Data analytics specialist Craneware has completed a £136.2 million placing to help fund the biggest acquisition in the Scottish company’s 20-plus years of trading.
Headquartered in Edinburgh, Craneware sells into the US market where its billing platforms help healthcare providers cut their administration costs while providing better patient outcomes. The fresh funding will support the acquisition of Florida-based Sentry Data Systems, giving Craneware a bigger foothold in the pharmaceutical sector.
Craneware is paying $400m (£283m) for Sentry, which provides software solutions that simplify the complexity of pharmacy procurement. The purchase price is being met through a combination of $312.5m in cash, with the remaining $87.5 satisfied by the issue of new Craneware shares.
Sentry has a customer base of approximately 10,000 hospitals, pharmacies and clinics. About 600 of its clients are hospitals, which represents the majority of Craneware’s client base, but only about 35 per cent of them overlap with existing Craneware customers.
Craneware said the business is a “compelling fit” for its operations.
“The acquisition of Sentry will provide immediate additional scale to our operations, expanding our coverage of US hospitals, enhancing our pharmacy offering and cementing Craneware’s position as a leading provider of value cycle solutions to the US healthcare market,” chief executive Keith Neilson said.
Mr Nelson took part in the placing – which is not conditional upon completion of the acquisition – to add 6,818 shares to take his total holding to 3.4 million shares, or nearly 10.4% of Craneware’s issued equity.
Chief financial officer Craig Preston increased his holding to 89,329, or 0.27% of the enlarged share capital. Chairman Will Whitehorn, the former head of Virgin Galactic who joined Craneware in January 2020, increased his holding to 2,989 shares.
The remainder of the almost 6.2 million new shares were placed with existing and new institutional investors at a price of 2,200p each, a discount of approximately 10.2% to the closing mid-market price 2,450p per ordinary share on June 7.
Sentry was founded in 2003 by current chief executive Travis Leonardi, with various funds run by Boston private equity group ABRY Partners taking majority control in 2015. Together, those funds own nearly 89% of the business.
During the year to the end of December, Sentry generated revenues of $92m (£65m) and adjusted earning before interest, tax, depreciation and amortisation (EBITDA) of $23m (£16.3m). The pre-tax loss of $4.2m was said to be driven by “significant interest payments as a result of the relatively high levels of debt within the Sentry business”, along with “significant non-cash goodwill and intangible amortisation charges”.
Craneware said the acquisition will be double-digit accretive to adjusted underlying earnings in the financial year ending June 2022. The deal is expected to complete in the early part of this year’s third quarter.
“Sentry’s focus on the hospital link to community pharmacies adds breadth and depth to our healthcare data, providing extra insight into margin improvement opportunities within hospital operations and pharmacy costs in particular,” Mr Neilson said.
“As the second-largest cost centre for hospitals after the workforce, this is an important area of focus for hospital management teams, as they seek to deliver greater value in healthcare.”
He added that Sentry’s high levels of recurring revenues, customer retention rates and strong financial metrics “speak to the quality of the business”.
The deal comes after Craneware was last year forced to abort an £80m fundraising after a US acquisition target agreed to sell to a rival instead. That placing had been oversubscribed with approximately £83m committed from new and existing investors at a price of 1,550p per share.
About a quarter of hospitals in the US use Craneware’s billing and financial management software. Founded in 1999, Craneware listed on London’s Alternative Investment Market in September 2007.
The shares closed yesterday’s trading down 11.6% at 2,165p, slightly adrift of the placing price.