A microcap serial acquirer in the healthcare software space
DISCLOSURE: I own a small amount of shares in the business discussed below at the time of publication. The below is not a recommendation of any kind and you should recognize that it is likely that I’m biased.
Vitalhub is a small publicly listed company that is becoming a serial acquirer of software businesses in the medical enterprise software market. The company is headquartered in Toronto. So far, they have a presence in Canada, the US and the UK. They are publicly traded on the Toronto Stock Exchange with the ticker symbol VHI. The market cap is around 100 million Canadian dollars.
I believe there is an opportunity here to get in early with a serial acquirer with a reasonable valuation, net cash on the balance sheet, and an experienced management team. Coupled with insider ownership demonstrating potential aligned incentives for future growth. There are, of course, a series of warning signs that should be considered first.
What They Do
The company owns small enterprise software businesses in the healthcare marketplace. They currently own a slew of these and divide them broadly into two categories.
Electronic Health Records, Case Management and Care Coordination
Patient Flow and Operational Visibility
According to the company, about 70% of revenues are derived from the patient flow and operational visibility portion of the businesses. They also claim to have recurring revenues around 80% of the total with gross margins in around 70-75% recently.
Their plans for the future include growth in topline revenues from both organic and inorganic means via repeated acquisitions. In September 2021, they’ve been uplisted from the venture exchange to the main board on the Toronto Stock Exchange.
Quality and Moat of the Business
A pure software business filling a niche market means that gross margins will be high. Gross margins should be in the 80% margin region in a mature state if you look at the software industry in general. The recurring nature of the majority of revenues and the boring nature of the offering is compelling as there is less desire for customers to switch. This is a potential moat for niche software in general. With health care, there is even more stickiness likely given the heavy administrative nature and constraints limiting quick changes or upgrades. As the software is a vital part of the operation for customers, there is little appetite to switch to a competitor if not forced to.
Management Team and their DNA