Volpara Health Technologies Limited (ASX: VHT), fresh from its FY19 results, has announced an acquisition and capital raising to take place this month, sending shares into a trading halt.
About Volpara
Volpara describes itself as a ‘MedTech Software-as-a-Service’ company that was founded in 2009 on research conducted at Oxford University. Its software is used for screening clinics to provide feedback on breast density, compression, dose and quality. Its VolparaEnterprise business provides role-specific dashboards and wide-ranging benchmarking analytics to help clinics manage their business more efficiently.
MRS Systems Inc.
Volpara has entered a binding agreement to acquire MRS Systems Inc. for US$14.59 million, or approximately A$21.15 million.
MRS is a leading provider of breast clinic management software with an estimated 20% market share of breast clinics in the US. FY19 forecast annual recurring revenue (ARR) is US$4.5 million, while forecast total revenue is US$7.5 million.
The rationale for the acquisition is an expanded presence in the US market. The transaction is expected to give Volpara access to more than 2000 US clinics, compared to the 400 it operates in today. Volpara also plans to use MRS’s clinical data to improve their AI and product range.
The acquisition is expected to increase ARR and create opportunities for cross-selling between the two companies.
Funding
Volpara plans to raise A$55 million, broken down into a $45 million institutional placement and a $10 million pro-rate accelerated non-renounceable entitlement offer. The offer price for both will be $1.50, an 18.9% discount to Volpara’s previous closing price of $1.85.
The placement and institutional entitlement offer will take place today and tomorrow while shares are in a trading halt.
The retail entitlement offer, expected to raise approximately $5 million, will open 11th June 2019. The offer is one new share for every 27 shares held.
Management Commentary
Volpara CEO Dr Ralph Highnam revealed that Volpara has been in contact with MRS for some time.
“We’ve been talking to MRS for many years and have been extremely impressed with the quality of the people and the products they build,” he said.
“So, I’m very happy to now announce that we are combining to create a world-class entity with a strong US base and an extended range of integrated products which will help detect breast cancer earlier.”
Is Volpara a Buy?
While this acquisition may pay off as a long-term strategy, the share price may drop when trading resumes on Wednesday, 5th June because the offer price represents a significant discount to the most recent closing price.
As Volpara’s recent FY19 result showed, they have the ability to increase revenue significantly but the increase in operating cash expenses is still an issue that the company faces, and this acquisition may not change that fact.
This is certainly a company to add to the watchlist, but I’d feel more comfortable investing in one of the growth shares mentioned in the free report below.
[ls_content_block id=”18457″ para=”paragraphs”]
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
