IMImobile Plc (LON:IMO), a cloud communications software and solutions provider, has today announced that it has agreed to acquire Healthcare Communications UK Limited (“Healthcare Communications”), the leading provider of appointment management and patient experience communications to the UK healthcare market (“Acquisition”). The Acquisition is highly complementary to both IMImobile’s product set and customer base and is expected to be immediately earnings enhancing for the Group and is partly funded by a new £12.0m debt facility from Silicon Valley Bank.
Healthcare Communications is the leading provider of patient communication services in the UK healthcare market – working with 140 NHS organisations and delivering more than 100 million secure patient communications a year, including outpatient appointment reminders and follow-up letters. It provides communications services to patients via SMS, IVM, telephone and email through its internally developed ‘Envoy’ software platform as well as providing postal and portal communication channels. Its innovative services are proven to save the NHS time and money to improve the patient experience.
Healthcare Communications has an established track record of profitable growth, with three year revenue and gross profit CAGR of 50% and 54% respectively, and recurring revenues of over 90%. In the year ending 30 April 2017, revenue and adjusted EBITDA were £3.6m and £0.4m, respectively, with strong growth maintained in the first six months of trading for the current year.
IMImobile’s products and solutions can support the NHS in delivering significant cost efficiencies and improved patient experience and will therefore provide significant cross-sell and up-sell opportunities as well as optimising operational efficiency for the expanded business.
The Acquisition is expected to enhance Group earnings during the year ending 31 March 2018.
Initial consideration of £9.0m payable in cash upon completion on a normalised working capital basis, with a further deferred consideration of up to £6.0m payable in cash or shares, based on achievement of gross profit growth and EBITDA targets over the next two years.
The Acquisition is being funded from a mix of existing cash resources and a new £12.0m debt facility agreed with Silicon Valley Bank, the bank of the innovation economy.
Commenting on the Acquisition, Jay Patel, Chief Executive Officer of IMImobile Plc, said: “The acquisition of Healthcare Communications significantly enhances our position in the public services sector with a leading digital communications provider in the UK healthcare market, a sector which has seen a renewed focus on operational efficiency and patient experience.
“We see significant potential to support the NHS in delivering material cost efficiency and improved patient experience. Our solutions can automate and streamline many existing processes and patient journeys and we look forward to demonstrating our capabilities to the Healthcare Communications customer base.”
Background to and reasons for the Acquisition
The NHS has identified better use of digital patient communications as an important driver of efficiency savings as it works to close a £30 billion funding gap by 2020/21. Health secretary, Jeremy Hunt, revealed that missed hospital appointments (estimated at 1 in 10 of outpatient appointments) cost the NHS around £750million a year1.
Healthcare Communications’ technology is proven to help NHS trusts reduce ‘did not attend’ (DNA) rates by as much as 30%. Its appointment reminder service delivered a £1.5million efficiency saving for Leeds Teaching Hospitals NHS Trust in 2015-2016, delivering a 5% reduction in DNAs2.
Healthcare Communications is an industry leader in the UK healthcare communications market, providing services to more than 140 NHS acute trusts and health boards with the potential to sell to many more. Its software is used by more than 4,000 NHS staff every day. The company provides communications services to patients via SMS, IVM, telephone and email as well as providing postal and portal communication channels. Its internally developed ‘Envoy’ software platform comprises a sub-set of the capabilities of IMImobile’s product set, allowing Healthcare Communications the ability to cross-sell and up-sell the enhanced suite of solutions it now has access to.
Healthcare Communications has benefited from strong growth in recent years, with three year revenue and gross profit CAGR of 50% and 54% respectively, a trend which has continued into the current trading year. The number of messages sent by customers has increased from 32m in the year to 30 April 2015 to 100m in the current year.
The Acquisition has low customer concentration levels but high customer retention rates with a significant market share in the NHS trusts sector. The enlarged Group will drive additional future revenue growth through winning additional trusts customers as well as increased levels of cross service sales across the existing customer base.
The Acquisition also serves to strengthen the IMImobile’s management team, with founder and Managing Director, Mike Cunningham, Commercial Director, Kenny Bloxham and other senior management remaining with the business following completion.
Healthcare Communications meets IMImobile’s acquisition criteria of purchasing companies with established recurring revenue contracts with access to significant customers. Over 90% of revenues in the year to April 2017 were recurring in nature. It has a complementary product set, a good financial record and opportunities for revenue and purchasing synergies.
Further information on Healthcare Communications
Healthcare Communications is based in Macclesfield and employs 55 people and was founded in 2000. In the year ended 30 April 2017, Healthcare Communications reported a turnover of £3.6m and profit before tax of £0.4m under IFRS and achieved year on year gross profit growth of more than 45%. As of 30 April 2017, being the date of Healthcare Communication’s latest published audited financial statements, it had net assets of £1.0m.
Terms of the Acquisition
The initial consideration for the Acquisition is £9.0 million payable in cash on completion with additional deferred payments of up to a maximum aggregate value of £6.0m, split over two years based on a mix of gross profit growth and EBITDA targets. The deferred consideration will be satisfied either in cash or shares.
The initial cash consideration will be met from a combination of the Group’s existing cash resources and a new credit facility agreed with Silicon Valley Bank. The deferred consideration will be shared amongst the founders of the business and senior management providing IMImobile with a motivated and committed team to growing the Healthcare Communications business in the coming years.
Immediately prior to the acquisition the Company agreed terms with Silicon Valley Bank for a revolving line of credit facility of up to £12.0m. The facility has an annual interest rate of between 1.5% and 2.0% plus LIBOR, based on the level of net leverage, and a four year term.