Healthcare information assets still hot

Hot on the heals of Thomson announcing its intention to sell its Healthcare operations, which primarily service US healthcare payers with infomation services to manage the ever spiralling costs of healthcare, Experian has today reported a purchase in the same space, albeit of a considerably smaller operation.

Experian is paying $185m for Medical Present Value (MPV) which maintains a data-base of health claims and provides products to establish patients eligibility for insurance and other financial support and supplements a segment that Experian initially entered only back in 2008.

//production.investis.com/experian/rns_news/rnsitem?id=4321055

Not much financial information on the subscription based MPV has been provided beyond a 3-year compound revenue growth reported at +30%, and prospective revenues and EBIT of $45m and >$10m respectively (therefore >22% margins and slightly ahead of Thomson Healthcare). On a year-1 basis, MPV is therefore priced at an aggressive >4x revenues and >18x EBIT (5.5% yield), on which basis Experian expects MPV to be EPS accretive. Including similar assumptions for cash conversion (of 90%) and tax (at 30%) as I used for Experian and the Y1 FCF yield of under 3.5%. Clearly Experian will be looking for cost synergies with existing activities as well as a network effect on revenues to raise this to its own FCF yield of over 5%. Another couple of years of 20% compound growth should do the trick!

While Experian will face the task of convincing its shareholders of the maths, the deal however should assist Thomson in its own valuation expectations for its healthcare assets and where a 5% current year FCF yield would support a gross price of around $1.4bn and comfortably over $1bn after tax.