Sage sells US healthcare unit for $320m

Sage, one of the UK’s largest software vendors, has agreed to sell its US healthcare unit to a US private equity group for $320m as part of efforts to focus on its core business.

Proceeds from the sale, to Vista Equity Partners will be returned to shareholders through a share buy-back programme. Sage said it would take a £60m ($92m) to £70m loss on the acquisition.

It acquired the Florida-based healthcare business in 2006 for £297m from Emdeon Corp, which itself was recently taken over by private equity group Blackstone in a $3bn deal.

Guy Berruyer, Sage chief executive, said Sage had been “unlucky” with the healthcare business, which was focused on providing doctors surgeries with management software at a time when most healthcare IT spending was going into electronic healthcare records for patients, thanks to stimulus money pledged by the US government.

“When we bought this business we could not have predicted that the Obama administration would change the market in the way it did,” Mr Berruyer said.

“This business was contracting and it had moved away from our core strategy. Our North American business has been performing less well overall. Selling the healthcare business will allow our US team to concentrate on our business priorities again.” He said that Sage still had a strong core customer base in the US with a market capitalisation of £3.49bn.

The healthcare business, formerly known as Emdeon Practice Services, has been a drain on the company since the start, with former chief executive Paul Walker at one stage moving to the US to try to turn the division round, without success. The healthcare business reported revenues for the year to the end of March this year of £72m.

Speculation on the unit’s sale has been active since December, helping push Sage shares to their highest level in a decade. The shares closed up 1.4p at 265.1p on Wednesday.

Sage has been back on the acquisition trail this year. It had been in the running to acquire MYOB, which provides software and support to more than 1m businesses in Australia and New Zealand. It lost out to private equity fund Bain Capital, which bought the Australian business software group for A$1.2bn. 

Mr Berruyer said Sage was continuing to seek acquisitions, despite the decision to return the proceeds of the healthcare sale to shareholders.

“Our cash flow is strong enough to return money and still do acquisitions. We have ample firepower for any deals,” he said.

In May, Sage revealed it had returned to growth in all regions for the first time in a year and a half, as small and medium-sized companies tentatively began spending again on business software.

Newcastle-based Sage supplies accountancy and payroll software to more than 6m small companies worldwide, and serves as a barometer of business sentiment.

Additional reporting by Maija Palmer and Bryce Elder

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