Sun Life offers to buy remaining stake in Dialogue Health for $277-million

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Sun Life Financial Inc. SLF-T is expanding its digital footprint with an all-cash offer to purchase a majority stake in telemedicine company Dialogue Health Technologies Inc. CARE-T for $277-million.

Canada’s second-largest insurer announced on Wednesday that it has entered into an agreement with Montreal-based Dialogue to indirectly acquire most of the outstanding common shares of the publicly traded telemedicine company it does not currently own for $5.15 a share, or $277-million.

The deal is less than half the $12 stock price when Dialogue debuted on the Toronto Stock Exchange in March, 2021, but is 43 per cent higher than its $3.60 closing price on Tuesday.

Sun Life already owns about 23 per cent of Dialogue’s common shares.

Dialogue chief executive Cherif Habib said in an interview he is not disappointed with the takeover price as it reflects “difficult capital market conditions” and not the company’s operating performance.

“We could have continued independently, but I think for our shareholders the board determined that this was the best outcome,” Mr. Habib said. “Beyond the share price, today’s announcement is about having a very long-term partner shareholder that can support us beyond the quarter-by-quarter noise. The price is not about cost-cutting in any way. It’s quite to the contrary, we’re going to be investing a lot into growing the business.”

Following the close of the transaction, expected later this year after shareholder and regulatory approval, members of Dialogue’s executive management team will retain 3-per-cent ownership and Sun Life will own the remaining 97 per cent. The deal, which has the support of prominent minority shareholder Portag3 Ventures, gives Dialogue a total equity value of $365-million.

Sun Life’s growth in digital health care follows a surge in demand from Canadians looking to talk to doctors online rather than in person after the restrictions many faced during the COVID-19 lockdowns over the past several years.

“Together we will empower Canadians with access to the care they need from the convenience of their home,” said Jacques Goulet, president of Sun Life Canada. “We have seen the positive impact Dialogue has had on the lives of Canadians, as well as the role it plays in our broader health ecosystem. Using Dialogue’s platform for appropriate health concerns can help reduce the strain on our health care system.”

Dialogue, founded in 2016, provides “doctor-on-demand” services that can answer health questions using chatbots or allow patients to speak online with medical professionals, primarily as extra features in employer health care plans. Use spiked during the pandemic, and nearly 2.8 million members across 50,000 organizations now have access to its service, up from 400,000 in early 2020.

With the takeover, Dialogue will become the fourth tech company out of the 20 that went public during a spike of new issues on the TSX from mid-2020 to late 2021 to quickly depart Canada’s senior stock index either via a takeover (following MindBeacon and Magnet Forensics) or voluntary delisting (E Automotive).

All but two of that crop of companies (Dye and Durham DND-T and Nuvei NVEI-T) have traded below their issue price at some point and many still trade at a fraction of their go-public values, 20 months after the start of the tech sector downturn. Some publicly traded tech companies battling persistently low share prices have also announced strategic reviews, including BlackBerry BB-T and Nasdaq-listed mCloud MCLD-X technologies.

Industry observers have predicted a wave of take-private deals for sharply devalued tech companies as well as their privately held peers for the past year given the massive amount of “dry powder” held by private-equity firms and corporate buyers eager to invest at more affordable prices than during the boom. That surge hasn’t materialized, although there have been several takeovers of Canadian tech companies this year including Hostaway, Absolute Software, Poka and Virtruvi.

Canadian technology companies have also been active buyers as GeoComply, Miovision, D2L and Sampler have made acquisitions this year.

The transaction builds on Sun Life’s existing partnership and prior investments in Dialogue, which will operate as a stand-alone entity and continue to maintain its head office in Montreal, along with its more than 1,000 employees.

Sun Life rolled out Dialogue’s services to its group benefits clients in March, 2020, under the name Lumino Health Virtual Care and took an initial minority ownership stake in the company. In an additional financing round, the company increased its ownership to 23 per cent.

Dialogue has attracted investment since its foundation seven years ago from other institutional investors including Caisse de dépôt et placement du Québec, Portag3 (an affiliate of Power Corp. of Canada), White Star Capital, HV Holtzbrinck Ventures, First Ascent Ventures and Walter Ventures.

RBC Capital Markets acted as financial adviser to Sun Life for this transaction and Torys LLP served as legal counsel to Sun Life.