UK healthcare IT consolidation continues apace

(By Anthony Miller – Friday, 8th May 2009 8:45am). The inclement economic climate is proving conducive to industry consolidation at the lower end of the It food chain too. Two of the more interesting acquisitions are in the key UK healthcare sector.

A couple of days ago, NHS healthcare software provider, System C Healthcare, acquired privately-held peer, Bluestar Group, for up to £3m. Bluestar’s revenues last year (to 31st Oct.) were £2.7m with £200k PBT. Amongst its other offerings, Bluestar developed the ‘Pathfinder’ RFID system for tracking patients (!) and equipment. System C is one of the beneficiaries of the increasing chaos in the National Programme for IT as hospitals, Trusts and GP practices are granted more autonomy to choose products that are fit for purpose and actually work. At the half-way stage (to 30 Nov. ’08), System C made 14% operating margin (+1%) on £10.4m revenues (+24% yoy) (and see System C bucks the trend).

And today, our predictions that Vin Murria was on the verge of a new acquisition (see Advanced Computer Services - Part Two) came to pass with the news of a £15.5m cash and share offer for AIM-listed IT services firm, Business Systems Group (BSG). The 19.11p-per-share deal is a 27% premium to BSG’s close last night and 57% higher than its prior 3-month average. Murria was appointed BSG non-exec chairman in Feb. ’08.

We’ve been writing about BSG for yonks – very much the traditional ‘system house’ into a bit of anything and everything but never going anywhere. If you dust off your copy of the 1997 Holway Report you’ll find BSG had £45m revenues (1996) but was barely profitable. By 1999, revenues had dropped to £32m with £1m PBT. In its most recent reported FY (to 31 March ’08) revenues were – guess what – just under £32m with just under £1m PBT.

But the real attraction for ACS is BSG’s hosting and managed services business, which represents a little over 40% of its total revenues and of which two-thirds is recurring. What ACS needed – and needed quickly – was a host for its soon-to-be launched iNurse system. They were already looking at external hosting providers but BGS has it pretty much ‘ready to run’ – and more importantly, cheaper too. An added bonus is that a number of BSG’s customers are in the related not-for-profit sector, such as Moorfields Eye Hospital and Sue Ryder, which should fit sweetly into ACS’ model. As for the rest of BSG’s business, Murria is conducting a ‘strategic review’ so I don’t think it takes a huge mental leap to guess what might happen thence. It all seems to make sense to us. By the way, BSG has a small (10 FTEs) team in Bangalore which will provide a useful addition to the 25-man team ACS already subcontracts too in that same city.

According to Murria, there are some 100 SITS companies operating in the UK healthcare sector – it’s just so ripe for consolidation. As the NPfIT procurement stranglehold gradually loosens, we are sure to see many more deals like those above – and we don’t doubt Murria’s stamp will be on some of them.