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Private equity investor Ardian is reportedly weighing the sale of Dedalus, in a deal that could value Europe’s largest Electronic Health Record (EHR) vendor at $3.3bn.

While reports remain unconfirmed, financial investors and strategic bidders alike could be interested in the Italian software company, with both its health records and imaging IT activities offering tantalising possibilities.

Such a sale represents an unexpected change in strategy for Ardian given Dedalus’ recent acquisitive appetite. The vendor has, after all, acquired numerous businesses since being bought by Ardian in 2016, with AGFA’s HCIS business, predominantly driven by its Orbis product line, which included a proportion of that vendor’s imaging IT segment, DXC’s EHR Business, Swiftqueue, GSG and Dobco Medical Systems among others. Such a spate of acquisitions has left Dedalus with a full, if not yet fully integrated, portfolio, offering any prospective owner a heady mix of opportunity and challenge alike.

While some speculators will focus solely on Dedalus as an EHR vendor, this is a mistake, given that, as this Premium Insight highlights, the company’s imaging business also brings a considerable amount of intrigue to the deal.

The Signify View

The European EHR market is, in a word, messy. Dedalus’ acquisitions mean that the vendor can lay claim to the largest share of this fragmented market, but it has also left the vendor with a bristling portfolio of brands, many of which hold only very localised potential and were primarily acquired to access their customers. There are, however, some brands that have broader bases, such as AGFA’s Orbis business, which was purchased in 2019, and brought strength across France, Austria, Switzerland and, in particular, Germany. In addition to greater international reach, the AGFA purchase also included that brand’s imaging IT, IMPAX products, which are closely tied to its EHR tools in select markets such as the DACH region. This inclusion brought with it more customers and the opportunity to sell its freshly acquired imaging IT capability to its extensive EHR customer base.

By taking AGFA’s legacy imaging IT tools, which were, at that company at least, being superseded, revitalising it as an enterprise imaging solution, with the prospect to integrate other capability such as Dedalus’ digital pathology tools, the Italian software firm has the potential to offer a well-rounded and competitive imaging IT platform. Integration between these disparate aspects are not yet problematic for the vendor, as the adoption of a multi-ology enterprise imaging strategy has been slow in many of Dedalus’ key markets. Further, despite the fact this imaging IT portfolio is not yet as sophisticated as some alternatives on the market, its large European installed base, the upcoming tranche of sizable imaging IT contracts up for renewal, and procurement rationalisation across the region means it constitutes a lucrative aspect of a deal predominantly based around EHR.

Dedalus is the market leader in the EMEA region, but there is a very long tail of vendors which have carved out their own corner of this fragmented market

The Delivery of Digital

This in itself is also likely to be beneficial. In some European markets such as Italy, Germany and France, there has recently been increasing impetus and investment to drive digitisation (e.g. the German Hospital Futures act (KHZG), Le programme HOP’EN in France and Gara Sanità digitale in Italy). These initiatives will be primarily focused on the transition to a more coherent, consolidated approach to medical records. However, as this area enjoys substantial investment for digitisation, it is likely to act as a precursor to further e modernisation in other areas, such as enterprise imaging. This will allow Dedalus to utilise its hospital installed base to increasingly promote its enterprise imaging offerings and capitalise on this transition across the business.

Such opportunity in the very near future begs the question of why Ardian is looking to free itself of Dedalus, a particularly pertinent question given that it only acquired the firm six years ago and has been undertaking acquisitions under the Dedalus name as recently as March 2022. In fact, in the last seven months alone, Dedalus has made four acquisitions: Dobco medical, ix.mid, Swiftqueue Technologies and GSG.

Despite the ongoing investment in the company, and the opportunity Dedalus affords, the decision to sell from Ardian does make sense, given that, at a $3.3bn valuation, a sale still represents a sizable return for its private backer. This is, in part, a result of timing.

The Importance of Punctuality

Given the present opportunities in the EHR and imaging IT markets in parts of Europe, Ardian is selling a broadly capable business which legitimately offers very strong growth prospects. If the private equity firm was to continue to hold the company and invest further effort and resource into the continued development of its portfolio, these shorter-term growth opportunities for a buyer, would be missed. This is particularly true given the ‘stickiness’ of many of the areas in which Dedalus has capability, aside from EHR and imaging IT, which offer longer term returns such as digital pathology, precision medicine, pharmaceutical partnerships, and the broader data play. These areas are nascent, but as they grow could return significant and reliable revenues

Timing has also been important. As illustrated in our Electronic Medical Records and Imaging IT market intelligence services, both the EHR and imaging IT markets across Europe are mature and cost-competitive, but the funding being injected to aid recovery from the pandemic, digitalise healthcare as well as pent up demand, makes 2022-2025 atypical growth years.

The pandemic has also helped ensure that some potential buyers have the cash at their disposal to complete such an acquisition.

Who Wants It?

There are, after all, a number of different parties that could see possibilities stemming from the acquisition of the vendor. One of Dedalus’ chief European competitors, such as CompuGroup Medical, for example could entertain visions of more than trebling its EMEA market share at the stroke of a pen, it was after all reportedly eying up Agfa’s (now Dedalus’) hospital IT business several times in the past. Large international health vendors such as Siemens Healthineers or Philips might consider such a deal an opportunity to further expand their reach and increase their penetration at providers. Broader enterprise software providers such as Citadel group could eye the sale of Dedalus as an unmissable opportunity to aggressively stake a claim on the European health tech market.

While these are all possibilities, there are significant barriers that make them unlikely. A rival EHR vendor would, in all likelihood, be dogged by anti-competitive legislation, while the acquisition of a company as diffuse as Dedalus would only cause product rationalisation headaches for any equally sprawling competitor such as CompuGroup. A large international healthcare vendor may have the cash to seal a deal, but significant overlap in capability and challenges in integration make such a move unlikely. In fact, candidate health tech vendors such as GE and Siemens have moved in the opposite direction and off-loaded their EHR businesses over the last seven years. For other companies simply looking to increase their presence in the market meanwhile, the acquisition looks risky, in all probability rendering it unpalatable for all but the most committed.

Other People’s Money

Instead, by far the most likely acquisitor is another private equity firm. At a time when global geopolitical circumstances make healthcare appear a relatively safe haven for investors, a vendor with broad capabilities across a number of European markets represents a very attractive option.

A private equity firm would be able to take the bundle of brands that Ardian has assembled and undertake a comprehensive streamlining process to ensure all the newly acquired companies can form a complementary whole. What’s more, while undertaking this process of making the vendor more operationally efficient and driving margin expansion, and ensuring that Dedalus can capitalise on the ongoing digitalisation efforts in Germany and elsewhere, a new private equity owner can look to enjoy sizable and consistent revenues. While there is a drive towards digitalisation, and in imaging there are significant shifts toward joined up enterprise imaging solutions that expand far beyond radiology, these will not impact the market for several years, offering a new owner relatively stable returns for the immediate future. Given Dedalus can also lay claim to capability in numerous growing areas, from digital pathology to real world evidence courtesy of its GSG purchase and cloud-based informatics stemming from its Dobco deal, the Italian vendor also harbours significant potential for riding future waves of growth should an investor want to commit for the long hall.

The sale of Dedalus is far from a foregone conclusion. Reports have suggested that talks are in the early stages and may not lead to a deal, suggesting that Ardian is well prepared to pass if a potential buyer cannot come up with a bid that recognises Dedalus’ value. However, the last two months has seen a flurry of activity from would-be investors and now is the opportune moment for a deal to be done. Ardian can realise healthy returns and a private equity investor has the chance to ride a rising tide. A messy market or not, this is a deal for which there will be plenty of interest.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here