Medical device maker ResMed will buy health information technology group Brightree for $US800 million ($1.11 billion) in a bid to seize global leadership in smart devices.
The deal underscores ResMed's push to integrate data and cloud software with its devices to improve management of illnesses such as chronic obstructive pulmonary disease – a lung disease that makes breathing difficult.
"We are the global leaders in respiratory medicine to treat sleep apnoea and COPD," ResMed chief executive Mick Farrell said.
ResMed is growing into new markets with the acquisition of Brightree. Photo: Rob Homer
"We have in the last three months put a chip into every sleep apnoea device that we sell and we are now taking more data to the cloud."
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Mr Farrell said the company now had more than 1 million devices capturing respiratory data and the deal "leap frogs" ResMed into world leadership in healthcare informatics, or "connected care".
The San Diego company has made several recent acquisitions, including Texas-based Inova Labs and China's Curative Medical.
"The company has been a lot more acquisitive lately outside of the traditional core business," Watermark Funds Management analyst Nick Cameron said.
"The limited disclosure detail around what these businesses actually are and where they make money, makes it difficult to understand the impact on ResMed's core business and what the longer-term investment opportunity looks like."
Private companies
Mr Cameron said many of ResMed's recent acquisitions had been private companies and it had been difficult to get more detailed financial information on them.
"This is a medical device maker buying a tech company," he said. "We have to take a lot of it on trust."
ResMed shares shed 2.6 per cent to $8.05 on Tuesday.
Brightree, which is majority-owned by US venture capital firm Battery Ventures, provides cloud-based software across the health industry including to hospices, home medical equipment suppliers, and direct to the home of individual patients.
Mr Farrell said that Brightree's technology positioned ResMed to be at the forefront of lowering costs and improving efficiency of care, particularly in delivering care at home.
Technology that allows patient monitoring in the home not only improves the quality of life for patients, but also helps reduce expensive hospital visits. Such an outcome will become increasingly important for stretched government health budgets.
Healthcare IT investment
"The healthcare IT space or connected care space is absolutely an area we will continue to invest in," Mr Farrell said.
A team of software engineers are constantly taking data from ResMed's cloud. About 900 patients a day who use ResMed's traditional devices that treat sleep apnoea, sign up to use the company's myAir application which allows people to see their sleep and breathing data on their iPhone or other device an hour after removing their ResMed mask.
The $US800 million price tag is a sizeable bite for the $US8 billion ResMed, but is softened by an estimated $US300 million in tax benefits that will accrue from the deal.
The acquisition price represents a multiple of 13.5 times earnings before interest, tax, depreciation and amortisation, including the $US300 million tax benefit, or a hefty 18.8 times EBITDA excluding tax considerations.
Wilson HTM analyst Shane Storey said ResMed had "paid a big premium to lock this area [cloud-based health informatics] up."
But Mr Storey was positive on the deal, telling clients the push into health technology could have "a beneficial structural impact on the sleep marketplace in terms of market share and organic growth".
The deal was expected to be immediately accretive to gross margin and earnings per share.
Brightree generated $US113 million in sales and EBITDA of $US43 million in 2014-15.
"You don't do acquisitions like this every day and we will be working very closely to make sure we are maximising value," Mr Farrell said.
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