ResMed Inc: Expands SaaS footprint into the EU

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
17 June 2022, 8:30 AM
Sectors Covered:
Healthcare

  • ResMed Inc (ASX:RMD) is acquiring Medifox Dan, a German-based, privately-held, out-of-hospital software provider, for cUS$1bn, funded via existing cash and debt.
  • Medifox Dan looks to complement the existing offering, while providing a more comprehensive software platform, as well as a beachhead for additional growth opportunities across the EU.
  • The acquisition is slated to close FY22, which we see little risk, is expected to be EPS accretive, and while the multiple looks extended (28.6x EV/EBITDA), management is confident in surpassing return metrics over the medium term as a stand-alone business, with potential for synergy upside.
  • We have adjusted our FY22-24 forecasts, with our DCF/SOTP based target price decreasing to (login to view). Add rating maintained.

Event

RMD is acquiring Medifox Dan, a more than 25-year-old Hildesheim, German-based provider of out-of-hospital software solutions, for cUS$1bn (EUR950m), from leading software and services investor, Hg Capital.

The transaction will be funded via existing cash and credit facilities, is expected to be earnings accretive, and is slated to close by year-end 2022.

Analysis

Medifox Dan provides critical software and data solutions (ie billing and admin; clinical care plan; documentation; personnel planning) across three out-of-hospital care verticals: Home Health, Skilled Nursing, and Outpatient Therapy.

This portfolio appears to complement and expand the existing SaaS offering from Brightree (eg Home Medical Equipment Providers; Pharmacy/Infusion) and MatrixCare (eg Life Plan Communities; Private Duty; Hospice/Palliative Care; Senior Living; Skilled Nursing).

RMD expects to retain Medifox Dan’s employees, management structure, locations and business processes, but will operate the business under its current brand within its SaaS business.

Medifox Dan employs more than 600 people, services 8k+ customers (with 300k+ daily users), posted a CY21 turnover of c$83m and EBITDA of c$35m (margins 42.2%).

Notably, Medifox Dan has grown above benchmark (CY19-21 CAGR of 14% vs 5- 10% market growth), to hold c28% of the cUS$300m German IT healthcare market.

Management believes double-digit revenue growth is sustainable, given favourable fundamentals (eg aging; rising chronic conditions), combined with skilled labour shortage and government supportive of digitisation to gain system efficiencies.

While a 28.6x EV/EBITDA multiple is not cheap, management is “very comfortable” in earning a “strong” return as a stand-alone business over the medium term and suggested upside via (unquantified) synergies.

Forecast and valuation update

FY22 earnings decline up to 2.7%, on ongoing supply-chain constraints, while FY23-24 increases up to 1% on incorporation of the Medifox Dan acquisition.

Our blended SOTP/DCF based target price decreases to (login to view).

Investment view

While margin headwinds are expected to remain in the near term, we believe the overall fundamentals remain sound and the company is well positioned.

Price catalysts

Philips 2Q22 results 25 Jul-22; FPH 1H23 results Nov-22.

Risks

  • Lower-than-expected mask sales
  • Slower-than-expected rebound in sleep patient set-ups and gains from Philips’ recall
  • Execution around SaaS acquisitions
  • Pricing pressure
  • Market share loss
  • Increased competition
  • FX headwinds

Find out more

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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