Two Positions. Five Acquisitions. Lots to Like.
Accolade (ACCD)
Late yesterday Accolade (ACCD) announced it was diving deeper into the telehealth market by acquiring 2nd.MD, a small start-up based in Houston, TX. The acquisition target provides expert medical consultation services to patients, typically at a critical point in the patients’ lives when a second opinion and/or consultation and provider care options are of utmost importance. Think of an example like somebody breaks their hip while hiking and needs to figure out what their options are, which can take some time (especially during a pandemic). 2nd.MD helps this person sort out their options.
The service is paid for by employers, who are incentivized to have their employees get the best care possible, in the quickest time frame possible, at the most reasonable price. The value proposition from 2nd.MD fits this to a tee, and appears to be a great match for Accolade, which also works with employers to help employees get the best care possible. Adding a telehealth option to Accolade’s platform also makes sense, and it sounds like the service can be wrapped into Accolade’s current offerings or sold as a stand-alone service.
Management says the acquisition roughly doubles Accolade’s addressable market to nearly $45 billion. The price paid is up to $460 million, depending on milestone achievements. The company generated around $35 million in revenue in 2020. That’s just a little under the quarterly revenue that Accolade has been generating over the last three quarters (remember Q4, the current quarter, is the strongest of the year and Accolade is expected to generate $53 million).
Bottom line here is I think this acquisition makes a lot of sense and it adds another attractive element to the Accolade story. The market likes it too – ACCD is up around 10% while the market is modestly down. Keep holding and look to buy on any weakness. HOLD
Porch Group (PRCH)
Porch Group (PRCH) just announced that it went on a spending spree, buying two larger companies and two smaller ones. What I like about these moves is that management told us what it wanted to do, then went out and did it without keeping us waiting for months. That’s what you want to see from recently public companies where investors are eager for evidence that they’ve made a good investment early on.
On to the deals…
Homeowners of America (HOA) is a Managing General Agent (MGA) and insurance carrier hybrid that also has a reinsurance strategy. It operates in six states (TX, AZ, NC, SC, VA, GA) and is licensed in 31, meaning Porch will take this business national ASAP. It was founded in 2006 and is based in Texas, where it was the 12th largest home insurer in 2019. The business sells insurance through independent agencies and has a network of over 800 agency partners. This is a move management telegraphed and I love it, though I admittedly don’t know much about HOA. But big picture, it makes a ton of sense for Porch to grow its insurance business. The press release detailing the deal gets into more details on the technology integration aspects, but we won’t go there.
V12 is an SaaS marketing and data platform that matches consumers with brands related to the housing market, including Jordan’s Furniture. Porch bought it because the data-driven marketing aspects of the V12 platform will help it reach more consumers with offers that they’re open to around the timing of their move. Good stuff.
PalmTech and iRoofing are the final two acquisitions and are smaller. PalmTech is software for smaller home inspectors and should help build out Porch’s already successful business in that market. iRoofing is an SaaS application for roofing contractors (annual or monthly subscription) that helps with remote measurement, quoting, contract management and materials ordering. The platform processes roughly 485,000 jobs a year and as part of Porch will have tie-ins with insurance offerings so homeowners can try and lower their coverage premium after getting a new roof. This type of software seems like a no-brainer for larger roofing operations.
The prices paid were $122 million for the HOA and V12 duo. I haven’t yet seen prices disclosed for PalmTech and iRoofing but will dig in a little more after viewing the related presentation again. Altogether, Porch Group management now sees 2021 revenue going up $50 million, to $170 million, which would represent 134% growth over updated 2020 revenue guidance of $72 million, which is expected to be reported in March.
Porch is not a simple business to understand since there are a lot of moving parts owing to the business model, which targets both businesses and consumers, and the web of products and services that span subscription-based software (for businesses) and lead generation/marketing websites (for consumers) and which cover a wide variety of home-related services (inspections, moving, insurance, TV/internet/security solutions, etc.). It’s worth trying to wrap your mind around!
The market likes the news today and shares are up around 10%. My guidance is the same as before – build up your position and treat this stock as one that will likely trade in a wide range, like a lot of other IPOs and SPAC IPOs. Investors are still trying to figure out exactly what this business is all about. That price discovery journey is a bumpier road with an unknown company than it is with one that is better understood (like Avalara (AVLR), Everbridge (EVBG), Repligen (RGEN), etc.). BUY