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Hg Capital acquires majority stake in Intelerad: The Signify View

February 10, 2020
Business Affairs Health IT

Market polarity will leave less opportunity for the mid-tier vendors
The long-term outlook for Intelerad is perhaps the most uncertain. We see definite potential based on current market trends and historical performance of the firm to support continued growth in the near and medium-term. This would put the firm into the $100m-250m revenue range in the coming years. However, the outlook for imaging IT software vendors in this “mid-tier” is unclear, especially given the impact of long-term market trends we are already observing. These include:

– Increased consolidation of health networks into larger systems, and focus on simplifying IT system supply chains

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– Growing focus on “enterprise imaging”, especially for combining IT systems and imaging content from multiple different clinical departments (including cardiology, pathology, surgery, emergency medicine, endoscopy etc.)
– Increasing market competitiveness due to longer and larger deal sizes; transforms large imaging IT software deals from software transactions to longer service-based partnerships
– Bundling of products (imaging hardware, clinical devices, monitoring systems, IT platforms and professional services) into long-term managed services deals
– The race for artificial intelligence integration and orchestration for image analysis, with strong competition for asset acquisition of leading independent AI software vendors.

Some of these challenges can be addressed with strong strategic partnerships and selective acquisitions of specific assets to meet the enterprise imaging and artificial intelligence trends. However, with larger and longer-term deals in several mature markets, there will be fierce competition and focus on layering-on professional services and operational support to ensure customer retention. We see this driving greater polarity in the competitive market, with large multinational healthcare technology and large imaging IT vendors more able to take near-term profit margin cuts to secure long-term deals, especially in the acute hospital sector. Moreover, increased bundling of hardware, software and professional services will also exclude pure-play imaging IT vendors from some deals.

As a mid-tier vendor, this will be a challenge for Intelerad. It will unlikely have secured the financial firepower to compete with the largest healthcare technology vendors in large acute hospital sector deals in the U.S., thereby limiting its continued growth. Instead it will be more reliant on existing customers, strategic partnerships and the outpatient and ambulatory sectors. While the directional shift suggests that imaging services are also gradually moving from the acute sector toward the outpatient and private sector, how pronounced this trend will be will have a bearing on the long-term success of the firm.

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