 2022 guidance and conference call to

[speedy99]

And what will be interesting is whether they proceed with share buy backs after releasing 4th quarter results.  They indicated that they may be restricted in commencing buybacks until 4th quarter results released.  It certainly would be unusual for a company at this early stage in its growth to be proceeding with buybacks of shares.  The messaging on that point was not an absolute

[monty613]

they're prohibited to do the buybacks as they are privy to the year-end financial results, which aren't public yet. it's like trading on insider info. management also can't do any insider buying right now.

[Capharnaum]

They could do a buyback, but they would need to have an "automated" buyback program.

[Capharnaum]

I think they should use their FCF to make other acquisititions. The share price "problem" will sort itself out imo as they get the results out the door and more investors realize how cheap the stock is.

[speedy99]

Capharnaum wrote:  "The share price 'problem' will sort itself out imo as they get the results out the door and more investors realize how cheap the stock is." That comment is certainly a breath of fresh air, and the right attitude in my view.  Posters obsessing over minute changes in the share price are missing the big picture.  Its really insane the amount of

[jdsd0517]

You are right, the small fluctuations between 4-5 don't really matter. The boosters are going to pile on to me for this comment, but I think the real risk to this company is less around growth, and mostly around capital structure.  In other words, does business performance translate into share price appreciation, or is it diluted way? The balance sheet isn't particularly strong

[jdsd0517]

I still don't have an opinion on this one, won't until I see Q4 and full year numbers. But I want to point out that: "Full achievement of the performance based earnout would imply an acquisition multiple of less than 5X future EBITDA. " If that quote is correct, 5X future EBITDA hardly qualifies as a good deal.  Average at best.

[monty613]

why does that hardly qualify as a good deal? they bought MyHealth and CRH for 10-12X EBITDA (which is market price for companies like this).  some quick Googling shows me that Constellation and Descartes acquire SaaS companies at 5X-10X EBITDA and maybe even higher because they don't typically disclose their purchase prices (the disclosures were on big purchases, not small tuck-ins like

[jdsd0517]

Again, I don't know the details of this company, but I know about Constellation and Enghouse; they don't pay 10X EBITDA for anything.  Enghouse in particular is questioned on calls because they can't find enough companies to buy at their target multiples. I have no opinion on Descartes. As a rule of thumb, 5X current EBITDA is a good deal.  The reason I made my comment

[monty613]

fair comment - but the 5X forward EBITDA was in reference to the full purchase price which includes a $7MM earn out. so they're not paying 5X until the company meets that EBITDA target?  in any event, this product/division appears to be delivering some hyper growth as the NR today says $9.3MM in annual recurring revenue and at the time of purchase (November) it was $4MM. not

[Capharnaum]

Deals are usually done based on the forward ebitda, even if not explicitely mentioned when talking about the acquisition. As to 5x, it depends on the business, its size and the sector. Sale transactions in general were done well above 5x EBITDA, which is why Enghouse hasn't done any acquisition in a while (valuations too high for what they want to pay).

[jdsd0517]

Yeah, that's kind right, but not really. BUYERS look at forward EBITDA to justify premiums.  But they pitch SELLERS on current EBITDA.  Savvy buyers buy and report on current, not future. The reason is simple, buyers do not want to share the synergies they are bringing to the table with sellers.  If I can make a lot of incremental revenue selling your product throught my

[Capharnaum]

Well, sure, there will be negociations. Seller will produce a proforma with his different hypotheses and the buyer will negociate based on that. Odd items/events will be regularized. In general, the EBITDA multiple will have been already agreed upon (or at least, there will be a range where both buyer and seller are willing to take a further look), and once the hypotheses are settled as being

[HotDiggityDogg]

Can you elaborate on this ? What would be a good deal in terms of multiples in your opinion?