ResMed Inc: Expands long-term care SaaS portfolio
About the author:
- Author name:
- By Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 08 November 2018, 11:18 AM
- Sectors Covered:
- RMD has acquired privately-held MatrixCare, a Bloomington, MN, US-based leading provider of out-of-hospital software, for US$750m.
- Valued at 25x EBITDA, the deal doesn't come cheap, but is both GM and EPS accretive out of the gate, appears to complement the current SaaS offerings in home medical equipment, home health/hospice, and helps to diversify risk.
- We believe this acquisition establishes RMD as a leading provider of SaaS solutions across a broad spectrum of key out-of-hospital care settings: HME/DME, hospice, home health, skilled nursing, senior living, life plan communities and home care.
- We have increased our FY19-21 underlying earnings estimates by up to 4% and revised our price target (Morgans clients can log in to view).
- We maintain our Add rating.
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Expanding the out-of-hospital software portfolio
RMD has acquired MatrixCare, a privately-held, Bloomington, MN, US-based leading provider of out-of-hospital software, for US$750m (funded primarily with debt). MatrixCare offers complete software solutions (eg electronic health record integration, patient engagement channels, and back-office functions such as point of care, lead and referral management, claims processing, payroll and nutrition management, among others) for more than 15,000 US based health organisations.
This helps them efficiently manage risk in care delivery across four key segments:
- Skilled nursing facilities
- Life plan communities
- Senior living homes
- Seniors who receive home care private duty services.
The more than 600 employee company, with offices in Minnesota, Florida, New York, and India, has pro forma CY18 turnover of cUS$122m and EBITDA of cUS$30m. The deal is expected to close by YE18 and should be GM and EPS accretive on an underlying basis (post deal net debt cUS$950m; leverage 1.1x ND/EBITDA).
An end-to-end solution to streamline services across care settings
The acquisition of MatrixCare is the largest push by RMD to gain scale and efficiencies in health informatics to drive better outcomes for providers and patients since its US$800m acquisition of Brightree in Feb-16.
While the deal doesn't come cheap (25x EBITDA), it is both GM and EPS accretive, appears to complement its current SaaS offerings in home medical equipment, home health/hospice, delivered through Brightree and HEALTHCAREfirst, and should help to lower risk and diversify revenue streams.
Notably, we believe the acquisition firmly establishes RMD as a leading provider of SaaS solutions across a broad spectrum of key out-of-hospital care settings: HME/DME, hospice, home health, skilled nursing, senior living, life plan communities and home care.
Underlying earnings moving higher by up to 4%
Our FY19-21 underlying earnings forecasts increase by up to 4%, while the EPS gain is somewhat lower offset by higher interest costs and lower share count as the buyback program has been suspended.
We believe the MatrixCare acquisition further solidifies RMD's leading connected care offering, and when coupled with stable pricing and moderating opex, support ongoing operating leverage and a solid earnings trajectory.
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