EMIS buys most of Dovetail Digital, rest of Rx

Connected healthcare software and services provider EMIS Group announced the acquisition of Dovetail Digital - an early-stage UK technology business specialising in blockchain software for the healthcare market - for an initial consideration of £2.5m on Thursday.

The AIM-traded firm said the acquisition was in line with its strategy of identifying sustainable long-term market opportunities delivering connected healthcare systems.

Founded in July 2017, Dovetail Lab created software that gave patients “full control” of their healthcare records, EMIS explained, delivering secure exchange of data between different health services and new digital technologies involved in patient care.

It said its patent-pending blockchain-based technology delivered accountability, security and trust in the transmission of healthcare data, while mitigating risk and maximising health outcomes for patients.

Blockchain was a “key element” of EMIS’ updated technology roadmap, the board added.

It said Dovetail Lab expected to generate revenue of around £0.9m, and a small operating loss during its first full year of operation in 2018.

The team based in London would join EMIS Group as part of the acquisition, including Dovetail Lab's chief executive officer and co-founder Alexandra Eavis.

Existing Dovetail Lab shareholders, comprising management and early stage investors, would retain a 10% share of the original business subject to a call option in favour of EMIS Group exercisable between 2023 and 2025.

EMIS Group said it was acquiring an initial 90% shareholding in Dovetail Lab on a cash and debt free basis for £2.5m, to be satisfied by £1.5m in cash payable immediately and £1.0m in EMIS Group shares to be issued on successful product delivery milestones.

Up to £2.5m of further consideration could be payable on the attainment of certain business plan targets in 2019, 2020 and 2021.

“This is a very exciting acquisition for the group, with Dovetail Lab widely regarded as one of the leading healthcare blockchain businesses in the UK, that is driving innovation across the sector,” said EMIS Group chief executive officer Andy Thorburn.

“The business has already launched a successful pilot of its software within the NHS, giving patients access, visibility and control over their health data using explicit and informed consent to drive data sharing across all health and care settings.

“The potential applications for blockchain technology in the UK healthcare sector are significant and we look forward to working with the new team to explore these.”

In a separate announcement on Thursday, EMIS Group also confirmed that it acquired the outstanding minority stake in its subsidiary Rx, which traded as EMIS Health Community Pharmacy, giving it 100% control of the business.

The firm said the 21.1% minority stake was acquired from Phoenix Medical Supplies, a pharmaceutical wholesaler which had held its stake since before EMIS Group acquired 78.9% of Rx in 2010.

Phoenix, which owns more than 500 pharmacies in the UK, was a “significant user” of Rx's systems and services, and was expected to remain an important customer of the group going forward.

The consideration for the purchase was £8m in cash, which was funded out of EMIS Group's existing cash reserves.

Prior to completion, Rx paid a dividend to its shareholders of £19m from its accumulated reserves, of which £4m was paid to Phoenix with the balance retained within the group.

For the year ended 31 December 2017, Rx contributed revenues of £21.9m and a segmental operating profit of £5.6m to the group.

The transaction was expected to be immediately earnings enhancing for EMIS Group.

“Rx has been an important contributor to EMIS Group since 2010 and Phoenix a valued partner, co-investor and customer throughout that period,” said Andy Thorburn.

“We are pleased to have come to this agreement and to consolidate full control of Rx which, as the market-leading community pharmacy solution, remains central to the group's strategy of providing connected healthcare software and services across every major UK healthcare setting.”