Alcidion Group Ltd, emerging Healthtech company completing transformative growth acqusition
Pre-acquisition cap structure (undiluted)
SOI: 607.8m
SP: $0.037
MCap: $22.5m
EV: $19.3m
Cash: $3.162 (as at 31/3/18)
Alcidion is an emerging healthtech company based in Australia and with current operations and revenues with public and private hospitals across Australia and New Zealand.
The company yesterday announced what is a transformative acquisition through the purchase of MKM and Patientrak, a business that is synergistic to Alcidion in product, market and geographic location. The acquired business will see Alcidion nearly triple its revenues and adds bottom line profitability to the group. Also, the share based consideration for the deal is based on a share price 36% above the current $ALC shareprice, speaking to the credibility of the opportunity here in the eyes of the vendors.
About Alcidion
The company owns proprietary health information software systems that are designed to assist public and private hospitals to digitise traditionally manual processes and systems, and as a result, help these hospitals to reduce the third most common killer in the developed world behind cancer and heart disease: avoidable errors in healthcare delivery.
Alcidion joined the ASX 2 years ago via an RTO. Previously, it was funded by Blue Sky Private Equity (currently a major holder), along with Health IT entrepreneur Nathan Buzza and co-founders Ray Blight and Malcolm Pradhan.
The current product suite includes:
MiyaED: Augments existing EDIS with clinical dashboards & ED whiteboards that allow Emergency Room teams to highlight key risks, activate best practice guidance for common problems and detect and manage high risk lab results that arrive after the patient has been discharged.
Miya Patient Flow: Improves hospital efficiency and resource utilisation. Alcidions patient journey system brings together various hospital information sources for a 360 degree view of the hospital with high risk and relevant information highlighted and displayed on mobile devices or dashboards, so teams have visibility of potential issues before they arise.
Miya Revenue & Reimbursement: Reduces revenue leakage, enhances patient care and drives efficiency. The solution reduces the gaps in clinical documentation by making it easy for VMOs and clinical staff to access and update patient information in real-time, minimising the risk of billing queries and clawback with accurate documentation and coding of patients.
Smart Page: Enables fast and accurate communication to improve the coordination of care. Envisage complete visibility of care, with two way communication and collaboration tools that result in faster, smarter decisions that improves patient safety, all from the convenience of a smartphone.
Alcidions products generate recurring revenue plus implementation revenues. Alcidion has contracts across Australia and New Zealand with top tier hospitals including the Royal Children's Hospital Melbourne, the Monash Health group in Melbourne and Calvary Care Group, who operate 15 public and private hospitals across Australia.
Alcidion completed an small acquisition early in 2018 of Oncall Systems, a NZ based software company who designed Alcidions Smart Page product. The acquisition cost NZD$750k and may result in a further capped NZD$2.25m contingent payment based on 2x revenue generated by Oncall over the 18 months post acqusition, payable 40% cash and 60% ALC shares.
MKM / Patientrak acqusition
Alcidion yesterday announced that it will be acquiring the MKM / Patientrak business. The business provides data management and implementation services to hospitals, and also sells its Patientrak software solution the same audience. The group had revenues of AUD$8.8m in FY17, profit of $.7m and impressively, has grown at a compound rate of 29% per annum since 2012 when current MKM CEO Kate Quirke joined MKM as sales director (a 2.5x in revenue during that time).
Strategic Rationale
The transaction is important for a few reasons. Firstly, it gives the combined Alcidion group a substantially larger footprint, enhancing credibility with hospital groups they negotiate/tender with. The tender process can be slow and bureaucratic, and the credentials of the vendor (in this case, Alcidion) play an important role in their selection as a successful candidate. The increased size means Alcidion now has a larger team and larger installation/geographic footprint to use as a reference in future tenders.
Secondly, given MKM/Patientrak is already active with 80 customers, greatly expanding the number of relationships the combined group has, and opening the door to a significant number of cross sell opportunities for the product/service suites of each respective business.
Most interestingly, the acquisition announcement referenced a potential expansion of market verticals, not only focusing on the current market of public/private hospitals, but also in the future moving in to the 'integrated, connected care setting and potentially in to the home'. Given the ageing population in established econcomies across the globe (including Australia) is a real and present opportunity, the potential for the combined group to expand the potential application or extension of its existing product suites is incredibly exciting.
The Team
The current management team of Alcidion has been made up of a comprehensive set of skills and experience for the journey of the business thus far, spanning med-tech/science, leadership in the public/health space, and commercial. These are summarised as follows:
Ray Blight: Current CEO (soon to become exec chairman). Former head of Health in the government of South Australia. Strong public sector health experience.
Malcolm Pradhan: Stanford University educated with a depth in medical informatics.
Nathan Buzza: Former Health IT entrepreneur who successfully grew a health IT company across multiple geographies including North America, before selling for hundreds of millions. Nathan has been active as an executive director until recently, and brought significant commercial depth to the team. Nathan's current focus is to produce private venture capital funding with applied hands on management assistance to companies in his focus area. Currently involved as a director of $RAP.
From a non-exec director perspective, the board includes Nick Dignam (Blue Sky representative director) and has been expanded recently by Geoff Rohrsheim (entrepreneur, successfully exited Kloud to Telstra Health in 2016) and Rebecca Wilson (CEO of WE Buchanan, specialist investor relations firm to fast-growth businesses in health/med tech).
In my opinion, with Nathan stepping back recently, there existed a gap in the commercial skills of the management team, which was particularly pronounced given the intention to expend internationally.
Enter Kate Quirke, current CEO of MKM and CEO elect of the combined Alcidion Group post acquisition. From the acquisition announcement, it seems Kate is a sales focused executive and you could say the results of MKM's growth speak for themselves. Given MKM/Patientrak already operate across 3 difference countries, it is encouraging to see that the new CEO has experience in scaling a business across multiple countries.
Cap structure and pro-forma financials
See below the pro-forma cap structure and FY17 financials for both the existing and combined group. Note that this excludes any cash or shares paid to Oncall for the earn-out, as the specific calculation methodology for this final payment is presently unknown from publicly available information.
Following the acqusition and based on yesterdays closing price, $ALC is trading on an EV / FY17 Revenue multiple of approximately 2.2x undiluted and 2.83x diluted. This compares to Alcidion standalone of undiluted 5.52x and diluted 7.0x, giving reference to how cheap the combined group now appears.
Further, the vendors of MKM/Patientrak have accepted receiving their share based payments at 5.05c/share, which is a 36% premium to yesterdays closing share price.
The deal certainly is very attractive to $ALC shareholders.
From here
It is worth noting that Alcidion management have significant incentive to see revenue grow post acquisition, as they have 148m performance shares on the line. The trigger for receipt of these performance shares is achieving AUD $15m of revenue for a consecutive 12 month period before 28 Feb 2019. Given the acquisition is set to complete on 29 June, that would mean the contribution of MKM/Patientrak would only count for 8 months of the 12 month $15m revenue calculation. I wouldn't be surprised to see a huge push made by management to hit this milestone. It would be extremely bullish to see this target hit, as it would speak to the rate of growth the combined business is able to achieve, even in the midst of integrating the two businesses. On the flip side, if the milestone isn't hit, it saves existing shareholders a fair wack of dilution.
Moving forward, I see significant opportunity for both businesses to generate increased revenues through existing channels, cross sales, and in particular, a drive to push the Alcidion product suite on to the UK market.
North America has also been a stated ambition of Alcidion for the 2 years they have been listed. I would not be surprised to see the combined group use the UK market as a testing ground for its combined product/service offering, before making a targeted entry to the North Amercian market.
From a shareholder perspective, Rebecca Wilson/WE Buchanan as the investor relations team have only been involved with Alcidion since July 2017. During the time since, we have seem small tweaks and changes, but not yet a fundamental push to promote Alcidion to institutions/the broader market. It is my opinion that the directors had made a conscious decision not to do so until this acquisition was made, to ensure they sell a consistent story about the prospects of the combined group to new insto's/investors. The company is commencing presentations next week, and I suspect there will be a big IR push coming, which should dramatically assist the company.
Overall the last 15 months for the company have been quite disappointing for SH's, but it has very much been a time of getting the ducks in a row behind the scenes, and my feel is that there is now going to be a sustained and solid story to emerge from the combined Alcidion group, which will excite the market and drive significant shareprice appreciation.
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