How Much For Medical Director?

3 minute read


The due diligence elves are reportedly hardat work in the bowels of Primary Healthcare’s practice software group Health Communication Network, the major product of which is the nation’s biggest and most prized patient management system Medical Director. Long touted as a likely target for Telstra Health group, apparently there are up to seven local andoverseas groups vying for either a […]


The due diligence elves are reportedly hardat work in the bowels of Primary Healthcare’s practice software group Health Communication Network, the major product of which is the nation’s biggest and most prized patient management system Medical Director.

Long touted as a likely target for Telstra Health group, apparently there are up to seven local andoverseas groups vying for either a total buyout of the group, or some form of JV. The smart money is on a full buy out.

But how much is this gem of a healthcare communication hub worth? It has two key value propositions. First, it is a ‘choke point’ for all health data that is important to the government,big pharma and health insurers. GPs are the efficiency crux of the system – keeping people out of the expensive hospital system, or, ge ing them out quicker once they’ve been put there.

Second, it owns a giant chunk of the market – up to 50% of doctor desktops, according to HCN.

GP scriptwriting is dominated by Best Practice and Medical Director (the market leader dependson which group you speak to but let’s call them 40% each). You can see why it might help Telstra.Instant market share and an epicentre for all its other communication based health acquisitions. And data, which is the currency of digitaltransformation. The bosses at Telstra Health are likely salivating over the possibilities.

So how much would you pay? When HCN went on the market a couple of years ago, Ed Bateman,then Primary CEO, reportedly refused to take just over $120 million. People at the time said he wasnuts. But Bateman wanted his smoney back and more – $120 million is what he paid for HCN at the height of the dot com boom and when its share price has skyrocketed; at one point to over $4.20 per share. Bateman bought in a lot lower than that – about $1.20 – hoping for upside, but mostly only saw downside in the subsequent years.

Medical Director, the jewel in the crown of HCN, was originally acquired off its three founders,Dr Andrew Magennis (still at HCN) , Dr Frank Pyefinch (now the founder of arch rival Best Practice) and Rupert Northcott (whereabouts unknown), for approximately $6 million, only $3 million or so of which was in cash.

By all accounts Primary is looking for any offers above $150 million. Or a good JVequivalent deal – a big partner that could grow the position of the group by bringing synergies and investment capital.

They will likely want some capital. Anyone doing the due diligence would be wary of the coming wave ofdisruptors in the space and the possible effect on value that some of these pretenders mighthave. There are two to three serious cloud-based start-ups in play in Australia already, and both Best Practice and Medical Director have not developed their products beyond their original largely desk bound tech stack, whichis more than 15 years old.

The cloud optimised wannabees look pretty schmick in their demos. Are we about to witness the healthcare version of the Xero vs MYOB battle, where it’s apparent that Xero, despite a late charge from MYOB has stolen much of the future market in small business accounting.

One way to value these businesses is share of potential e-health records. Based on such a metric and a price tag of $150 million, Medical Director will be generating e-health records at somewhere between $12 and $18 per record. The new cloud players are talking $2 a record in their systems , and that’s starting from a very low base of users.

You wouldn’t want to be the person writing the cheque in any deal done.

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