VitalHub Corp (CVE:VHI) Acquires The Oak Group Inc, UK-Based Data and Software Provider

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

VitalHub Corp (CVE:VHI) (FRA:6OV) President & CEO Dan Matlow is excited about the company’s recent acquisition of The Oak Group Inc. The Oak Group is a UK-based software and service provided with expertise in patient flow data. Matlow believes the acquisition of Oak Group’s data and software will help VitalHub resolve the issues that lead to “hallway medicine,” and provides a product that is scalable and can create organic growth. Oak Group’s technology provides VitalHub with both an operational and a diagnostic sales route, which creates greater opportunity for partnerships with government agencies and for international deals. Matlow reveals the company recently created an M&A committee to further drive acquisitions and consolidation efforts.

Transcript:

James West:   Dan Matlow joins me now, CEO of VitalHub Corp., trading on the TSX Venture under the symbol VHI. Dan, welcome back.

Dan Matlow:   Thanks for having me again.

James West:   Dan, every time we turn around, your stock inches up a little higher, so things are obviously going good.

Dan Matlow:   So far, knock on wood, we’re executing on our plans. So we continue to move forward, and the public is starting to get aware of what we’re doing, so we’re excited.

James West:   Yeah, beautiful. And so, tell me about this latest acquisition to acquire all the assets of Oak Group that you just announced yesterday.

Dan Matlow:   We’re really excited about this one. It’s our fifth acquisition, but it’s a space that I know really well from my predecessor company, Medworxx. So we knew this company going back just towards the latter days of when Medworxx was sold off at the beginning part of 2016; they were really just getting started in the UK market at that point. But we knew about them, and they’ve done some interesting things since that period of time, and you know, it’s highly explosive opportunity for some organic growth, which is something that we’ve been looking for out of our acquisition. So our shareholders are going to hear a lot about this acquisition, because they’re going to see some really nice things happening.

James West:   Okay. What exactly constitutes their assets?

Dan Matlow:   Their assets, so, the Oak Group sits in an area which is called the patient flow, and they’ve developed some really rich IP on thousands of hours of research – of clinical research -in terms of understanding patient flow, and the appropriateness of care.

So one of the biggest barriers that we’re seeing in health care, primarily in hospitals, are patients that are residing in beds that shouldn’t be in there. It means, they’re there, because the doctors are saying that they’re sick and they’re acute, and they are, and doctors have full control; but they might be stable enough to get care in another setting. So a good example is, I’m sitting in hospital, Day 2, the Oak Group would, through its clinical criteria, would suggest that that patient is ready for discharge. Yet that patient is still sitting in a hospital till Day 7.

Those five days are what we call avoidable days. Those are costly thanks to a health care authority; they’re also not a safe place for that patient to be, where they could be discharged. And they’re there because of barriers. The barrier could be a physician reason, there’s a delay, they could be waiting for long term care, they could be waiting to get it at home, but there’s a delay that needs to get knocked down as a barrier to getting that patient home.

So it’s a costly 5 days; you know, it’s an average about $1,200 a day for a patient to be in a hospital bay setting. So they’re sitting there where they could be at home. What that leads to is what we call hallway medicine; so big announcement coming from the Ford government earlier on in the week, hallway medicine. What’s the biggest driver of hallway medicine? Patients that are sitting in a hospital bed that shouldn’t be there. They really don’t have an understanding of why they’re there, and this system will tell them exactly why they’re there, and allow them to knock down the barriers.

So it’s really a thought process that they’re going to look at very carefully. And that’s not just in Ontario; that’s international. This product is not in the Canadian marketplace as of yet.

James West:   Sure. Patient flow is about operating budgets in health care systems efficiently, and so, how does that tuck into the other assets of VitalHub and improve the overall offering?

Dan Matlow:   Yeah, all of our offerings, you know, assist in that in some ways, right? But we focus pretty well on meat and potato based, electronic health record based systems, primarily in the mental health and community care-based system. Oak Group has really extensive clinical criteria that they’ve done research on mental health patients, and mental health patients are a big reason why our health care authority is potentially clogged up.

So lots of statistics would suggest that a big backlog in the Emergency Room is caused by mental health patients that come in, that really don’t have effective beds to be in there. So if we can use clinical criteria to understand the appropriateness of being in that health care setting for mental health patients within hospitals, we think we can help unclog them.

We already run most of the EHRs – electronic health records – for most of the hospitals in Ontario, and big install bases throughout Canada, and now we’re going on to Nova Scotia, etcetera. So we think the Oak Group stuff will be really synergistic to that platform.

James West:   So is the increasing share price an indication of increasing revenue?

Dan Matlow:   Revenue is increasing just based off of, you know, the deals that we announced in Nova Scotia, you know, in the January time frame, and Yukon. And we just started building momentum. So you know, Nova Scotia is going to be, when it gets rolled out, will be an ethic 2.5 million of recurring revenue. It’s going to take us a while to get there, but I think the, you know, the investor base is starting to recognize that, you know, what that potential is.

I don’t think the investor base really recognizes what the potential of this Oak Group based acquisition is, because it’s really high margin activity that we’re getting into. So when we start selling this, we think there’s a really good cost return. We also have channels built. So, Oak Group has done business in the UK, that’s where most of their business has been; but they’ve recently done deals in the Mideast, as well, they’re poking around the Australian marketplace, and we haven’t even started the Canadian marketplace, so we should have a great install base to do that.

It’s also one of those based solutions that we think we can sell through partner channels, mainly the big consulting groups; the, you know, the Ernst & Youngs, which we announced a partnership already with the PWCs, the McKinsey’s of this world, that will use this product to do performance reviews, to do a baseline of how hospitals are performing. So we think we can sell this not only operationally, but we can sell it as diagnostics. And diagnostics where the big consulting companies use it to do performance reviews, and we think by introducing it through those performance reviews, they’ll lead to software sales and big enterprise deals and maybe even provincial or government-wide deals.

We plan to take this through the big consulting groups and start doing work, not just in Canada, but all through Europe and through the Australian marketplaces.

James West:   Okay, so let me ask you: what, as a multiple, what multiple did you pay for the EBITDA of Oak Group?

Dan Matlow:   EBITDA was an asset purchase, so we didn’t announce the EBITDA, but it is a cash flow neutral based organization today. It only does, you know, about $1 million worth of revenue a year, but we feel there’s stuff in the pipeline that’s going to make that grow already at the Oak Group, so we took that into consideration as well by looking at that pipeline. We expect some things to materialize in a short period of time from the Oak Group as we are aware of those things that are going on to do that.

We paid, I don’t know, close but only about 2 times revenue, I think, for the particular, but it’s 90 percent recurring revenue. So it’s all recurring revenue stream. They monitor 10,000 beds across the UK, so put that into things, UHN, which is Toronto, which I think many of the investors will understand, is an 800-bed facilities. So we’re running, and that would be a large-scale based facility, right?

So it’s running across a lot of the big trusts within the NHS within the UK marketplace, and it’s proven. It’s doing its work, it’s government-sponsored in the NHS, so we think that message will resonate with our Canadian residents, because we’re going to bring some international-based knowledge into Canada as we’re starting to make some changes. And we have the contacts in Canada. We know that space well, because we were in that space in a predecessor business. So we really like this acquisition. We think – you know, we like all of them so far, but we like the opportunity that this one has for organic growth.

James West:   Sure. Okay, so you’re really, I mean, I’m used to guys sitting here and telling me that we’re going to grow through acquisition. I’m not used to guys coming in here every other month and telling me about their latest acquisition which is actually accretive to the entire business, so good on you for that! What are the big catalysts coming out in 2019 that are going to continue to pile on value?

Dan Matlow:   We’re continue to look at acquisitions. We’ve got another vertical on the patient flow side, so we’re looking at patient flow based acquisitions, and we continue to work on the other stuff. So we’ll keep making acquisitions if they meet our criteria, which is, lots of recurring revenue, lots of margin. We think when we can price it effectively, where we think it’s synergistic to what we have, we’ll keep making those acquisitions if they’re opportunistically done. But we’ve also been looking for the ability to, you know, grow organically. So we’ve already started to organically grow our acquisitions so far; I think Nova Scotia are Yukon are evidence, and we expect to continue to do that in somewhat.

But we are really looking for something that could lead to some international explosive growth, so the market’s going to start seeing press releases coming from different markets. So Australia, they’re going to see press releases where we’re using big consulting firms with our products. So we’re going to – so if Ernst & Young can do an audit in the UK, why can’t they do it in Canada? Why can’t they do it Australia? Why can’t they do it in Germany? Their health care group communicates that they give you access.

PWC, McKinsey’s, all those guys. So we’re going to start working to get them to use this product a lot more; they already have, in some cases, in some ways, but we think we can grow that channel. So they’ll start seeing stuff in that regard happen.

James West:   Okay. In terms of the competitive landscape for these targets acquisitions, is there anybody breathing down your throat everywhere you’ve looked so far?

Dan Matlow:   No, we think we’ve got a niche at the size that we’re doing. You know, it’s, we feel that we can get, do acquisitions on the smaller size that some of the bigger players won’t do, because we feel we can operate the company. So we can see value in those that they can’t, to do that.

We’ve also recently formed an M&A committee, so we took investment in January of 3.3 million from a group headed by, you know, Francis Shen and his brother Tony Shen, and includes, you know, some other folks that are part of that. So you know, we’re there to grow that. They formed an M&A Committee to evaluate our deal. So we’re starting to see a deal flow when we’re starting to do some things. We have the infrastructure in place now, you know, to do that; we’ve consolidated everything, so we think we’re in a way better position than we were a year ago.

James West:   Sure. Okay, so then, what are the sort of barriers to your next sort of level of success out there? What do you have to overcome this year?

Dan Matlow:   Yeah, it’s, we think we have everything in place, but you know, we’re always going to, we’re doing a lot of acquisitions, but we’ll be careful. We want to absorb, we need to digest. We think we’ve digested what we’ve had so far, so we’re ready to go on to the Oak Group, but now we’ve got a new challenge: now our organization has to work internationally. Before it was all Canadian-based stuff, and now our organization is going to have to deal with, and we’ve got to bring those things, we’ve got to get those acquisitions, we’ve got to, you know, work with our technology groups. We had to do a lot of our development in Columbo, Sri Lanka, so that group has to get on board with some of those things.

So, we need to go over and we’re crossing the pond. So that’s our next challenge in terms of how do we grow internationally, how do we communicate with time zones, how do we integrate with those things. But we think we’ve put a great management team together, and we’re ready for the challenge.

James West:   Well, fantastic, Dan. Sounds like you’re doing very well. Congratulations on all of that. I’m going to come back to you on your next acquisition probably.

Dan Matlow:   Well, come on our next acquisition is smart, but you know, we just want to keep updating the market, and, you know, if anyone wants to get questions, I’m always available. But we really like the market to really dig in to understand what the opportunity for Oak Group does, what patient flow means, what the international presence is, because I don’t think the market has been giving us any value how we can grow.

James West:   Right.

Dan Matlow:   But this thing, I think, can give us that.

James West:   All right, Dan. We’ll come back to you soon – thanks for joining me today.

Dan Matlow:   Thank you. Bye-bye.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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