ResMed share price drops despite US$1bn Medifox Dan acquisition

ResMed shares are falling despite announcing a major acquisition…

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Key points

  • ResMed has announced a major acquisition
  • The sleep treatment company has signed an agreement to buy Germany's Medifox Dan for US$1 billion
  • Medifox Dan is a leader in out-of-hospital software solutions

The ResMed Inc (ASX: RMD) share price is falling on Wednesday.

At the time of writing, the sleep treatment company’s shares are down 2% to $29.12.

This is despite the release of an acquisition announcement this morning.

What did ResMed announce?

Overnight, ResMed announced an agreement to acquire Medifox Dan for US$1 billion from leading software and services investor, Hg.

The company notes that Medifox Dan is a German leader in out-of-hospital software solutions for providers in major settings across the care continuum.

The release highlights that Medifox Dan’s German customer base is complementary to the customers of ResMed’s US-based software as a service (SaaS) business. In addition, it builds on ResMed’s existing business in Germany as a leading provider of innovative cloud-connected medical devices that transform care for patients with sleep apnoea and other respiratory conditions.

Management commentary

ResMed’s CEO, Mick Farrell, was very pleased with the deal. He believes it will strengthen the company’s position as a global leader in healthcare software solutions. Farrell said:

With the acquisition of Medifox Dan, a fast-growing and innovative German healthcare software leader, we will expand ResMed’s SaaS business portfolio outside our current base in the U.S. market and strengthen our position as the global leader in healthcare software solutions for lower-cost and lower-acuity care.

Medifox Dan has a strong track record of innovation, fully aligned with our teams at Brightree, MatrixCare, and beyond. Medifox Dan’s customer centricity has built strong and ongoing, growing demand for its software solutions across Germany, and we expect that momentum to continue and strengthen as we become one global team.

Is the ResMed share price good value?

Analysts at Citi have responded to the news by reiterating their buy rating and $35.50 price target on the company’s shares.

Based on the current ResMed share price, this implies potential upside of 22% for investors.

Citi commented:

RMD announced that it will acquire Medifox Dan, a German SaaS solutions provider, for US$1bn or 29x EBITDA pro-forma CY21. This is RMD’s third big acquisition in SaaS space after Brightree (Apr 2016) and MatrixCare (Nov 2018). With this acquisition, RMD will be able to expand its SaaS business footprint outside U.S. RMD said, the acquisition will be EPS accretive in FY23. We make no changes to our forecasts pending closure of transaction (expected in 2Q FY23 end i.e. Dec’22). At current price, RMD is trading at a PE of 29x FY24E, below historical avg of 32x.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed Inc. 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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