CRH Medical: One Year Later
Dear shareholders and prospective shareholders,
On this day, one year ago, CRH Medical executed on a transformative transaction, our first acquisition and entrance into the anesthesia business. We had spent a good number of years developing meaningful relationships with almost 2,000 GI’s in the US through the CRH O’Regan System and wanted to leverage those customer relationships as much as possible. Identifying a product or service that was central to what these GI’s did on a daily basis quickly became our objective. Various therapeutics, products and services were evaluated, but it wasn’t until anesthesia was identified that things got exciting.
Anesthesia is something that the majority of GI’s use every day when performing endoscopic procedures, and is an integral part of their practice. We wanted our first acquisition to be significant in both size and scope – one that would establish us as a major player in the GI anesthesia space, and also provide us with the framework to grow our business through further acquisitions. With the USD$73.2 million acquisition of GAA on December 2, 2014, we had exactly what we were looking for.
As we began to operate within the GI anesthesia market, it became even more evident that this large and fragmented industry held a significant consolidation opportunity for CRH. In March, we announced two additional anesthesia transactions adding to our procedural volume, and we closed an equity financing raising over CAD$27 million. A portion of these funds were used to pay down existing debt associated with the GAA purchase, with the remainder earmarked for execution of our acquisition strategy.
Two further acquisitions during the third quarter (both of which are O’Regan System customers) exhibited our flexibility in creating deal structures that work for both CRH and the selling GI group. The acquisition in September was our first joint venture transaction, where we purchased 51% of KGAA, a Knoxville, Tennessee based anesthesia business. Since this announcement in September, we have received inbound interest in this type of transaction, and we would expect some future acquisitions to be similar in structure.
In September, CRH Medical also began trading on the New York Stock Exchange. As a company that generates over 99% of our revenue in the US, and with our growth strategy entirely focused on the US GI market, it was a logical progression to pursue a listing on the leading stock exchange in the world. Our NYSE listing will provide us with increased exposure to the US investment community, as well as allow us to meaningfully engage with investment funds, analysts and money managers.
At the end of last month, CRH announced it had secured a revolving credit facility with Scotiabank. The USD$33 million facility allowed us to immediately replace USD$24 million of existing debt. This restructuring is expected to save CRH approximately USD$2.5 million in finance expense in 2016, as the facility’s expected total interest cost is approximately 3.5% per year. What is important to note, is that in addition to the financial benefit to CRH, there comes the credibility associated with partnering with one of North America’s premier financial institutions at commercially competitive interest rates. Scotiabank performed substantial due diligence on CRH operations, management team and overall corporate governance prior to entering into a partnership with CRH. This vote of confidence shows the market the strength of CRH’s financial performance and underlying business fundamentals.
As we look forward to 2016, we are excited to further develop and implement our growth strategy. Our robust pipeline continues to grow as we leverage existing CRH O’Regan relationships to create new anesthesia opportunities. When we entered the anesthesia business with our acquisition of GAA, we were performing roughly 48,000 procedures on an annualized basis. Today that number is approximately 100,000 procedures per year. CRH’s newly acquired debt facility provides a low cost capital base, which when combined with our significant quarterly cash flow from operations, creates an attractive platform from which to fund future growth.
I’d like to thank you for your continued support, and as always if you have any questions about the information above or would simply like a more detailed update, please don’t hesitate to contact me by phone or email. I hope you enjoy a prosperous remainder of the year, and I look forward to updating you again at the beginning of 2016.