ResMed creates ‘beachhead’ in Europe

SAN DIEGO – ResMed has taken a big step toward becoming a global software-as-a-service provider with its planned acquisition of Hildesheim, Germany-based MEDIFOX DAN for $1 billion. 

The company has been active in consolidating the SaaS market in the U.S., acquiring Brightree in 2016 and MatrixCare in 2018, among others, but this is its first acquisition in the market outside of the country. 

“We’ve had many questions from both the sell side and the buy side over time, ‘Why is your SaaS business solely focused on the U.S.,’ and our response has been, ‘Well, that’s sort of where a lot of the innovation and pathways have gone forward,’” said Mick Farrell, CEO. “We've been watching MEDIFOX DAN for a number of years, really seeing the evolution of the German digital health system and the out-of-hospital software care system, and some really interesting changes have happened to German reimbursement. This is our first foray into a pure-play SaaS business in Europe, and we see it as a great opportunity to expand our capabilities from just a U.S.-centric SaaS business to truly starting to become a global one and starting with our second biggest market and our biggest market in Europe, which is Germany.” 

Within the past year, the German government has passed two pieces of legislation to accelerate the adoption of digital health care, one of them providing financial incentives to health care providers to automate and digitize their businesses.  

In MEDIFOX DAN, ResMed will get a market leader, Farrell says, with a customer base of 8,000 home health agencies and nursing homes and a growing customer base of outpatient therapy clinics. In calendar year 2021, MEDIFOX DAN’s pro forma net revenue was about $83 million, with a pro forma adjusted EBITDA of about $35 million and a “strong” double-digit organic growth profile of 14%, he says. 

“There’s lots of startups in Europe losing money around this, but this is not only growth accretive on revenue for our SaaS business, it’s accretive at EPS on a non-GAAP basis on day 1, and that’s why it’s a great addition to our portfolio,” he said. 

When ResMed bought Brightree in 2016 and set off on building its SaaS business, there were questions about its strategy, but Farrell says the company has seen an “incredible return” on that business. 

“When we made the acquisition of Brightree, it was $800 million and it was about 10% of our market cap, and people were saying, ‘Look, you're betting 10% of the farm; that’s a big bet on a new area,’” he said. “I think six years later, most people would say, ‘That's been an incredible return.’” 

While Farrell wouldn’t signal future activity in the SaaS market in Europe, he did say the MEDIFOX DAN acquisition would serve as a “beachhead” for the company in the region. 

“It's not that we're going to copy and paste the MEDIFOX DAN code right next door into France, but what we will learn is about GDPR,” he said. “We will learn about German privacy. We also learn about European privacy. We'll learn about security. We also learn about European security. There's a lot of learning we're going to get by running European SaaS at scale. And that will help us get management skills, technology skills, regulatory skills, privacy skills that we can as a management entity bring into future acquisitions and/or organic growth plays in the other large European markets.”