CompuGroup’s iSoft bid a German earthquake

If CompuGroup’s surprise £160m bid for iSoft is completed, the German health IT company will have become one of the top suppliers in the European health IT market.

But many outside Germany know little of the fast-growing firm, that has put on a dramatic growth spurt in the past few years.  If they don’t know the company yet they should start paying attention.

Founded 20-years ago, by Frank Gotthardt who remains the CEO, the company has expanded through organic growth and acquisition to become one of Europe’s largest health IT vendors.

Over the last few years the acquisitions have come thick and fast – 14 in the last two years alone – with iSoft being the most ambitious to date.

CompuGroup employs 1,500 people and has annual revenues, before iSoft, of approximately Euros 140m.

 But the move for iSoft, is the most significant yet, offering the potential to place CompuGroup in poll position in its home market, able to offer integrated solutions spanning private and public healthcare. By taking control of iSoft’s Lorenzo product the company is also well placed to respond to the move to regional and national electronic health record initiatives.

In contrast to any other of the big health-IT companies, CompuGroup’s roots do not lie with the hospital side of the health-IT business, but with IT-solutions for private practices and small outpatient clinics.

As early as in the late 1990s, the Koblenz-based company started with a series of acquisitions and bought one competitor after the other in what had been a highly fragmented German market.

By 2003, CompuGroup had taken 40 to 50 per cent of the market for private practice health IT solutions in Germany, and another 50 per cent of the IT-market for dentists. The turnover had reached Euros 50m.

CompuGroup’s two most important software solutions for doctors, ‘Medistar’ and ‘Turbomed’, are used by 15,000 and 12,000 GPs and specialists in private practice respectively today. By comparison the second-biggest company in this business, Bavaria-based Docexpert, has a market share of around ten per cent only, with less than 8000 installations of its flagship product DOCcomfort.

 To finance its shopping spree, CompuGroup received Euros 24m of private equity investment from General Atlantic in 2003. This money together with revenues from the core business was enough to finance 14 more acquisitions in the last two years. These later deals focussed on expanding CompuGroup’s spectrum to other parts of the health IT business, in particular hospital information systems, pharmaceutical databases and networking solutions.

Among these deals was, in early 2007, the take-over of Systema, the market leader for hospital IT in Austria, a company with close connections into the Czech Republic, Slovakia and Russia. Only days later, CompuGroup acquired Tepe International, a Turkish market leader in hospital-IT. Tepe cooperates closely with IBM and is about to become one of the important health IT players in the Middle East.

On 4 May 2007, CompuGroup became listed at the Frankfurt stock exchange. The goal was to finance a deal of the size of the iSoft take-over, as it has now become clear.

In 2007, CompuGroup expects a turnover of Euros 190 to 200m, an EBITDA of Euros 55m and a cash net income of Euros 37m, all up 40 to 50 per cent compared to 2006. The family of CompuGroup’s founder and CEO, Frank Gotthardt, continues to be the main shareholder.

For the German health IT market, the iSoft-takeover – should it be completed – represents a real earthquake in the marketplace. In addition to its leading position in private practice-IT, thanks to iSoft’s 250 customers in Germany CompuGroup will become a medium-size player in the German hospital and laboratory-IT market as well. It will then be the only company with a substantial number of customers among both private practices and hospitals.

When it comes to regional networking of hospitals and private practices, CompuGroup’s main competitor in Germany is Siemens. Siemens has around 500 hospital customers. It does not run an own private practice-IT provider, but it closely co-operates with Germany’s number two, the previously mentioned Docexpert.

Other companies with ambitions in regional networking include T-Systems, Agfa and InterComponentWare.

Open architecture networking solutions could have an even more difficult stand than before, now. Private practice-IT providers tend to use proprietary interfaces, and CompuGroup in particular is somewhat notorious for making it difficult to share data with its systems.

But assuming the acquisition of iSoft goes through CompuGroup will be able to establish regional communication networks around former iSoft-hospitals without having to ask other IT-providers for cooperation – potentially giving it a huge competitive advantage in this early stage of the implementation of shared electronic medical records Germany is beginning to get underway.