Nova Leap consolidates its leadership position in home care services
Nova Leap Health Corp.’s (TSXV: NLH) (“Nova Leap”) acquisition of Massachusetts-based Family Tree Home Care, Inc. consolidates its strong position as a leader in home care services in the New England region.
The C$2.1 million acquisition announced on Feb. 26 brings a wide range of synergies to Halifax-based Nova Leap, which has specialized on the niche home care segment since going public in 2016. It’s also the company’s fourth acquisition of home care companies since listing, after acquiring companies in New Hampshire, Rhode Island and Vermont.
Nova Leap chose New England as it represents a microcosm of a growing trend that Americans need more specialized care in their own homes. In this region many families live in remote rural locations or are dissuaded by the extremely high cost of care homes. Nova Leap plans further acquisitions to consolidate its regional strategy, CEO Chris Dobbin told InvestorIntel.
“The bulk of our short-term growth will continue by way of acquisitions,” Dobbin said. “We have a deliberate geographical focus and we expect that to continue.”
The markets like Nova Leap’s story, from an equity perspective. Since debuting on the TSX Venture Exchange, shares have soared from as low as C$0.12 a share to C$0.35 as of March 1. Any big sell-offs in the current volatility because of macro-trends should be considered a buying opportunity. Insider ownership is high, at 49%, and Dobbin is a founding shareholder. He is also director and co-owner of Earth Angels Living Assistance Inc. in Nova Scotia.
Despite being a smaller market, Canada offers similar opportunities for growth, and Nova Leap is on the lookout for opportunities north of the border, Dobbin said. Most of the synergies to be gained through the latest acquisition will reduce back office costs or operational costs, he said. Costs will be cut in HR, accounting, marketing and insurance. Family Tree had $3.23 million of unaudited revenue in 2017.
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A quarter of Americans will be 65 and over in 2060, compared with about 15% today, according to the US Population Reference Bureau. This trend equates to 11,000 people in the U.S. turning age 65 each day, and increasingly more Americans suffering from chronic illnesses, according to Nova Leap. The non-medical home care industry represents a 6% chunk of the whopping $89.2 billion home health care industry, or about $5.4 billion in annual revenues, according to the company. Services are paid directly by clients, by the Department of Veteran Affairs of through long-term care insurance plans, the company said.
Home care in particular is a highly fragmented industry based largely on the demographic particularities of each region. No one company is a market leader. Some states such as California and Texas have more than 10% each of total home care establishments in the United States. At state level, Massachusetts has 1.8% of the total, while New Hampshire has 0.4%, Maine 0.4%, Rhode Island 0.3% and Vermont 0.2%. While it would be fairly easy to start a consolidation process in other region, Nova Leap remains deliberately focused on the U.S. Northeast, Dobbin said.
The company is currently achieving 36% gross margins after acquiring the three New England companies. Run-rate is projected by the company to rise to $10m a year, from a projected $7m run-rate with Family Tree in the portfolio of company assets. This equates to 280,000 annualized recurring service hours.
Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>