MindBeacon Holdings Inc. is set to end its brief run as a public company after agreeing to a takeover by TSX Venture-listed CloudMD Software and Services Inc. for $116-million or $4.78 a share, extending a disappointing fall for new Toronto Stock Exchange-listed tech companies.
The price, consisting of $1.22 in cash and 2.285 common shares of CloudMD for each share of MindBeacon, amounts to barely half the $8-a-share price that the Toronto-based telemedicine company sold for in an oversubscribed $75-million initial public offering 11 months ago. MindBeacon shares soared 22 per cent to $4.15 during Monday trading on news of the deal.
MindBeacon chief executive officer Dan Clark said in an interview that the company had explored a sale for months, and had been approached by multiple suitors before agreeing to a deal with CloudMD. “Part of our strategic road map, from the beginning, was making our services available alongside other primary-care services. It’s an easier choice for employers – to be able to go to one vendor for different health services.”
MindBeacon, which provides mental-health therapy, was relatively small when it went public, posting revenue of $6.9-million in 2020. But that was more than 500 per cent above 2019 levels, reflecting torrid expansion by telemedicine providers as patients flocked to online services to see practitioners during the pandemic. The offering was well-received; MindBeacon stock opened at $15 on Dec. 18 and traded in the low teens into early 2021.
But as economies opened this year, many stocks that benefited from a spike in pandemic business have stopped growing, or in the case of telemedicine stocks, sold off sharply. Virtual health care platform Dialogue Health Technologies Inc., which went public on the TSX in April, has seen its share price plunge by almost 60 per cent. The stock price of Lifespeak Inc., a mental-health-focused digital platform, has dropped by 25 per cent since its July IPO on the TSX.
MindBeacon even began buying back stock. The implied purchase price of MindBeacon at $116-million is about one-third of its market capitalization at its height.
CloudMD is a Vancouver-based telemedicine company, with a market value of about $340-million. Its platform connects employers and patients to virtual health service providers across North America. CEO Essam Hamza said in an interview his company wanted to buy MindBeacon solely for its internet-based cognitive behavioural therapy program. “We had mental-health products but the iCBT solution is becoming popular and it was something we did not offer,” Dr. Hamza said.
Dr. Hamza also said that CloudMD considered purchasing other telemedicine companies focused on mental health, but settled on MindBeacon because it had comprehensive data showing its services worked in the treatment of anxiety and depression.
MindBeacon’s year-over-year growth rates have dropped sharply this year. After increasing by 700 per cent in the fourth quarter of 2020, revenue gained 298 per cent in the first quarter and 153 per cent in the second. Third-quarter revenue of $5.2-million, reported Monday, were up 66 per cent year-over-year. The company disclosed it had expected third-quarter revenue growth to be affected by seasonality as people went on summer holidays. The company lost $4.4-million in the third quarter, compared to a $2.5-million loss a year earlier
CloudMD’s revenue, on the contrary, has grown significantly. It generated $15.6-million for the quarter ended June 30, compared to $8.8-million in the preceding three months, and $5.8-million in the three months ended Dec. 30, 2020. Dr. Hamza acknowledged it would have been harder to justify buying MindBeacon if its stock price had been higher. “I think they were hitting a wall because they were only providing one kind of medical service,” he said.
MindBeacon was founded by veteran Bay Street financier Sam Duboc, who has been open about his own struggles with depression following his brother’s death in 2011. Mr. Duboc stepped back as CEO in June to become executive chairman. His wife, Claire Duboc, also sits on the board and is MindBeacon’s largest shareholder, with a 14-per-cent stake. Insurer Green Shield Canada owns 12 per cent.
“Being part of an integrated telemedicine platform makes a lot of sense for MindBeacon. It’s much easier for employers to deal with one vendor as opposed to, say, four vendors to service different medical needs,” said Prasath Pandurangan, an analyst with Bloom Burton & Co.
Mr. Pandurangan, who had a $12-a-share target price for MindBeacon, believes the purchase price of $116-million slightly undervalued the company.
The deal, through a court-approved plan of arrangement, is subject to approval by at least two-thirds of MindBeacon shareholders. MindBeacon will pay a termination fee of $4.1-million if the deal fails to close.
Echelon Capital Markets advised CloudMD on the deal, while TD Securities Inc. and Credit Suisse, which led MindBeacon’s IPO, advised it on the takeover.