Sage in £297m deal for US healthcare company

Sage Group, the software developer, is still hunting for acquisitions despite purchasing Emdeon Practice Services for £297m yesterday in its largest deal. The Newcastle-based company has already spent a record £600m on acquisitions this year after buying seven companies.

Paul Harrison, the finance director, said the company can still comfortably spend between £200m and £250m even after the Emdeon deal. It will pay for the US healthcare software developer through cash and existing debt facilities. "There are a lot of opportunities out there and we remain on the lookout," Mr Harrison said.

Sage has a strong track record in buying software companies and is rapidly improving the margin profile of the acquired businesses. Yet after a deal to buy Norway's Visma fell through earlier this year, some analysts raised concerns that Sage would soon run out of targets or have to pay over the odds to acquire companies. Sage has responded by branching out into vertical markets such as construction, where its accounting software can be sold alongside industry-specific products.

Sage's purchase of the Florida-based Emdeon nonetheless came as a surprise and the price it has paid to purchase the company from its parent organisation, Emdeon Corp, concerned analysts. "The price paid is no steal," Kevin Ashton, a Bridgewell Securities analyst, said. Mr Ashton argued that Sage has its work cut out to accelerate growth beyond 5 per cent.

Mr Harrison said he expects Emdeon's margins to improve to more than 20 per cent from about 12 per cent over the next three years. He also pointed to opportunities to cross-sell its traditional accountancy products into Emdeon's customer base of 20,000 doctor's surgeries. Emdeon's software is used for electronic patient records and for appointments, prescriptions and billing.

Mr Harrison also stressed that its entry into the healthcare software market does not represent the sort of risk that the National Health Service IT upgrade has proved to be. "The UK market is different from that in the US. In the UK, the NHS is dominant but in the US, the way doctor's practices do business is much more akin to that of a private company," he said.

Sage will compete against Misys in the US, but Mr Harrison said most of its clients will be surgeries with fewer than 10 employees, while Misys supplies software to hospitals and larger clinics.