We believe Well Health Technologies is a Toxic Roll-Up

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  • Canadian listed Well Health Technologies (WELL-CN) stock has increased by ~500% in 10 months to a >$1.4b market cap and an ~6x EV/Sales (well above Canadian EMR precedent private market acquisitions) on the back of multiple digital-first acquisitions. Bankers, lawyers and management are enjoying the ride, but we’re concerned retail will be holding the bag as digital progress is overstated and acquisitions have been at best overpaid for.
  • It’s CEO neglects to discuss a crucial aspect of his famed divestiture to a Silicon Valley buyer, omitting that a year post close the asset was shut down, likely due to material data breaches at the company – an ominous sign for WELL disclosures which often neglect as well and as described below.
  • We believe WELL’s largest ever acquisition, CRH Medical, is highly problematic reflecting that WELL hype train is over. Red flags indicate a high likelihood of conflict of interest and due diligence failures. Bottom line – CRH appears to be a toxic deal that WELL grossly overpaid for; if this is the best they can buy, shareholders are in trouble.
  • We uncover the reality of the economic impact of CRH’s key customer “renewal” and it’s not pretty.
  • It appears WELL has omitted crucial information on many recent acquisitions, including CRH. Acquisitions are marketed as synergistic, and financially solid, but evidence uncovered suggests otherwise.
  • WELL paid a 300% premium for Adracare, a company emerging from bankruptcy with a history of cooked financials.
  • WELL purchased a “proclaimed telehealth” company Circle Medical. However, we believe this is far from reality; that’s why Circle’s shareholders cashed out with the WELL deal.
  • WELL conveniently outbid itself for Insig by paying a ~200% premium to the implied valuation of WELL’s initial investment just half a year earlier (as lead investor).
  • WELL appears to have overpaid for Source 44. Q4-2020 results indicate it may have vastly overstated future performance. We unearth signs of a dormant business and terrible infrastructure, all signs of a sub-par company.
  • WELL employs a range of accounting maneuvers that masks true EBITDA profitability.
  • WELL’s EMR technology is nothing more than an open-source product, developed by a professor at McMaster University, and available for anyone to download.
  • WELL is not a digital-first, telehealth business. Upon closing CRH Medical, and a raft of additional acquisitions, WELL will be a ~$2b market company, trading at ~6x EV/ revenue. They used their inflated stock price to pivot to CRH, a completely non digital business that trades off EBITDA, with no chance of ever being digital (we’ll highlight why). We see ~60% downside, under optimistic assumptions.
  • There are good roll ups and there are bad – WELL neatly fits into the latter: in our opinion, sustainable and successful roll ups don’t overpay for acquisitions, have clean reported profitability numbers, focus on cash flow, have clear IRR hurdles and stick to their knitting. This is not what WELL has done over the last 12 months.

 

 

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Grizzly Research LLC is focused on producing differentiated research insights on publicly traded companies through in-depth due diligence.