Sun Life Canada to acquire Dialogue Health Technologies

Cherif Habib, CEO of Dialogue, and Jacques Goulet, President of Sun Life, shake hands outdoors with the Montreal skyline in the background
Dialogue will maintain its head office in Montréal and operate as a standalone entity as part of Sun Life Canada.

Sun Life Canada announced that it is acquiring Dialogue Health Technologies (TSX: CARE) and will pay company shareholders $5.15 in cash per common share.

The total equity value of Dialogue is $365 million CAD on a fully diluted basis (or $277 million for equity not currently owned by Sun Life or rolled by certain members of Dialogue’s executive management). Dialogue’s executive management will maintain a minority interest in Dialogue following closing.

“Rolled” refers to the shareholders that are keeping some of their shares and “rolling” them into the new ownership structure.

Dialogue describes itself as a virtual health-care and wellness platform.

Dialogue describes itself as a virtual health-care and wellness platform, and claims that it offers affordable, on-demand access to quality care. Providing service to employees and companies in Canada and internationally, nearly 2.8 million members across 50,000 organizations have access to Dialogue’s health-care team.

“Together we will empower Canadians with access to the care they need from the convenience of their home,” said Jacques Goulet, president, Sun Life Canada said in a statement. “Using Dialogue’s platform for appropriate health concerns can help reduce the strain on our healthcare system. We are proud to be investing in a Canadian company, headquartered in Montréal, that has tremendous health expertise and incredible growth potential.”

Dialogue will maintain its head office in Montréal and operate as a standalone entity as part of Sun Life Canada. The management team, including founding shareholders CEO Cherif Habib and CTO Alexis Smirnov, will roll a portion of their equity ownership and remain in their current roles.

Dialogue will continue executing its business plan and serving its partners and customers, who will still have access to Dialogue’s services and capabilities, Sun Life Canada said, and will benefit from the continued innovation resulting from the combined strengths of both organizations.

Dave Jones, president of Sun Life Health, emphasized in an interview with BetaKit that Dialogue and its solutions do not replace the need, importance or value of a family physician, but rather augments the care Canadians receive. He said he expects to see other healthtech companies pursuing similar strategies to help consumers access and receive care quickly.

An estimated 6.5 million Canadians do not have a family physician or nurse practitioner they see regularly, the Canadian Medical Association Journal reported in an April 2023 survey. That’s a dramatic increase since 2019, when Statistics Canada estimated only 4.5 million people did not have a regular health care provider, the survey said.

Jones said Sun Life is committed to being a leader and a trusted partner in health with Canadians. “The need for digital health has never been greater. Nearly 50 percent of Canadians are saying they can’t schedule a same-day or next-day primary care appointment, and the acquisition of Dialogue by Sunlife means the opportunity to participate, to help fill that gap to give Canadians the solution they need to live their healthiest life.”

For its part, Dialogue claims its suite of virtual health-care and well-being services, available 24/7, include: physical health; Mental Health+ — a combination of self-led online mental-health supports and those led by clinicians—;and Employee Assistance Program (EAP), which is short-term counselling for personal or work-related issues. It also includes personalized wellness and fitness resources.

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Jones said it’s important to note that the Dialogue model is employer-paid. “We think it’s really important that Canadians shouldn’t be paying for care with their credit card,” he said, adding that “Employment benefits offer the opportunity to augment the public system, to make it better, to create capacity in the public system, by taking people out of the system that can receive their care digitally, efficiently and quickly through their employer-paid system.”

Sun Life already offers many of the Dialogue solutions across its organization today. Rather, Sun Life said this acquisition is about offering solutions to its clients and other Canadian organizations across the country, in both its group benefits markets and more broadly with its Lumino client base, and Canada.

Jean-Nicolas Guillemette, Dialogue COO, told BetaKit that the deal will open up new opportunities and markets. He said that even as Dialogue supports Canadians in their physical and mental health, the company is seeing some of the challenges the health-care system has right now, and employers understand more and more the importance of investing in the health and well-being of their employees.

Dialogue also emphasized that it will continue to work with other insurers across the country, including in its partnership with Canada Life.

“We will see what this transaction brings in terms of new opportunities,” Guillemette said. He noted it will be interesting in the future to see what sort of international opportunity might arise from the deal.

“Sun Life is an amazing international player, and Dialogue is just starting there. I think we will see a lot of synergy and opportunities,” he said.

Asked why the companies decided to enter this deal now, Jones said there is tremendous demand from Canadians who want help to understand, navigate, and access the broader health ecosystem and receive care digitally. And demand for Dialogue’s solutions across the company and among Sun Life clients is growing.

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On the other hand, employers are adopting the platform as they look to attract and retain talent in a challenging employment market. Robust employee health programs may be seen as an attractive perk in an employer.

“So it’s a great coming together of capabilities at a real time of need for Canadians,” Jones said.

The acquisition has been a long time coming. The two companies established a relationship in Canada in March 2020. That year Sun Life rolled out Dialogue’s services to its Group Benefits Clients under the name Lumino Health Virtual Care.

In mid-July 2023 Dialogue reached an agreement with Sun Life US to license its platform and distribute its services to members in the US.

“In recent years, Dialogue has developed a strong relationship with Sun Life,” Habib said in a statement. “As a standalone entity backed by Sun Life, Dialogue will have more resources to deliver on our mission of helping people improve their health and well-being, and the flexibility to continue to deliver on our mission by leveraging the respective strengths of both organizations.”

Sun Life Canada said the acquisition followed a strategic review process on its part, and was supervised by a committee of independent directors. The transaction was approved unanimously by the board of directors of Dialogue following the unanimous recommendation of the strategic committee.

National Bank Financial acted as exclusive financial advisor to Dialogue and financial advisor to the strategic committee, and provided a fairness opinion to Dialogue’s board of directors and the strategic committee. Scotiabank acted as independent financial advisor to the strategic committee, as well as providing a fairness opinion. Osler, Hoskin & Harcourt LLP acted as legal advisor to Dialogue, while Stikeman Elliott LLP acted as legal advisor to the rolling shareholders.

The deal is not subject to any financing condition and is expected to close in the fourth quarter of 2023, subject to obtaining the required shareholder, court, and regulatory approvals, and the satisfaction of other customary closing conditions.

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

In recent months, Dialogue has posted increased revenues while reducing its losses. Annual recurring revenue (ARR) from continuing operations in the first quarter of 2023 grew 23.8 percent year-over-year to $106 million.. The company claims this was driven by new customer acquisitions, existing customer and partner expansions, price increases, the acquisition of Tictrac, and other factors.

Dialogue’s core digital business in Canada, which represents 85 percent of total ARR, increased 35.9 percent year-over-year.

The company posted an adjusted loss from continuing operations of $1.8 million in the first quarter of 2023, compared to a loss of $5.4 million in the same period last year. Dialogue’s public filings claim the smaller loss was due to higher gross profit and strong cost control, partially offset by annual wage increases across the business and an unspecified loss at Tictrac.

Net loss from continuing operations was $2.7 million in the first quarter of 2023, compared to $6.7 million in the same period last year. The smaller loss was primarily due to higher gross profit and net financing income, offset in part by higher operating expenses compared to the first quarter of 2022, company documents say.

Dialogue went public on the Toronto Stock Exchange (TSX), in 2021 raising $100 million through its previously announced initial public offering (IPO).

Sun Life first gained a minority stake in Dialogue when it invested $32.7 million equity as it led a $43 million CAD round in the telehealth company in 2020. At that time it also gained the rights to acquire additional equity.

Montréal-based telehealth startup Dialogue has raised $43 million CAD led by Canadian life insurance company Sun Life Financial.

The round consists of a $32.7 million equity investment from Sun Life, as well as follow-on investments from existing investors Caisse de dépôt et placement du Québec, Portag3 Ventures, White Star Capital, HV Holtzbrinck Ventures, First Ascent Ventures, and Walter Ventures.

“Having strong support from partners such as Sun Life allows us to remain focused on providing quality care and expanding our services.”

As a result of the acquisition, Sun Life will hold a minority ownership stake in Dialogue and has the rights to acquire additional equity, although Sun Life did not disclose how much of Dialogue it will own.

“It’s been an honour to be part of the Dialogue story since it was conceived
as the first company in our venture builder, Diagram. Today is another exciting milestone for this innovative Montréal, Québec and Canada success story that now has over 900 employees and practitioners, and is available to over six million Canadians,” said Paul Desmarais III, chairman and CEO of Sagard and outgoing chairman of Dialogue.

“I am proud of the positive impact Dialogue has had in improving access to health care and modernizing the B2B health-care space” Desmarais III added.

Featured image: Sun Life Canada has agreed to acquire Dialogue Health. Photo courtesy of CNW Group/Sun Life Financial Inc.

This story has been updated to include comments from the Dialogue and Sun Life leadership teams.

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.

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