Advent Health plans to bring allied health to the ASX

Allied health group Advent Health is preparing to join the ranks of the ASX by way of a reverse takeover next month with a plan to improve efficiencies and boost profitability of its founding practices.

The move entails shell company Millennium Limited (ASX: MHD) acquiring all of the shares in the multi-disciplinary healthcare business and relisting on the ASX under the ‘Advent Health’ name and ticker code ‘AH1’.

The proposed company will be made up of a consolidated group of 300 clinicians in 12 allied health practice groups with 59 locations across most states of Australia.

Through its initial public offering, the company is offering 21 million shares at $1 each to raise $21 million, indicating a market capitalisation of $44.5 million upon completion.

Speaking with Small Caps, Advent chief executive officer Cris Massis said entering the ASX via a reverse takeover means the company is able to move quickly and give its vendors some certainty of listing.

He added that unlike other roll-up strategies, Advent has done a lot of its integration work already.

“In a roll-up, everything is integrated after. We’ve done a lot of pre-work around systems, financials, technology and a whole range of procurement opportunities were done in our due diligence process,” Mr Massis said.

“We have the ability to turnkey quickly and make revenue from day one,” he added.

The offer is open now and closes on 26 June. Advent expects to be readmitted to the ASX and recommence trading on 16 July under its new name and code.

A ‘partnership’ approach to consolidation

The founding businesses that will come under the Advent Health banner include: Artius, Core and PhysioWorks in Queensland; Activ Therapy, Bay Active Physio and OnePoint Health in New South Wales; Fitwise Physiotherapy, Kiro Kids, Melbourne Physiotherapy, Pilates and Fitness Group, and N8 Health in Victoria; Leading Edge Physical Therapy in South Australia; and Mandurah Physiotherapy and Grange Physiotherapy in Western Australia.

Mr Massis described the network as a “holistic offering” with the groups specialising in a range of allied health fields including physiotherapy, chiropractic, osteopathy, exercise physiology, podiatry, occupational therapy, dietetics, psychology, and mental health, and providing services in hospital, private practice, community health, remotely as well as in-home care settings.

He said the company has “very strict vendor selection requirements in terms of specialist services, scale and minimum revenue” and knocked back more vendors than it accepted in this initial cohort.

“We wanted to get businesses that were semi-corporatised, not single operators. We have vendors with staff, that aren’t necessarily revenue generators yet but are working on strategy and business growth,” he said.

Mr Massis described Advent’s setup as a “partnership approach” that gives its vendors “skin in the game” to incite them to maintain and improve performance.

“The majority of our sale agreements have not only a cash component but also a 30% equity component for vendors, so the success of the organisation collectively is in their interest,” he said.

Mr Massis added that Advent has a strong pipeline of potential future acquisitions.

“We’ve got a range of opportunities that we can quickly ‘plug and play’ after this initial founding group is listed.”

“Certainly, within the first six to 12 months, we’d be looking at acquisitions and we’ve got some pipeline opportunities already in psychology, physiotherapy and other multi-disciplinary fields,” he said.

Creating synergies

According to Advent, a major benefit of the combined group is the ability to achieve “significant cost-saving synergies” in areas of systems, technology, supply procurement and overheads.

Mr Massis said the company’s support office can centralise payroll, human relations, practice management software, create financial reporting synergies, as well as improve professional standards.

“We can review clinical data from the half a million patients coming through our doors to determine if we are giving the best clinical care to our patients and make sure they get the best health outcome possible,” he said.

‘Essential’ healthcare services during COVID-19 restrictions

According to Advent, the allied health sector is valued at close to $11 billion and is growing at an average of 3.3% per year.

“Our vendors have been averaging 7% growth year-on-year, so we’re actually double the annual growth of the sector,” Mr Massis said.

Despite allied health services being deemed “essential” by the Australian government during the COVID-19 partial lockdown phases, patients were still deterred from travelling to practices for treatment.

Advent noted weekly aggregated revenues declined to a peak of 30% in April (at the height of the coronavirus outbreak in Australia) but anticipates a return to historical levels of revenue and profitability in the 2021 financial year.

It said a benefit of being an enlarged, multi-disciplinary group is its resilience compared to smaller practices; shortfalls in one area can be compensated in another, such as a downturn in chiropractic being balanced out by an increase in mental health treatment.

A key trend that has emerged from COVID-19 is a growing demand for telehealth services and in-home treatments, which are areas covered by many of its allied health businesses.

“When people come out of hospital with joint replacements, for example, many of our vendors have physios going to their home to make sure they’re doing their rehab and recovery,” Mr Massis said.

“It’s so much more cost-effective doing physio, occupational therapy, or even osteo or chiropractic, in the home rather than in a hospital setting,” he added.

Available funds

Advent plans to use the bulk of the IPO funds for its practice acquisitions, which will also be partly funded by a pre-approved $12.2 million debt facility provided by the Commonwealth Bank of Australia (ASX: CBA).

“It is a great feather in our cap that CBA has gone through their due diligence and their processes to give us that money in advance,” Mr Massis said.

Other intentions for the total sourced funds ($33.2 million) include stamp duty costs on the practice acquisitions, offer expenses and working capital.

Experienced board

Advent’s board will be headed by proposed chairman Lou Panaccio, a chartered accountant and healthcare industry veteran who held previous chief executive officer positions at Melbourne Pathology and Monash IVF and currently sits on the boards of Sonic Healthcare (ASX: SHL), Avita Medical (ASX: AVH) and Rhythm Biosciences (ASX: RHY).

“It’s a real privilege for us to have him and he’s the former executive chairman of Health Networks Australia, which was sold into Zenitas in 2016. They had a similar allied health group with 34 practices around the country, so that gives us a real roadmap of how to do this well,” Mr Massis said.

Mr Massis also comes from a health business background, having formerly served as the chairman of Allied Health Professions Australia and chief executive officer of the Australian Physiotherapy Association.

Mr Massis highlighted the fact that Advent’s clinical advisory committee chairman Trent Baker is also one of the company’s vendors.

“In designing a future healthcare business, this is critical… We want to make sure all of our clinicians are giving the best outcomes possible to our patients, we want to make sure they are evidence-based, they are ahead of the current research, they actually have peers within our group to compare clinical notes to make sure that, if there is a complex issue or complex patient, they can bounce that off the team internally,” he said.

Mr Massis claimed the company’s digital showcasing of its investor presentation (due to social distancing measures) has been “well received by institutional investors”.

“We have certainly had many follow-ups in the last three weeks… Everything is blending together nicely for a successful listing,” he said.