Ann: ResMed to Acquire Brightree, page-32

"Basically, you have written a lot of words to publicly express your doubts and fears without acknowledging that you have given serious consideration to the details in the article."

What details?

That's my whole gripe here in relation to this deal.

There are no details (well, not the sort of minimum detail that I would reasonably expect for a transaction of this scope and magnitude...see below).

There is just execu-speak fluff.


"...but the article clearly states that RMD are currently using BT software, so surely RMD would have gained insight into the potential business advantages of owning BT?"

They may have, but then why have they actively elected to not share those insights into the potential advantages with the other owners of the business, as is customary practice when such material strategic decisions are undertaken by executives?

I am not sure why the onus rests with me to provide rebuttal detail when I am questioning the lack of detail in the first instance.

So, as a fellow long-term shareholder who is - evidently - quite sanguine about this particular acquisition, could you - or anyone - possibly tell me:

Of BT's 2,500 customers, how much does RMD represent of BT's circa $130mpa of Sales?

Is RMD BT's biggest customer? Second-biggest? Tenth? Fiftieth? Hundredth?
Does RMD represent 2% of BT's Sales? 3%, 5%, 10%?

Because even assuming it as high as 10% (and I seriously doubt it) that equates to $13m, which is less than 2% of RMD's CoGS?

And why would RMD spend a massive one-twelfth of its entire market value to protect just 1.7% of its CoGS?

What exactly is it that you think this deal brings to RMD?

To what extent is this software being used by RMD?

How critically dependent s RMD on this particular software?

How much of the US$800m consideration reflects "securing" of BT's software which, presumably, for some reason cannot be replicated and procured elsewhere?

If BT provides such mission-critical inputs to RMD's business, why hasn't RMD contractually secured it from the very outset? From a riisk-management point of view, that's surely a minimum KPI requirement.

Should BT, for whatever reason, choose to withhold its expertise from RMD in the future, can RMD not simply contract another specialist IT enterprise to develop software for the next generation of RMD products?

Or is BT such a unique writer of a really special type of software code, that no one else in the world could possibly replicate it?

And if that was indeed the case (and I doubt it), why isn't that articulated in the acquisition justification? It would be a highly relevant consideration. Too relevant to omit referencing.


For this is the kind of detail that I look for when it comes to understanding major strategic initiatives such as this one.

That you might feel no need to have such questions answered is a matter for you, and I have no issue with that, because that must accord with your personal approach to investing. Which I respect. We are all different.

But by the same token, I cannot fathom why my personal investment approach is a matter for you.


"but the article clearly states that RMD are currently using BT software, so surely RMD would have gained insight into the potential business advantages of owning BT"

This is plain crazy talk.

Just because Company A utilises the services of Company B, and just because Company A might be highly impressed by the standard of those services, is no grounds for Company A going out and buying Company B.

I am sure there are numerous very competent, highly professional providers of all sorts of inputs into Resmed's business.

But that doesn't mean that Resmed should go out and buy them(!)


"A previous post raised another valid point - that once RMD buys BT, they will no longer be able to sell their software to RMDs competitors."

If it is the case that RMD business model is so dependent on BT for its continued competitive advantage, and therefore continued long-term successful existence, that RMD management felt compelled to buy the entire BT kit and kaboodle, then it would mean that RMD management have been inordinately negligent, from a risk management standpoint, to have left the business vulnerable to this one particular service provider and its highly unique attributes that - should they fall into the hands of RMD's competitors - could end up damaging RMD's business.

That a pre-eminent business like RMD finds itself in such an invidious position that it needs to spend a massive amount of money (and make no bones about it, it is a massive amount of money) just to keep its competitors at bay, is a notion that is fanciful beyond any half-decent credibility.


For almost 3 decades RMD management has been backing itself to win the competitive war through its unrelenting innovation and its industry-leading R&D grunt... and now you are trying to tell me that one day they wake up and say, "Uh...even though we are the best at it, I don't think we can fight the R&D fight anymore. So instead let's spend big to buy up one of our suppliers so that they won't be able to supply our competitors."

Again, my question:

My default thinking is that IT software is largely commoditised, so what is it about BT that makes it so very unique that leaves RMD's business so deeply integrated and dependent on it? So much so that RMD had to go and outright buy it? And buy it for an absolute motza?


"I wonder how serious you are about RMD when you say that "one company (RMD) does sleep disorder and the other (Brightree) does software" You even liken these 2 coys to plumbers and electricians!

If - after the inordinate amount of time I've spent posting on RMD over an extended period of time - you form the view that I am not a serious, passionate and engaged part-owner of the company, then - absent you injecting truth serum into me - I am at a loss to prove it to you.


"Are you really that unaware of the importance of well designed software and efficient IT communications, in the competitive business of sleep disorder diagnosis and treatment?"

Oh, I am acutely aware of it and I understand it implicitly. Not just that, but I applaud it and I celebrate it. For, indeed, it is exactly what separates RMD from the rest of the pack in the form of our company's state-of-the-art Airsense range.

But what I don't understand is why Brightree necessarily had to be bought for such a huge consideration... the unique and quantifiable link between RMD's well-designed software and efficient IT communications and Brightree (and Brightree alone, and no other) has not been made by anyone.


"If you are posting on a public forum and expressing negative views that appear to be a very well thought but are actually generalisations (coys that make big purchased usually fail) and neglectful of basic research (the imprtance of software to RMDs business), then you shouldn't be surprised if someone thinks you are in favour of shortselling."

I am sorry if the points I raise come across as negative to you, although I am surprised at your resistance to them, either way, given your qualifying clause of "negative or pessimistic comments are often very useful, and sometimes even necessary to reveal the truth and to prevent new/ill-informed investors from getting carried away and investing in dud companies."

It occurs to me from the tone and content of your responses to me posts that, although you say you find negative comments useful, you actually don't.

As for my views that "coys that make big purchased usually fail" being generalisatons, well, they are far more than generalisations. They are observations that are empirically based.

In the interests of brevity, I won't list the relatively vast array of corporate acquisitions over the past 2 decades that have ranged in failure terms from "disappointing" to "outright disastrous".

The list is a very long and extensive one. Far, far longer than the list of unequivocal acquisition success stories.


"I too have a considerable holding in RMD and have held them for over 10 years."

Fantastic. You would have profited handsomely from it.

But while I might find it curiously surprising that, as a long-term shareholder, you do not find this latest acquisition to warrant greater scrutiny, I acknowledge that is your choice.

Just as it is my prerogative as an owner of the business to choose to apply greater scrutiny.