CareRx Corporation (TSX:CRRX) announced that it has agreed to acquire Hogan Pharmacy Partners Ltd, a pharmacy serving about 725 residents in long-term care and retirement homes in Ontario, in a stock-and-debt transaction valued at C$4.4 million.
The Toronto-based company said the acquisition adds an innovative pharmacy services delivery model with meaningful organic growth expected from existing customers.
“The Hogan Model combines innovative technologies, application integration and processes with high-touch pharmacist support that effectively provides an on-site pharmacy within long-term care homes,” CareRx CEO David Murphy said in a statement.
READ: CareRx Corporation clocks up C$96.9M in 4Q revenue as its pharmacy services grow rapidly
“Our acquisition of Hogan will extend our technology leadership position and provide our home partners with additional choice from a service delivery standpoint, thereby further differentiating us from our competitors,” Murphy added.
CareRx also noted that it will sign a new seven-year contract with Hogan's largest customer, a regional seniors living operator, representing about 85% of the beds serviced by Hogan.
It added that Hogan's customers are expected to increase their beds serviced by over 1,200 beds by the fourth anniversary of closing based on new license allocations and other anticipated growth plans, which is expected to increase the total beds serviced to approximately 2,000.
The company said the purchase price consists of $2.2 million of CareRx common shares plus a $2.2 million seller take-back note, of which $1 million is repayable after 18 months, $0.4 million is repayable after 36 months, and the final $0.8 million is repayable after 48 months.
To the extent that Hogan's customers do not achieve the expected additional bed growth by the fourth anniversary of closing, the final $0.8 million principal repayment will be subject to downward adjustment, subject to an ability to extend the maturity date in certain circumstances, CareRx added.
The company noted the transaction is expected to be immediately accretive to its earnings, with the purchase price representing an annualized run-rate Adjusted EBITDA multiple of about 5.7 times before any contribution from expected bed growth and any cost savings synergies from the integration of the operations of the two businesses.
The Hogan Model utilizes biometrically secured ‘smart’ medication dispensing cabinets, 24/7 pharmacist support and a fully integrated enterprise resource planning system that reduces medication errors and waste and improves resident care and safety through a closed-loop medication system, freeing up nursing time to focus on direct resident care and significantly reducing wait times for first doses of medication when residents transition into long-term care homes, according to the company.
The transaction is expected to close in May 2022.
In a research update to clients, Leede Jones Gable analysts called Hogan Pharmacy a “modestly-sized acquisition” that “fits squarely within CareRx’s existing network in Ontario and within the firm’s acquisitive growth strategy”.
They noted that CareRx exited 4Q 2021 with an average bed count of 96,312, and predicted on its conference call that its 1Q 2022 bed count will probably soften incrementally to about 95,000 just based on pandemically-constrained occupancy across the Canadian long-term care (LTC) landscape.
“The Hogan transaction is thus expected to contribute positively if minimally to the firm’s scale of operations, but that said, we continue to endorse CareRx’s strategy to mitigate funding pressures in Ontario/Alberta through augmented scale of operations and every accretive acquisition is clearly a step forward, however small in this case, toward that objective,” the analysts said.
The analysts added that they believe CareRx paid a reasonable multiple for Hogan, which is consistent with prior transactions that CareRx has undertaken to grow its current client base to its existing scale.
Leede Jones Gable analysts have a ‘Buy’ rating on CareRx stock with a C$8.50 per share target price.
CareRx Corporation (TSX:CRRX) has a large network of pharmacy fulfillment centers strategically located across Canada. This allows the leading provider of pharmacy services to seniors living communities to deliver medicines in a timely and cost-effective manner.
Contact Sean at sean@proactiveinvestors.com
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