ResMed Inc. (ASX:RMD) announces US$750 million SaaS acquisition: Should you invest?

The ResMed Inc. (ASX: RMD) share price hasn’t been able to follow the rest of the market higher on Tuesday.

The medical device company’s shares are down almost 1% to $14.50 despite the announcement of a major acquisition.

What has ResMed acquired?

According to this morning’s release, ResMed has signed a definitive agreement to acquire MatrixCare for US$750 million. The company will fund the acquisition primarily with its credit facility.

MatrixCare is a leader in U.S. long-term post-acute care software. It serves more than 15,000 providers across skilled nursing, life plan communities, senior living and private duty.

In calendar year 2018, MatrixCare’s pro forma net revenue is estimated to be approximately US$122 million, with a pro forma EBITDA of approximately US$30 million.

This means that the purchase price represents a valuation multiple of MatrixCare’s 25x the expected calendar year 2018 pro forma EBITDA. It is expected to close by the end of the second quarter.

Management expects the transaction will be immediately accretive to non-GAAP gross margin and non-GAAP diluted earnings per share after completion and beyond.

Why has it acquired MatrixCare?

Management believes that MatrixCare’s offering is complementary to ResMed’s current software-as-a-service (SaaS) offerings in home medical equipment, home health and hospice, delivered through Brightree and HEALTHCAREfirst.

The release explains that Minnesota-based MatrixCare’s electronic health record (EHR) solution supports a wide range of long-term care settings which allows providers to increase patient management efficiencies and deliver superior clinical care. This includes point of care, lead and referral management, claims processing, payroll and nutrition management, among others.

ResMed’s CEO, Mick Farrel, appeared pleased to have snared the fast-growing company.

He said: “The acquisition of MatrixCare is an excellent addition to the out-of-hospital software portfolio that we can offer our healthcare provider customers. ResMed is the world’s leading tech-driven medical device company and is well positioned to be the leading out-of-hospital software provider in the market. With our portfolio including Brightree, HEALTHCAREfirst, and MatrixCare, we will streamline transitions of care, creating better outcomes for patients, caregivers, and out-of-hospital healthcare providers.”

Should you invest?

While ResMed has paid a significant premium for MatrixCare, I believe its strong growth prospects makes it worthy of the price tag.

Overall, I think this deal further enhances ResMed’s growth profile, making it a great buy and hold investment option along with fellow healthcare stars Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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