Software darling Orion Healthcare's Ian McCrae says the full potential for healthcare transformation still to happen, company unveils IPO info

Orion Health Group, the darling of New Zealand software space, is seeking to raise between $120 million and $150 m in a share sale plan that would peg its market capitalisation at between $600 million (m) and $795 m. Post-listing, Orion Healthcare’s market valuation could reach between the $720 m to $915 m range.

Orion Health today announced its share sale of between 21.1 m and 27.9 m shares will be done through an issue of new shares as well as sale of interests associated with founder Ian McCrae, who is looking to sell up to $5 million worth of his shares. After the sale, McCrae will retain about half of the company. No other shareholders are selling their shares.

An indicative price range has been set at $4.30 to $5.70 per share. The final offer price and number of new shares to be issued will be established through a bookbuild process to be conducted on November 6 and 7, 2014 by the joint lead managers for the offer, Deutsche Craigs and First NZ Capital.

Orion Health is expected to list on the NZX Main Board and the alternative market, ASX on 26 November 2014 under the stock code OHE.

The company’s operating revenue has grown from $54.53 m in 2010 to $152.99 m in 2014. In the first half of 2015, operating revenue was $80.52 m.

Operating expenditure has however overtaken revenue, leaving the company with a loss (before interest and tax) of $5.01 m in 2014, and a loss of $18.44 m in the first half of 2015, against a profit of $3.39 m in 2010.

The company is not expected to make a profit in the short term and not expected to pay shareholders dividend until it is generating a sustainable cash flow.

No financial forecast has been offered in the press release. The company’s chief operating officer Graeme Wilson has been reported saying that with only a third of the company’s revenue being a recurrent one, and with new businesses expected to contribute to the revenue stream, it was difficult to provide accurate forecast.

Orion Health has been around for 21 years. In the last 10 years, the company has achieved an operating revenue compound average annual of 26%. 

The global health care information technology (HCIT) market is forecast to grow from US$40.4 billion in 2012 to US$56.8 b by 2017. The US has the lion’s share of this pie, at US$15.9 b in 2012, forecast to grow to US$22.6 b in 2017.

The United States is Orion Health’s largest market, generating 58% of operating revenue in the 2014 financial year.

McCrae says the global healthcare system’s costs have risen to unsustainable levels, driven by waste, and an ageing population. Users – which include payers, governments, and healthcare providers - are looking to digital technology to drive efficiencies for better healthcare.

In the US, health spending accounts for 18% of GDP while OECD countries spent an average of 13% of GDP on healthcare in 2012.

Healthcare opportunities

The US is reported to have an estimated US$910 b of wasted healthcare expenditure. This is where the opportunities are for Orion Healthcare.

Orion Health has customers in 25 countries around the world including New Zealand, Australia, the US, Canada, Great Britain, Northern Ireland, Europe and Asia, across its Intelligent

Integration, Smarter Hospitals and Healthier Populations solution groups.

Orion Health’s Healthier Populations solution is already its largest revenue centre generating around half its operating revenue. It is used globally by governments and other healthcare funders, as well as healthcare providers, and has been recognised as a leading solution.

How clients are using Orion Healthcare's tools

Where will money go towards?

The new capital raised will enable New Zealand-headquartered Orion Health to continue increasing its research and development capacity, improve its implementation and service delivery capability for customers and provide additional financial liquidity.

McCrae says that health data revolution will have profound impact on the healthcare industry.

Applying IT to biometric information, genomics and the internet will alter the way healthcare is delivered and the way consumers interact with providers and payers.

“Healthcare is yet to experience the online transformation seen in other industries. I believe it will inevitably go through this transformation and the impact will be similar to the way search engines transformed use of the internet,” he says.