McKesson makes £87m bid for System C

System C, the AIM-listed UK healthcare software and implementation specialist, has backed an £87m bid by US healthcare IT giant McKesson.

McKesson says the bid to buy System C follows the Department of Health’s decision to release NHS trusts from central IT procurement obligations, “opening up the market for other vendors to provide new patient administration and clinical systems."

Although System C is considered one of the lead contenders to win new business, cuts in public sector spending, delays, and long NHS procurement cycles have proved challenging for the company.

The surprise deal will give McKesson immediate access to System C’s largely complimentary UK product family, together with the company’s significant implementation capacity and expertise.

No significant changes in System C’s management or staffing are expected initially.

System C’s modern Medway products include electronic patient records, patient administration, maternity, portals, social care and business intelligence. The Medway clinical software is built on Microsoft’s .Net platform.

Just as significantly System C has a proven reputation as a health IT implementation specialist for third party software, carrying out many of the implementations chalked up by the National Programme for IT in the NHS on behalf of prime contractors CSC and BT.

The System C acquisition marks a significant change of UK strategy for McKesson. The company had previously been publically committed to anglicising its US Paragon community hospital EPR product for the UK over a number of years.

McKesson’s UK product line-up includes systems in child health, care management, PACS and workforce management, but lacked a modern EPR and PAS solution.

Commenting on the acquisition, Dr Ian Denley, chief executive of System C, said: "System C believes that the acquisition will create a leading force in the UK health and social care IT industry."

Patrick Carter, chairman of McKesson Information Solutions UK Ltd, said: "McKesson believes that this is a very attractive offer to System C Shareholders in light of the current challenging market conditions.”

Carter added: “Further, the complementary sets of products and services will enhance our ability to deliver value and further compelling propositions to an evolving healthcare technology market."

Although it was not selected as a supplier to NPfIT, McKesson retains the second largest installed base in the hospital sector, with 24 English NHS trusts still running its ageing Star or Totalcare PAS software.

These trusts were meant to have their systems replaced by NPfIT by 2003, but lengthy delays and the retrenchment of the national programme have left them stuck on an obsolete PAS, without a line of product upgrade.

EHI understands that few were prepared to wait the extra years likely to be required to anglicise Paragon.

During the NPfIT years, System C retained its ambition to be a software vendor, and continued to invest in the development of its Medway product family.

Although it has had some success in selling Medway to – among others – the Isle of Man, Camp Bastion in Afghanistan and a small number of NHS trusts, System C says the opening-up of the NHS market has not yet translated into volume sales.

This combined with a drying up of NPfIT implementation revenues resulted in a 27% decline in revenues over the past year.

The System C directors note: “The UK healthcare market has provided a challenging environment in which to operate and it will continue to do so as government policy and spending in the public sector, including within the NHS and local government, is reviewed.”

The deal gives System C access to the financial clout and resources that come from being part of McKesson’s $100 billion a year health IT and pharmacy management business.