Our public health care system is on the ropes and more money isn’t going to revive it. Lester B. Pearson’s gift of Medicare, long-intertwined with the Canadian identity, is in desperate need of a transformation, creating an opportunity for private care provision and decentralized care delivery. The same is true across North America.
Home health care acts as a release valve for the system, leaving hospitals the ability to focus on acute care and preventative initiatives, rather than being bogged down by chronic therapies such as treating the growing number of elderly unable to care for themselves without assistance.
As such, the home health care space has exploded with over 400,000 service providers in the U.S. alone. Surprisingly enough, the sector is still heavily fragmented with many “mom and pop” operations and single contractors, and has a decided lack of standardization of service provision and quality. Now with tightening regulations, many small and medium-sized providers are finding they cannot afford to keep up with compliance.
Companies, like Halifax, Nova Scotia-based Nova Leap Health Corp. (TSX: V.NLH.P, Forum), have spotted a unique opportunity to help grow a nascent market while creating shareholder value through the consolidation and standardization of home health care in North America. Stockhouse writers sat with company President, CEO and CFO Chris Dobbin to get a better idea of the company, the sector and the opportunity Nova Leap presents for investors.
Chris, would you please give us a brief description of Nova Leap Health Corp. and the services it provides?
Right now, Nova Leap is a capital pool corporation. We completed our IPO at the end of April where we raised a small amount of money. Our focus is on acquiring home health care companies that operate within both Canada and the U.S., but mainly the U.S. An example is our proposed Qualifying Transaction which is a non-medical private duty home care business in New Hampshire. Generally speaking, we will have caregivers that will go into our clients’ homes and provide a range of services which will allow people to age in place or in their own homes.
Why is home health care such a rapidly growing sector and just how big is the market in North America?
I think we all understand that there is a huge demographic shift underway. We’ve heard about it for years and we’re in the midst of it. National governments as well as Provincial governments in Canada or State governments in the U.S. are all wrestling with the same thing: significantly increasing health care costs. At the same time, all levels of government recognize that it is far too costly to treat individuals in an acute care facility like a hospital and all levels of government are trying to push care to the home. Coincidentally, 90-95% of seniors want to age in their home. So we have people that want to age in place and we have governments that want to ensure they do. That’s where we come in. The Home Care Industry is an $88.5 billion dollar industry in the U.S. alone and is projected to be a $122 billion industry in five years.
What sets Nova Leap apart from other home health care aggregators operating in North America?
Well, first, I think we need to recognize that there are no players in the U.S. market that have a meaningful share of the market. For example, Kindred Healthcare only had 3.7% of the market last I checked. That’s a tiny fraction of the overall market and they’re a leader in the industry. The industry is very fragmented and there are currently over 418,000 companies in the home care sector. That’s a lot of very tiny companies out there having to deal with a changing legislative and compliance landscape that are ill equipped to deal with the changes. That’s the opportunity for an acquisition oriented company like Nova Leap. Where we differ from many of the other operators is that we tend to look at rural areas first before going to an urban core. There is less competition and we can attract really qualified caregivers that are attracted to very fulfilling work long term. We also believe that the non-medical private duty space is a real area of growth and we’ll be focused on growing that side of the business.
What geographic markets is Nova focusing on and why? What’s Nova’s acquisition strategy?
We recently announced our first proposed transaction in Northwest New Hampshire. Our focus at the moment is finalizing due diligence and closing that transaction, assuming all goes well. Our plan from there is to expand along the Eastern side of the U.S. Think about the far right side of the map. Naturally, we’re already looking at places like Vermont and Maine given that those states border New Hampshire. We’re looking for geographical concentration as we grow because there are efficiencies to be gained in doing so.
We’ll continue to look in rural areas and we’re looking at smaller transactions to begin with. We think these types of transactions offer a greater return on investment for Nova Leap as we scale because of the significant organic growth opportunities they offer.
Nova Leap just announced entering into a term sheet with Northern Family Home Care LLC which currently services families in New Hampshire and Vermont. Would you give us details of the deal and its significance for Nova?
It’s a small deal to start. We like the company because of the location, it has been successful, it provides services we understand very well, it has a stable of clients and caregivers and we believe the organic growth opportunities in the area are very significant. But it’s small. The deal is US$265,000 net of long term debt. We can use existing cash resources and we think it’s a good allocation of Nova Leap’s capital.
What else can investors expect in 2016?
Because of all of the TSX Venture Exchange requirements for a Qualifying Transaction, these tend to consume more time than normal. I would like to see us do two more deals by the end of 2016. I think that is a realistic target.
How are the books? Will there be financing rounds in near-term? If so, what will the funds be used for?
We’re currently sitting on cash as a result of the seed and IPO rounds. We don’t have any long term debt so from that perspective we’re in good shape. The QT will take up a chunk of our cash so I expect to be raising funds in the fall. New funds will be used for general working capital and to fund our organic growth plans as well as those through acquisition.
Who are the key players on the management team and board, and what skills do they bring to the table that will help propel Nova forward toward its milestones?
We have a very successful founding shareholder group. Each individual either managed, owned or played key roles in very successful private or public companies. I’m joined on the Board by Dana Hatfield and Michael O’Keefe and Glen Jessome is our Corporate Secretary. My own background primarily consists of being a buy side advisor. In addition, my wife and I co-own a home care business in a rural area of Nova Scotia so I understand the business and the opportunities for Nova Leap.
How would you describe Nova’s share structure in terms of insider involvement and liquidity?
Nova Leap is tightly held. The founding shareholder group has 10M of the 13.5M shares outstanding.
What advice would you have for investors wishing to invest in the home health care space?
I think most everyone is impacted somehow by this industry. It could be folks that are part of the sandwich generation where they look after both their own parents and their own kids and are simply exhausted and need some form of relief. But regardless, we all know someone that is aging. Three quarters of individuals aged 65 and over have at least one chronic health condition and chronically ill patients account for 76% of all hospitalizations. Those stats are pretty startling and those figures indicate that we have a real problem and we’re only just beginning. I think people can easily understand the industry which is critical for successful investment.
Where do you see Nova Leap Health in the next 24 months?
Our plan is to lay the foundation for what we believe will be a very large business over the long term. We’re starting out small on purpose. I think there are four key areas that are critical in every successful business, they being people, strategy, execution and cash.
I expect in 24 months we’ll have a number of acquisitions under our belt and each of our businesses will be performing well because we have people that are excited to be part of a growing business playing a very important role in the sector. The one thing I can tell you is that there is no shortage of opportunities.
FULL DISCLOSURE: Nova Leap Health is a Stockhouse Publishing client.