American private equity giant TA Associates has invested more than $400-million for a 30-per-cent stake in Montreal’s Intelerad Medical Systems Inc., one of a handful of medical imaging software challengers to health care technology heavyweights General Electric Co., Siemens AG and Koninklijke Philips NV.
TA bought most of its stake from London-based HgCapital LLP, which in turn had bought control of Intelerad from Quebec private equity firm Novacap in early 2020 for more than $650-million. Hg remains Intelerad’s majority investor. The balance of TA’s investment went directly into Intelerad, which generates about $200-million a year in revenue and more than $70-million in operating profit.
“The Intelerad team have more than doubled the business over the last two years, so it seemed the right time to bring in a partner to support the next stage of growth,” Hg partner Hector Guinness said.
The deal is the latest in a string of big private equity-led investments into later-stage private technology companies, showing investors remain willing to reward growing companies that are profitable. The Globe and Mail reported this month that Mississauga health care software provider PointClickCare Inc.’s valuation topped US$5-billion this year when two of its private equity backers bought shares from early investors and employees, pricing the profitable company at multiples similar to those in early 2021.
In April, Eldridge Industries and Maverix Private Equity said they had invested $250-million for a minority stake in Viral Nation Inc., a profitable technology-based Mississauga company that provides marketing and talent representation services to social-media influencers.
By contrast, many money-losing technology companies that require outside capital to fund operations have seen values plummet this year. Private capital providers are sitting on near-record levels of cash, but are either favouring financially secure companies, offering to buy into cash-hungry startups at lower valuations at more investor-favourable terms, or eyeing buyouts at discount prices.
According to Hg, profitable public software companies have been typically valued since 2018 at between 4.5 and six times their annual sales, and traded at pre-COVID-19 levels in June. Unprofitable firms, which consistently traded at higher valuations for most of the same period, now command lower valuations than profitable ones.
Hg has been active in Canada this decade, buying corporate giving software platform provider Benevity Inc., financial planning software vendor Prophix Software and CaseWare International Inc., an accounting software maker.
Since Hg bought Intelerad, it has overhauled the management team, now led by veteran Raleigh, N.C.-based software executive and dealmaker Mike Lipps as CEO, and put the company on an acquisitive course. Mr. Lipps told The Globe last year Intelerad’s strategy is to expand beyond its core offering, a cloud-based software platform that helps streamline workflows and improve collaboration between medical professionals so they don’t have to transfer radiology image files between multiple systems.
Now Intelerad is aiming to branch into other “ologies,” such as cardiology and oncology, buying companies that serve those disciplines and cloud hosting providers so that images from the various disciplines can be stored centrally. The company has made six deals, paying about US$500-million in total.
Signify Research, a British market research firm that tracks the sector, estimates Intelerad and its recently acquired companies had less than a 3-per-cent share of the global US$4.9-billion imaging software market last year.
Signify executive director Steve Holloway said in an interview that Intelerad, Sweden’s Sectra AB and Visage Imaging Inc., a unit of Australia’s Pro Medicus Ltd., are all going after incumbents GE, Siemens and Philips by providing comprehensive cloud-based “multiology” imaging software to hospitals looking to reduce their number of vendors and move away from past practices of buying different systems for each image-using department.
Intelerad’s challenge, Mr. Holloway said, “is integrating all those pieces into a unified product” and catching up with Sectra and Visage, which he said are further along in their strategies and winning share in a mature and lucrative market. He said the multiology approach should help Intelerad more effectively sell into the U.S. acute hospital market, where it has struggled and where most institutions have long-term contracts with providers that renew automatically.
Still, Intelerad, which has grown revenues by 15 per cent to 20 per cent annually, excluding acquisitions, “has quite a nice upside if they get the strategy and execution right,” Mr. Holloway said.
TA managing director Ethan Liebermann said in a release last week, “Building on its momentum in the sector, we believe Intelerad is well positioned to further strengthen and expand its suite of solutions.”
The parties did not disclose the size or valuation of TA’s investment, which were provided by an industry source familiar with the deal. The Globe is not identifying the source as they are not authorized to discuss the matter.
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