Excellent progress made by this advantaged acquirer of healthcare IT

The story of MTBC Inc (NASDAQ: MTBC) keeps getting better. It is proving its potential to compound capital in the long-term as an advantaged acquirer.

MTBC has made plenty of progress since my previous article. It is executing its M&A playbook well. MTBC acquired Meridian Medical Management (a former GE Healthcare IT company) less than 6 months after its previous major acquisition of Carecloud. The acquisition is likely priced slightly above 1x sales. This is a cheap price compared to the industry average 2-3x, and is cheap likely because of the lack of profitability and sub-par topline growth. MTBC is the rare buyer who can solve both problems. It aggressively offshores without losing service quality to increase profits and retain customers. It is also bundling add-on services (eg telehealth) to its core RCM product to increase topline growth.

Investors are only starting to recognize the value of MTBC’s playbook. The stock moved from $6.50 pre-Meridian in May 2020 to about $11.00 yesterday after a series of sell-side commentaries. MTBC’s market cap has finally exceeded $100m, which is likely to attract more investors than when it was a nano-cap company.

Two weeks after acquiring Meridian, management guided to 30% higher annualized revenues and 600bps EBITDA margin improvement (from 12%). That management announced the margin improvement early in the integration process is a sign of confidence in cost reduction and a repeatable M&A playbook.

A notable feature of recent acquisitions involving Meridian and Carecloud is the addition of new services. Meridian added automation services and Carecloud brought telehealth services. Previous M&A had focused on strengthening MTBC’s core RCM products. The new leg of growth involving new services not only support organic growth, but also complement MTBC’s M&A playbook by broadening its target universe and accelerating inorganic growth. Investors should look forward to more sustainable growth as MTBC expands beyond RCM.

MTBC has already exceeded my target price in the previous article. I’ll provide a new target price after the company updates on its capital structure in the next earnings release.