Medical labs and pathology groups using Sunquest LIS products likely to see positive changes from Sunquest’s fourth change in ownership since 2001
In what is likely to be the biggest deal in clinical laboratory and pathology informatics for this year, Roper Industries, Inc. (NYSE: ROP), of Sarasota, Florida, will acquire Sunquest Information Systems, Inc., of Tucson, Arizona. The purchase price is an impressive $1.42 billion dollars and the deal was announced on Monday this week.
Roper Industries will get a lot for its money. Sunquest holds a significant share of the nation’s market for laboratory information systems (LIS). Sunquest has also built a substantial market share in anatomic pathology informatics, anchored by its CoPath and PowerPath products.
Sales Price of $1.42 Billion for Sunquest and Its Clinical Lab Software
What some may consider an eye-popping sales price of $1.42 billion for Sunquest demonstrates that investor interest in all aspects of the clinical laboratory testing marketplace remains strong. In its second quarter conference call, executives at Roper Industries told the financial analysts that, during 2013, they expect Sunquest to generate $140 million in EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization). If true, that would indicate that the sales price is based upon approximately a 10-times multiple of Sunquest’s EBIDTA.
Certainly Roper’s CEO agrees that positive fundamentals are in place to fuel ongoing growth in medical laboratory testing, anatomic pathology, and clinical diagnostics. “We expect Sunquest to benefit in all economic environments from very favorable market forces—an aging population, expansion of anatomic pathology, and the need for reduced healthcare costs and improved quality of care,” stated Brian Jellison, Roper’s Chairman, President and CEO.
Roper Industries has been on a strong growth path of its own in recent years. It currently generates just under $3 billion in revenue annually. Its primary business lines are:
- Industrial technology
- Energy systems and controls
- Medical and scientific imaging
- RF technology (radio frequency identification–RFID)
To be more specific, in the medical field, Roper Industries describes its business as “Our Medical and Scientific Imaging segment principally offers products and software in medical applications, high performance digital imaging products and software, and handheld and vehicle-mount computers. These products and solutions are provided through eight operating units.”
For Sunquest and its LIS customers, this marks the fourth time its ownership has changed since 2001. The sales transactions are as follows:
- Purchased in 2001 by Misys PLC (LSE: MSY) back in 2001; Sunquest name changed to MiSys Healthcare Systems.
- Purchased in 2001 by Vista Equity Partners for a price of $381.5 million, name restored to Sunquest Information Systems.
- 51% interest purchased in 2010 by Huntsman Gay Capital for a price estimated at $208 million.
- Acquisition agreement in 2012 with Roper Industries for a price of $1.42 billion, transaction expected to close by end of third quarter 2012.
Gaining a Foothold in the Clinical Laboratory Informatics Market
There are sound business reasons why Roper Industries was interested in paying a strong price to acquire Sunquest Information Systems. In remarks made during the second quarter conference call, Roper CEO Jellison put forth the advantages to this acquisition. He likes “the very large customer base, very high [customer] retention rates—over 98% retention each year” along with the fact that lab customers “continue to utilize and depend upon the [LIS] software set of solutions… fully supported by a 30-year history.”
Dark Daily observes that one significant aspect to this acquisition is that it brings a brand new, billion-dollar corporation into the clinical laboratory marketplace. What this means to pathologists and clinical laboratory managers is that Roper Industries has deep capital pockets. Thus, it can infuse Sunquest with working capital and provide the funds that allow Sunquest to be an opportunistic acquirer of other clinical laboratory informatics companies.
Case in point is how the existing owners of Sunquest moved forward with the company’s acquisition of the PowerPath pathology informatics products in October 2011. For an investment of $33 million, Sunquest was able to purchase this anatomic pathology product line from Elekta AB. Dark Daily believes that this acquisition allowed Sunquest to double its share of the market for anatomic pathology software. (See Dark Daily, “Elekta Sells Its PowerPath Pathology Software to Sunquest”.)
Finally, one aspect distinguishes Sunquest and its LIS product from some of its major coporate competitors, particularly Cerner Corporation, McKesson Corporation, Meditech, and Siemens Healthcare. Whereas each of these companies offers a broad array of clinical information systems and electronic medical record systems—with the LIS just one of several software offerings—Sunquest has a primary focus on its LIS. Thus, while its computers are splitting development dollars among a number of clinical software systems, Sunquest can devote the bulk of its development dollars into its LIS and pathology LIS systems. Can Sunquest concentrate its development resources to pack more features into its LIS than its biggest competitors going forward?
That’s a question that only time can answer.