In an April 8 research note, analyst Yue Ma reported that in light of CloudMD Software & Services Inc. (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE) agreeing to acquire Oncidium, Research Capital Corp. increased its financial forecasts and its target price on CloudMD to CA$3.90 per share from CA$3.60. With CloudMD's stock trading now at about CA$2.05 per share, the target represents a 90% return.
Ma described Oncidium as a healthcare company based in Ontario, Canada that helps employers optimize employee disability management by providing virtual occupational health services, medical assessments and absentee oversight. Oncidium's network encompasses more than 1,000 healthcare practitioners, more than 500 clients and 2 million employees.
"This transformative deal not only is financially accretive to CloudMD but also provides the company with significant cross-selling opportunities via the 2 million employees, expands its national footprint and product offerings as well as increases its medical capacity," Ma wrote.
He indicated that for its acquisition of Oncidium, CloudMD will pay $68 million upfront, $30 million of it in cash, the remainder in shares (at $2.30 per share). The company also will pay, in cash or shares, a $32 million performance-based earnout over three years. The transaction is expected to close in June.
"CloudMD noted the total transaction value ($100 million) carried a valuation of 1.5x sales and 8.1x adjusted EBITDA, implying Oncidium is estimated to generate $66.7 million in revenues and $12.3 million in adjusted EBITDA three years after the closing," Ma wrote.
In that same time frame, CloudMD's management expects Oncidium to achieve a 30% compound annual growth rate in revenue, Ma relayed. Regarding Oncidium's impact on CloudMD revenue, CloudMD projects that the acquisition will increase the annualized revenue run rate of its enterprise health solution (EHS) division to $53 million, with a 40% gross margin and a 10% adjusted EBITDA margin. CloudMD also anticipates the deal will boost its total annualized revenue run rate to $122 million from $85 million.
It looks as if Oncidium is on track to meet those metrics, Ma noted. Annualization of Oncidium's past four months' revenue amounts to $40 million, which is higher than the $37 million of revenue the company generated in the last 12 months.
As far as the outlook for CloudMD, Ma indicated that its 14 acquisitions to date have "laid a solid foundation for the company to grow organically in the long-term run."
Research Capital has a Buy rating on CloudMD.
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