QHR.v - QHR Corporation

[sae85400]

Cantor has price target of $2.15

http://www.cantorcanada.com/pdfFiles/20160603QHR.pdf

 

 

[KJP]

Thanks. When put into that context, its a good question and one I have been increasingly asking myself. My intention has been to give back to this community after being a pure consumer of the comments for so long, but I certainly didn't expect the conversation to be so one-sided. I have been giving funds and investors lengthy write-ups and presentations on my best ideas for years with hardly any interest taken or comments, so I guess I have grown to treat it also as a social experiment and sentiment gauge. When no one is interested yet also doesn't have any counter arguments to share it slowly builds my conviction.

 

For what it's worth, I think the silence is from lack of anything useful to add, rather than a lack of interest in the idea. 

[Southpaw]

Thanks all. And now back to your regularly scheduled programming...

 

I am biased but I think the market is clearly under-reacting to the Telus tie up.

 

http://www.cantechletter.com/2016/06/qhrs-collaboration-telus-drive-medeo-adoption-says-laurentian/

[Guest notorious546]

"Disclosure: Cantech Letter’s Nick Waddell owns shares of QHR and the company is a sponsor of the site."

 

looks like the article is biased too haha

[Southpaw]

Hi guys--Nightingale is out with a press release updating their strategic review.

 

Here is the key quote:

 

"...the Board has concluded that shareholder value would best be enhanced by concluding a sale of assets comprising substantially all of the Canadian business. As a result of this process, the Company has been in discussions with potential acquirers with the intention of concluding a definitive agreement in respect of a transaction (the "Proposed Transaction") as soon as possible."

 

Nightingale's EV is ~$13.5mm.  Sales have been running in the $11.1mm range. We know that QHR's CEO doesn't think too highly of Nightingale, so I don't think they want to take them over necessarily, unless it is sort of a "take-under" situation. QHR is hopefully using Nightingale's situation to take advantage of some customers in flux or capitalizing on the potential doctors that may leave after a Nightingale buyout by someone else (steal customers).  We think Nightingale has about 1,500-2,000 doctors. QHR usually likes to pay ~$3,000/doctor so we couldn't see them paying more than $6mm.

 

Let me know if you have any thoughts or a different take.

 

http://www.nightingalemd.com/about/press-releases/pr.php?id=15

[ssuunnyy]

Recall that Medeo is a $100/month/doctor product.  Adding Telus' doctor base of 15,000 doctors or so significantly ups the potential value of Medeo, assuming this is the economic arrangement (which is unclear).

 

I was curious to confirm that QHR's Medeo product does indeed stand to benefit directly from the tie-up (as opposed to, say, being thrown in as a trade for an unrelated aspect of the deal that may not have been disclosed), and curious to get a rough sense of what that benefit might be. Had a conversation to this end that you all might find useful.

 

Recently spoke with an executive at Telus ("Head of Sales"?) and asked for clarification on the terms of this arrangement between Telus and QHR. He couldn't disclose a specific number, but indicated that Medeo's regular retail price of ~$120/month/doctor is "the right benchmark to which to apply a discounting multiple. That'll get you to the right range".

 

Works for me. I'm looking forward to hearing of any Medeo updates at the next earnings call. Unexpectedly successful Medeo adoption was one of the potential drivers of the 'blue sky' scenario Southpaw laid out.

[Southpaw]

Thank you for sharing. Any traction with the Telus docs could definitely move the needle in terms of valuation.

 

Here is an article in the Vancouver Sun on tele-medicine from Friday:

 

http://vancouversun.com/news/local-news/the-doctor-is-online-anytime-its-the-freewheeling-world-of-ehealth

 

"Kelowna-based software company QHR has pioneered electronic medical records in B.C. and in 2014 purchased Medeo, a Vancouver tech startup offering video conferences with doctors over smartphones, tablets or computers.

 

QHR CEO Mike Checkley says telemedicine is not a one-size-fits-all world and both patients and doctors must find which aspects work best for them.

 

For some, it will be making appointments online or having quick video check-ins with their local family doctor for a prescription refill or followup.

 

“I don’t think it makes sense for clinics to be exclusively online,” says Checkley, adding it can never replace a hands-on examination. “Virtual care is simply another way to have a visit between a patient and a doctor. We have to use it when it makes sense.”

 

Video visits

About 600 doctors in B.C. are using some aspect of Medeo’s software, he says. This includes Victoria pediatrician Dr. Adriana Condello, who says the program excels in mental health care — particularly for teenagers — by allowing patients, their parents or teachers to speak to her at convenient times without making a trip to her clinic. “It empowers the kids as adolescents. They say, ‘This is my appointment and I can do it.'”

 

She has about 20 patients using Medeo for some part of their care, but says the patients have to selected. “As practitioners we have to be cognizant that it can only be a certain part of the patient population because we can’t put our hands on them.”

 

That’s why some of the biggest supporters of telemedicine are in the areas of psychology and psychiatry, where a video visit can replace a counselling session — invaluable for people who don’t live in big cities.

 

Daniel Martz, CEO of Montreal-based Equinoxe LifeCare, says about one-third of his company’s 22,000 patients in B.C. used its EQ Virtual clinic for mental health issues. It launched here two years ago — also using Medeo software — after more than 20 years in Quebec’s homecare sector."

 

 

[KJP]

Southpaw, congrats on how this worked out.  Thanks for sharing the idea.

[SnarkyPuppy]

http://www.nasdaq.com/article/loblaw-companies-to-acquire-qhr-corp--quick-facts-20160822-00126

 

Well done, Southpaw.  Thanks for sharing

[mcliu]

Southpaw, congrats on how this worked out.  Thanks for sharing the idea.

+1

[ssuunnyy]

Agreed, congratulations and thanks for the tip Southpaw.

[Southpaw]

Thanks, everyone. Hopefully some of you made some money on it. The acquisition was pretty unexpected--at least happening this soon and it being Loblaw. Would have liked to hold the stock for years to come as I still thought it had multi-bagger potential, but can't complain about a 150% ROI in a short time. Interestingly, the stock price is $3.11 right now, slightly above the deal price. The stock is behaving as if many people think a higher bid is forthcoming. 

 

If I understand the arrangement agreement it looks like:

 

QHR has to set the company meeting date to vote on the acquisition on, or before, October 17th.

 

QHR can't solicit any other offers from other potential acquirers, or provide its financial data to other potential acquirers. But other potential acquirers can make offers.

 

QHR has to provide Loblaw with a "Superior Proposal Notice" at least 5 business days before the company meeting. Then Loblaw has a 5 day matching period to match the superior offer.

 

If QHR gives notice of a superior offer less than 5 days before the QHR company meeting then Loblaw can request a max 15 business day postponement of the company meeting.

[ssuunnyy]

http://www.cantechletter.com/2016/08/qhr-sale-loblaw-gets-thumbs-haywood/

 

“We believe a counter bid from Telus (T-T) is not very likely,” says Sangha. “Telus recently acquired Nightingale’s (NGH-V) assets on July 15, 2016 for $14M. Assuming Nightingale had approximately 2,200 physicians on its platform, this represents an acquisition price of $6,400/doctor; whereas Loblaw is set to pay a much higher price of approximately $22,000/doctor for QHR’s 7,700 physicians. Furthermore, Telus currently has several different EMR platforms through its previous acquisitions, so adding another platform at this time would be difficult to manage.”

 

I don't follow his logic - it seems clear that QHR's per-doctor price should be considerably higher than Nightingale's. And the fact that Telus has a history  of acquisitions makes me regard the probability of them throwing their hat in the ring as higher, not lower. Am I missing something in his analysis? How do you read Telus's situation and likelihood of bidding?

 

For that matter, thoughts on the bid price? What purchase price do you think would be appropriate here...and what potential acquirers (if any) do you think might be willing to pony it up?

[Southpaw]

We agree with you ssuunnyy that analysis (comparing EV/Doctor between Nightingale and QHR) is a poor way to evaluate whether Telus might bid on the company.  We actually think that the multiple EMR platforms Telus currently supports is the single biggest reason why Telus might make a higher bid for QHR.  As long as QHR is around, Telus will likely never pull the trigger and consolidate their doctors to a single platform.  Why?  Because doing so would likely result in material churn, as doctors are then confronted with a new purchase/transition decision and may very well switch to QHR.  Certainly this appears to be what is happening already with Nightingale (increase in i- bound calls to QHR...another reason Telus wouldn't pay a higher price for NGH, they probably priced in greater near term churn).

 

Given that the industry is only likely to consolidate further in the near future, now is the one and only time Telus may get the chance to acquire QHR as the their collective market share is only likely to expand in the future and regulatory issues would only further cloud a potential acquisition.  There still might be regulatory issues even now, but if I were Telus I'd be seriously considering a higher bid.  Keep in mind this company was not shopped, it was an unsolicited offer from Loblaw, so Telus is probably scrambling to figure out if it's worth making a materially higher bid. From a valuation standpoint, Telus still wouldn't necessarily be overpaying, especially if they can help accelerate the adoption of Medeo.

 

Seems like a fairly asymmetric bet here, one penny down with 20-50 cent (?) upside in the event of another offer.

 

 

[ssuunnyy]

Thanks for your thoughts Southpaw. Came across this article discussing the issue of prospective bidders:

 

http://www.cantechletter.com/2016/08/second-bidder-qhr-possibility-says-laurentian/

 

Core points:

 

1) Telus bid could raise anti-trust concerns: Telus would own 33% of the Canadian EMR market. Is there an established threshold at which % market share becomes an anti-trust concern in Canada? Apparently one between 20% - 33% (QHR's market share - Telus's prospective market share)?

 

2) Telus bid could disrupt existing relationship with Loblaw: The article suggests that a counterbid from Telus could endanger its current arrangement providing backend support to Loblaw. It also theorizes that Telus values these backend relationships higher than frontend client relationships. Intuitively that sort of a response from Loblaw doesn't make sense to me, but I'm not terribly knowledgeable on this. Also I haven't previously concluded that Telus sees frontend client relationships as a second priority. Would love to hear other perspectives.

3) Finally, the article also suggests that IBM might bid. Southpaw or others, what's your thinking on this?

[Southpaw]

Regarding IBM as a potential bidder, I am not sure and would have to think about it more and look up if their Canadian exposure/interest. I also have heard McKesson thrown around as a potential bidder given their March acquisition of Rexall,  Loblaw's largest Canadian pharmacy competitor.

 

In regards to Telus anti-trust concerns and an established threshold, we have found this:

 

The Canadian Competition Act doesn't allow a merger to be prevented based solely on the fact that it would result in concentration of market share.

They of course do look at market share and use the general thresholds:

The Commissioner generally won't challenge a merger when the post-merger market share would be less than 35% or the market share of the four largest firms in the market would be less than 65%.

Canada is the only country to have an "Efficiency Defense", which a company can use to challenge a ruling.

This prohibits the Commissioner from blocking an anti-competitive merger if the gains in efficiency from the merger outweigh its anti-competitive effects.

-

• Market Share Concentration Thresholds.

o The Bureau has established the following thresholds to identify and distinguish mergers that are unlikely to have anti competitive consequences from those that require a more detailed analysis:

 The Commissioner generally will not challenge a merger when the post merger market share of the merged firm would be less than 35 percent.

 The post merger market share accounted for by the four largest firms in the market would be less than 65 percent.

o Mergers that give rise to market shares or concentration that exceed these thresholds are not necessarily anti competitive. Under these circumstances, the Bureau examines various factors to determine whether such mergers would likely create, maintain or enhance market power, and thereby prevent or lessen competition substantially.

o The Bureau examines the distribution of market shares across competitors and the extent to which market shares have changed or remained the same over a significant period of time.

o While a small incremental increase in concentration following a merger may suggest that the merger is not likely to have a significant impact on the market, the Bureau assesses the growth expectations for one or both of the merging parties to determine whether the merger may eliminate an important competitive force.

 

[ssuunnyy]

Interesting that McKesson is being mentioned now. As of 2 weeks ago I hadn't heard any talk of pharmacies as potential acquirers.

 

If it's public/something you're comfortable sharing, may I ask where you're hearing McKesson and other potential bidders discussed? Clearly your research game is on point and I'd do well to emulate.

[Southpaw]

I heard the McKesson mention from a Canadian institutional trader who has been very active in QHR's block trading and seems to be the most in the know on the name's trading activity. Not sure if that is just him speculating due to the Rexall acquisition or him hearing that from some other funds and clients that were trying to connect dots. I had not thought of it previously. Definitely hadn't considered Loblaw, though I'm sure neither had Mike Checkley or Pender Funds. I haven't sold a share yet. Have to wonder if Telus' head of M&A or EMR division has modeled out the upside if Medeo adoption picks up. Either way, happy with the outcome so far (140% ROI in 8 months), but also sad as it is rare to find such a cheap long term compounder that I would have been willing to hold for a long time with the potential to make multiples. Might as well wait and find out if anything else develops for an asymmetric bet, IMO.

[ssuunnyy]

Any thoughts on why the share price has been flitting down to 3.09, below the bid price, over the last two days?

Maybe anything that would suggest no acquisition will take place?

[Southpaw]

No thoughts. Not sure that one penny below deal price (0.3%) is indicative of no deal taking place.

[ssuunnyy]

Fair enough. I may be over-extrapolating from one of your previous comments:

Interestingly, the stock price is $3.11 right now, slightly above the deal price. The stock is behaving as if many people think a higher bid is forthcoming. 

[ssuunnyy]

QHR has mailed the circular and voting instructions to shareholders. Meeting is set for October 5th.

 

(3 weeks to get a second bid in)

 

http://www.edmontonjournal.com/business/cnw/release.html?rkey=20160912C3921&filter=5599