Having hinted at significant changes ahead when we spoke to him last week (see EMIS considering BPS move), Chris Spencer, EMIS’ CEO of two months, is making a big move with the acquisition of UK healthcare software provider Ascribe Group.
EMIS is paying up £60.5m for Bolton-based Ascribe, or 2.5x revenue of £24m. The deal will see Ascribe's private equity parent ECI Partners net almost double their £32.9m investment made in 2009 (see here). EMIS is paying £57.5m upfront, with a potential further payment of £3m next September if EMIS hits certain agreed milestones. The deal will be funded by EMIS raising £27.1m through a new share placing, offering £2.2m EMIS shares to Ascribe management, using existing cash resources (£14.8m net cash as at 30 June 2013), as well as funds from a new £32m debt facility.
EMIS sees Ascribe as a ‘rare opportunity to acquire a significant market position in several areas strategically adjacent to but not overlapping with EMIS Group's core offerings’. This goes someway to explaining the valuation. Certainly Ascribe's operating margins of 17.9% are some way south of EMIS’ own 25.6% margin in H113. Cost savings of £500k are expected however to ensure Ascribe is earnings enhancing in year one.
The rationale behind the deal makes a lot of sense. Ascribe is a name well known to readers of UKHotViews (see Ascribe growing in UK and international health markets), principally focusing on hospital pharmacy, A&E, mental health and patient administration systems (PAS)/electronic patient records (EPR) within the UK (82% of revenue), and Australia and New Zealand markets.
Some 75% of the 243 UK NHS Trusts and Boards are already Ascribe customers, so this will give EMIS, predominantly in GP and pharmacy systems, a spring board into the hospital sector, and a complementary set of clients and offerings to its core offerings. Ascribe should therefore provide plenty of opportunity for EMIS to build on its strategy to provide ‘integrated cross-organisational healthcare systems, extending from primary and community into specialist care and beyond’.