Mach7 share price charges 7% higher on acquisition news

The Mach7 Technologies Ltd (ASX: M7T) share price is one of the few shining lights on the market today as investors react to an acquisition.

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The Mach7 Technologies Ltd (ASX: M7T) share price is one of the few shining lights on the market today as investors react to an acquisition.

Mach7 is a global provider of enterprise image management systems for the healthcare sector. The company's solutions are designed to accelerate diagnosis and care delivery, reduce costs, and significantly improve patient outcomes.

Mach7 shares have been stuck in a trading halt since Wednesday while the company completed a capital raising to fund a new acquisition.

And it appears investors are viewing these moves favourably seeing as though Mach7 is one of the only ASX growth shares not being heavily punished today. In fact, at the time of writing, Mach7 shares are actually charging 7.60% higher.

Why has the Mach7 share price avoided today's sell-off?

This morning, Mach7 announced it has completed the institutional component of its capital raising. This comprised a $3.7 million placement and $19.7 million entitlement offer, raising a total of $23.4 million. These funds were raised at an offer price of 68 cents per share, which was a 13.9% discount to Mach7's last trading price of 79 cents.

Funds raised from the capital raising, together with the company's existing cash reserves, will be used to fund the acquisition of Client Outlook.

Client Outlook is a leading provider of an enterprise image viewing technology called eUnity. It has around 100 customers across North America and Asia and generated $8.8 million of revenue in FY20.

Following the completion of the acquisition, Mach7 will be a complete front and back-end enterprise imaging solution provider. The acquisition also provides the company with a departmental clinical diagnostics PACS (picture archive communication system) solution offering – expanding Mach7's addressable market from US$0.75 billion to US$2.75 billion.

Highlighting further benefits, Mach7 stated that the acquisition will increase the company's sales pipeline by around 50%, with $40 million of contracted revenue opportunities in the near term. 

What's more, Mach7's customer install base will increase by around 200% from 51 to approximately 150 customers. Contracted annual recurring revenue also stands to benefit, increasing by 70% to $14.75 million.

Mach7 believes this is a low-risk acquisition since the two companies have an established partnership, reselling each other's product. As such, Client Outlook is a well-known entity, team and product to Mach7 and deep technology integration has already been completed.

The purchase price has been set at CA$38.5 million (~A$40.8 million). Mach7 will have approximately $15 million cash reserves post acquisition, which is expected to be completed by 10 July 2020.

"This deal is truly transformational for Mach7 and its shareholders," said Mike Lampron, CEO of Mach7. 

"This offering is extremely compelling, but the enterprise-first philosophy of Mach7 and Client Outlook is truly what I believe is going to set us apart as we move forward together," Mr Lampron added.

Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of MACH7 FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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