ResMed (NYSE: RMD) announced on Monday a definitive agreement to acquire Brightree, a business management and clinical software applications company for the post-acute care industry, for $800 million. The acquisition could lead San Diego-based ResMed—a medical device company known for sleep-disordered breathing ad respiratory care—into the home health segment.
To fund the acquisition, ResMed plans to use $100 million in existing cash and take on $700 million in debt, ResMed Chief Financial Officer Brett Sandercock said during a call to investors on Monday. Brightree recorded net sales of approximately $113 million and EBITDA of about $43 million during calendar year 2015.
ResMed expects the transaction to be immediately accretive to gross margins and non-GAAP diluted earnings per share after close and into the future. The transaction includes an estimated $300 million from an expected future tax benefit, which is anticipated to positively affect ResMed cash flows over 15 years.
The acquisition price is “a pretty lofty multiple,” Suraj Kalia, an analyst with Northland Securities, noted during the call. ResMed Chief Executive Officer Mick Farrell disagreed.
“I don’t think it’s a lofty multiple at all,” Farrell said during the call. “I think the 13.5 multiple on 2015 EBITDA, including the tax synergies, is a very fair multiple.”
ResMed has been partnering with Brightree for years in terms of providing great efficiencies to its home medical equipment customers, Farrell explained. The acquisition represents the next step in that relationship, he said.
“It’s actually a really solid, solid financial deal,” Farrell reiterated.
Upon completion of the transaction, Brightree is expected to continue to operate as a separate entity under the Brightree brand name. The company will be managed independently, with its headquarters staying in Atlanta. ResMed expects Brightree employees, including Brightree President and CEO Dave Cormack, to stay on in their present roles.
The acquisition of Brightree “squarely meets” ResMed’s three criteria for acquisitions, Farrell said during the call. First, Brightree is a strong strategic fit for ResMed. Second, ResMed can add value to Brightree’s assets. Third, there’s a strong cultural fit between ResMed and Brightree.
Brightree’s cloud-based software helps customers improve business and clinical performance in the post-acute care industries of home/durable medical equipment (HME/DME), hospice and home health—all areas with high prevalence of chronic obstructive pulmonary disease (COPD), sleep-disordered breathing, neuromuscular disease and other chronic diseases, ResMed said in a press release.
Currently, Brightree is the primary business management and clinical software application used by ResMed customers. ResMed’s possible growth opportunities as a result of the acquisition include expanding into the home health and hospice segments, according to a company press release.
ResMed, a global, tech-driven medical device company and an innovator in sleep-disordered breathing and respiratory care, has about 4,000 employees and a presence in more than 100 countries.
ResMed expects the transaction to close by the end of the fourth quarter of fiscal year 2016.
Written by Mary Kate Nelson