Silly sausages being touted for MedicalDirector
Pulse+IT collectively choked on its early winter porridge this week when we read an edition of the Australian Financial Review’s Street Talk column which touted the sale of general practice management system vendor MedicalDirector by its private equity owners for the astoundingly silly sum of $500 million.
As we have noted before, anyone seriously considering that sort of money for a middle-sized Australian medical software firm needs to have their heads read. The Fin was quoting $300m three years ago and we hear this is closer to what is being asked for today, but it is still a highly optimistic valuation for a company that is not really going anywhere in a hurry.
If one was to speculate that MedicalDirector is making a profit of $20 million a year, and a solid but plausible earnings multiple of 15x is applied as a valuation, they may just get there. But implied in this thinking is that the company has a healthy future, and signs of this are hard to find.
For example, MedicalDirector heavily promotes its cloud-based system Helix as its future and also spruiks its listing on a panel of potential suppliers to the UK’s NHS as evidence of market growth, but these claims have a few little problems.
One is Helix’s user numbers, which we understand are still in the low hundreds (of humans – not practices), and two is its falling market share in Australia for its flagship product, MedicalDirector Clinical. MD says it has 23,000 clinicians using its systems who provide “80 million consults” each year, whatever that means, but it also refuses point blank to substantiate these claims.
This week, we asked CEO Matt Bardsley to provide a breakdown of numbers in terms of clinicians and practices using MD’s flagship product MedicalDirector Clinical, clinicians and practices using Helix, users of its medical specialist practice system Blue Chip, any remnant users of PracSoft who do not use the Clinical system, and users of its medicines information systems in the public health system such as state health departments.
MedicalDirector told us that while they “appreciated us reaching out, unfortunately we’re unable to comment at this time”. So like two years ago, we asked its main competitor Best Practice for a breakdown on their figures, and they were more than happy to accommodate us.
BP says it has 5183 practices using its system, some of which have between two and 20 sites. With the total number of general practices in Australia estimated at between 7000 and 8000, on those figures, BP now has at least a 65 per cent market share. This is a substantial jump in BP’s customer number, even in the last two years, and it now appears to be the thoroughly dominant player.
We have corroborated these figures with trusted third-party software vendors who know better than anyone how many practices they service and what clinical software those practices use, as they have to integrate with them. We believe that 65 per cent market share for BP is about right, and when considering there are some much smaller players on the GP software market – Medtech, Zedmed, Intrahealth and MediRecords, which we estimate make up between five and 10 per cent of the market combined – then MedicalDirector is sitting on less than a third.
And this number can only be declining. We hear of steady numbers of practices swapping from MD to BP each month – bearing in mind that medical practices are hugely reluctant to change considering the complexity of migrating tens of thousands of patient records going back many years, let alone financial and administrative data – but one of our third-party vendor sources reports having never had a customer swap from Best Practice to MD.
So if falling market share is not limiting interest from buyers, what is sustaining it? Being owned by private equity firm Affinity, it should come as no surprise that they have been courting potential buyers for MedicalDirector for years. These include Telstra Health, which according to the AFR is still interested, and some others that have been on the periphery, like DXC Technologies, now known as Dedalus.
Our info is that Dedalus, which has an interest in the GP market in Italy in particular and is keen to get back into primary care, has baulked at the price tag being asked for MD. There are a few private equity players still interested, but the biggest player still in competition with Telstra Health as a potential acquirer is believed to be the UK’s System C, which has a large footprint in the secondary care market in England and Wales.
Why they are interested, we don’t know. System C provides electronic patient record (EPR) technology to about 28 NHS trusts as well as electronic observations software and also has a partnership with integrated care solution vendor Graphnet. Together, System C and Graphnet run the National Immunisation Management System (NIMS) that manages the flu and COVID vaccination programs for the whole of England, and they also work together on various social care and shared care implementations throughout the country.
However, MedicalDirector is a GP product and the GP market in the UK is already a duopoly, consisting of EMIS Web and TPP’s SystmOne. The former claims a market share of 56 per cent and is moving its system over to the AWS cloud as part of its EMIS-X plans. It also has an interoperability agreement with SystmOne, and there appears to be no room for a competitor, let alone an upstart Australian one with no local history.
We fail to see why System C would want to invest in a new GP product for the UK that has never deployed there before, or why they would imagine MD has much growth potential in Australia to make a return on investment. As we’ve said before, MD is a sound company with an established product, but it has put all of its eggs in the Helix basket over many years and not many have hatched.
The $300m-$500m price tag just reinforces for us the amount of silly investor money on offer for anything that resembles a technology company, particularly if it has “cloud” somewhere in the mix.
If MD’s owner Affinity can get $300m in the coming months, in combination with the healthy stream of dividends they have banked (propped up by the many rounds of redundancies they have overseen), one would imagine they will be quite pleased with themselves.
But will a new owner be able to replicate this success, or are they trying to catch a falling knife?
That brings us to our poll question for the week. Two years ago, we asked readers if they thought MedicalDirector could be sold for more than $155m. The vast majority said no. This week we ask:
Can MedicalDirector possibly sell for $300m-$500m?
Vote here and feel free to leave your comments below.
Last week we asked: Are public health services defaulting to the big corporates for health IT solutions when locally developed solutions are readily available? Yep, say 88 per cent of respondents. Nope, say 12 per cent.