Announces tuck-in acquisition of CDN clinics and to begin operating clinics in Walmart stores
TSX: WELL | CAD 4.39 | Outperform | Price Target CAD 6.00
Sentiment: Positive
Our initial view: WELL announced this morning that it has acquired a network of 16 owned and operated clinics as well as 62 licensee clinics from Jack Nathan Health (TSXV: JNH, not covered). Upon closing, WELL will acquire Jack Nathan's rights to operate medical clinics in Walmart Canada stores. The acquired clinics generated annualized combined revenues of more than $12.2MM. WELL expects to leverage its shared services program and clinic transformation initiatives to drive performance, with an expectation to operate the acquired clinics profitably on an adjusted EBITDA basis in 2025. The acquisition of JHN's licensee clinics brings a new high margin primary care "Affiliate Clinic" business model to WELL. While WELL Health's press release did not comment on transaction metrics, the press release from JNH noted a purchase price of $5MM in cash payable to JNH (~0.4x LTM revenues). Additionally, the transaction is conditional on, and it is expected that, all debt owing by JNH to Wal-Mart Canada Corp. (more than $15MM in aggregate) will be extinguished upon closing (the debt will not be assumed by WELL). The closing of the transaction remains subject to approval by shareholders of JNH and the satisfaction of certain other conditions. JNH has called a shareholders’ meeting for November 29, 2024. The directors of JNH, representing 24.36% of the outstanding common shares of JNH, have entered into customary voting support agreements and will vote their common shares in favour of the transaction.
Acquired 16 owned and operated clinics. WELL has entered into definitive agreements to acquire the Canadian clinical assets of Jack Nathan Medical Corp. The acquisition includes a network of 16 owned and operated primary care clinics across 13 Canadian cities. These clinics generated LTM revenues of over $10MM. The newly acquired clinics are located within Canadian Walmart stores. WELL expects to leverage its shared services program and clinic transformation initiatives to drive performance, with an expectation to operate profitably on an adjusted EBITDA basis in 2025.
"Affiliate Clinic" business model. As part of the transaction, WELL will also acquire 62 licensee clinics that generated LTM revenues of over $2.2MM. WELL will acquire Jack Nathan's rights to operate medical clinics in Walmart Canada stores, creating a platform to expand its network within Walmart Canada's footprint of over 400 Canadian locations. The company believes that the acquisition of Jack Nathan's licensee clinics business will bring a new high margin primary care 'Affiliate' business model to WELL that will be characterized by WELL recruiting and placing physicians into small clinics that would be owned and operated by physicians with WELL's technology support. The Affiliate Clinics will provide rental income without operational responsibilities for WELL, contributing to a high-margin revenue stream while allowing WELL to focus on expanding its larger core clinic operations.
Transaction details. The transaction will result in addition of 90 doctors to WELL's network. While WELL Health's press release did not comment on any transaction metrics, the press release from JNH noted a purchase price payable of $5MM in cash to JNH (~0.4x LTM revenues). Additionally, the transaction is conditional on, and it is expected that, all debt owing by JNH to Wal-Mart Canada Corp. (more than $15MM in aggregate) will be extinguished upon closing. The debt will not be assumed by WELL.
Interim financing agreement. JNH has also entered into an interim financing agreement with WELL pursuant to which WELL has made available a credit facility for up to a maximum of $750,000, to be advanced prior to closing to support the cash flow requirements and business continuity needs until closing. Each advance under the credit facility is at the discretion of WELL, contingent on the approval of Wal-Mart Canada Corp., is subject to certain conditions and, on closing, will be set-off against the purchase price payable to JNH. The outstanding principal amount of each advance shall bear a 12% p.a. interest rate.
Closing conditions including JNH's Mexico assets. A closing condition of the asset sale is that an agreement, on terms mutually acceptable to WELL and JNH, be executed at or before closing granting WELL a right of first offer on the shares, assets and/or business of JNH's Mexican subsidiary (JN Mexico) which holds JNH's Mexican business, and such right to be exercisable within three years after closing. Based on our discussions with the company, at this time WELL is not planning on taking on JNH's Mexico assets. An additional closing condition of the asset sale is that JN Mexico and WalMart Canada Corp. (or an affiliate) shall have entered into a profit share agreement, effective on closing, pursuant to which JN Mexico will grant to Walmart in the first year after closing a 10% interest, and thereafter a 25% interest, in any profit from JN Mexico’s business, which will be payable by JN Mexico until such time as a total of $4MM has been paid to Walmart. This profit share obligation is to be secured against JN Mexico’s assets.