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Investors appeared to take little notice of allied health group Healthia's (ASX: HLA) acquisition-driven earnings growth throughout most of 2020, but the $43 million purchase of The Optical Company (TOC) in October marked an inflection point for the Brisbane-based business.
The TOC announcement - together with the creation of an 'Eyes & Ears' division and a $15.3 million capital raise - soon lifted HLA shares by a third from the $1 mark where they'd been hovering post-pandemic outbreak, but the new year heralded a spike towards $2.
Compared to a $1.2 million loss in FY19, the last financial year saw Healthia - which is chaired by Shark Tank shark and Greencross Vets founder Glenn Richards - recover to become profitable on a statutory basis with a net profit after tax (NPAT) of $2.7 million.
This momentum appears to have gathered steam in the December half, with the company expecting to record a rise of 86-103 per cent in underlying EBITDA.
Healthia CEO Wes Coote (pictured) highlights a $20 million annual war chest to keep buying up clinics, coupled with value-adding by complementing different health services within existing operations across the group's three segments: Feet & Ankles, Bodies & Minds and Eyes & Ears.
"Acquisitions will always be the largest driver of growth," Coote tells Business News Australia.
"While we still have 14 per cent organic revenue growth and we're starting to get more and more traction from our co-location strategy, a large chunk of the 100 per cent growth EBITDA growth comes from acquisitions," Coote explains.
But how does a company make this approach successful without falling into the pitfall of simply "buying revenue"?
"We're acquiring mature businesses so they've been around for a while, they've got a stable revenue and earnings streams, and we've got enough businesses now to benchmark against so we know where the profitability level should fall," he says.
"That allows us us to price the acquisition fairly for the vendor and Healthia shareholders so there's continued growth.
"Then we just supplement that with our organic growth strategies once they come in. We're not buying revenue - we are really buying the earnings and the repeatable nature of that profit."
He says Healthia is averaging around 4x EBITDA with these acquisitions, and its free cash and debt facilities mean it is able to fund its plans "without having to go back to the market and keep tapping them for extra money so we can grow".
Coote says the company has not needed to actively seek out clinics with word spreading rather through word of mouth.
"It's all inbound calls at the moment, which is pleasing because it means they're coming to us for the right reasons," he says.
"We're not trying to entice them into join in us because we'll give them a large cheque at the end of the day.
"We've been able to handpick the clinics and businesses that really align with what we're doing."
The executive, who joined Healthia's My FootDr brand in 2015, says the company's share price was gaining momentum pre-COVID last year.
"We got back up to about $1.30 before COVID came, and the whole market was wiped then, and we were lucky that we settled around that $0.90 to $1 mark," he says.
"But I would hope that the acquisition of The Optical Co, that transformational acquisition, was positive for everyone and we priced it right.
"Plus, we've now got over two years' worth of runs on the board since listing, we've proven the model, we're getting good organic growth, so I think people who were sitting back and watching are now more positive and are happy to jump on the stock."
Healthia continues on the acquisition path with the recent settlement for three physio clinics in South Australia, the announcement of a new physio acquisition in Sandringham, Melbourne, and the January opening of a new greenfield multidisciplinary allied health clinic in Bundaberg, Queensland offering g physiotherapy, clinical Pilates, exercise physiology, podiatry, occupational therapy, speech pathology and remedial massage.
This year the group has also brought on 60 graduates who undertook a training program last week.
Coote adds the group was able to implement a number of people strategies in 2020, emphasising education and "making sure our teams felt loved and supported through what has been a pretty uncertain time".
Larger US footprint on the horizon
Aside from its clinics, Healthia also has a 3D-printed orthotics company called iOrthotics, which entered the US market through a joint venture in New York in late January 2020, right before COVID-19 erupted on the world stage.
"We opened the lab last January so we've had that open for 12 months. Then COVID came along, but the reason why our partner in the US wanted to partner with us because we automate the process of the production of orthotics whereas there it's still very manual, very labour intensive," says Coote.
"New York was hit pretty early and pretty hard. All of their staff was stood down or went back to another state or wherever they lived with their family previously; it forced them to move a lot of their work to the print hub and automate it straight away.
"It actually helped the business over there. It's ahead of expectations at the moment, and a few other labs have joined in and are starting to give their work to us as well."
He says this marks a great opportunity for iOrthotics to continue to expand, but "the limiting factor for us as we can't travel".
"We're just going to wait for COVID to settle down and see where things land before we can really try to grow that business over there further," Coote says.
"We think we're world leading in our production of 3D orthotics, so we definitely look at those markets, but the US market is pretty massive so there's a lot of opportunity for there for that technology to be created. It's just a matter of being able to get in there and, and sell that to other labs."
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