Investor concern as Misys moves into healthcare IT

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The Independent Online
Misys, one of the world's biggest banking software groups, made a surprising and opportunistic leap into the little-known world of healthcare information technology yesterday with the $922.8m (pounds 583.6m) cash acquisition of Medic in the US.

Concerns that Misys was straying into unknown territory and was overpaying left its shares, which have outperformed the stock market by 135 per cent since 1995, some 7.4 per cent lower at pounds 14.80.

Medic's founder, John O'Connell, who together with a senior team of 16 is locked into a $22m options scheme for three years, owns 8 per cent of Medic's shares and will make pounds 47m from the deal. Misys is part paying for Nasdaq-listed Medic, one of the five largest IT companies in the US, with a novel two-for-seven pounds 322m rights issue.

Kevin Lomax, chairman of Misys, denied he was paying too much for Medic, which supplies back-office administration and billing software and transaction systems to 600,000 doctors. "Healthcare IT is in the early stages of rapid growth. Spending on HIT only accounts for 2 per cent of the total, just like banking 10 years ago. Now banks are spending 10 per cent of their overheads on IT," said Mr Lomax. He said he expected the HIT market to grow at 25 per cent a year to 2000.

Growth in HIT is being driven by a change to managed care, where healthcare providers offer medical services for fixed costs. Physicians grouping together to pitch for the most lucrative healthcare contracts are switching to automated billing, insurance claims and medical records to save costs. Savings from using HIT could be pounds 36bn a year.

Mr Lomax said that Medic, which has a 10 per cent share of the market, was at the forefront of such IT systems. The company, which sells its leading Vision system for $1m, has grown sales from $75m in 1993 to $192m last year and profits from $9.8m to $39m.

However analysts were concerned that Medic's performance had been volatile. Delayed sales of several Vision systems in March had halved the group's share price before a recovery and income in the six months to June was down on last year. Ross Jobber, analyst at broker UBS, pointed out that Medic's management were selling out because they were unable to manage the lumpiness of earnings.

"The stance they are taking is trust us," said Mr Jobber. "That is probably right long term, but they have muddied the waters. We were expecting an acquisition in the US, but in banking, not healthcare. Banking would have generated synergies and benefits in other countries. This deal does not. Shareholders are perplexed."

The deal is being funded by a novel "trombone" rights issue which involves issuing convertible loan stock which converts into shares. Misys will also offer shareholders a four per cent premium on the value of their shares should the shares not convert.