Sheffield head-quartered Servelec (SERV) has made what looks like a strategically astute first foray into the acquisitions space with today's purchase of social care software supplier Corelogic. Against a backcloth of converging social, community and mental health care across the NHS, the logic stacks up and investors seem to be coming to the same conclusion after a lukewarm early response, the shares rising 2.75% to 289.75p, their highest level since April.

The NHS is currently facing the double-edged sword of an unprecedented funding squeeze and increasing demand for its services. With an increasingly ageing population, plus rising numbers having to manage long-term and chronic conditions, technology is being increasingly embraced to do much of the heavy-lifting, throwing up plenty of opportunities for IT suppliers, Servelec among them.

'Core system modernisation and investment initiatives are acting as key enablers for the healthcare economy’s overall drive to build a more connected and integrated service, both within and across acute, mental health & community and primary care settings,' analysts at IT consultancy Megabuyte spelled out in a recent study. In the view of Megabuyte's experts, 'barriers can be broken down between the care provider and the patient, using web-based solutions.'

SERVELEC GROUP - Comparison Line Chart (Rebased to first)

Servelec may have only been on AIM barely a year (it IPO'd at 179p 2 Dec'13) but it has a trading track record stretching back to the late 1970s. The company its is buying, Corelogic, has a similarly long history. Founded back in 1999, the Edinburgh-based company has 75,000 end users across 58 customers worldwide, with a UK market share put at around 20% in social care. Apparently, it is used by over 50% of Local Authorities in London, which will build of Servelec's own strong south-east position.

Analysts at Investec like the deal, saying it will allow Servelec 'to cater to the Government’s converged care agenda of merging Social, Community and Mental care.' According to Servelec, Corelogic won nine out of the 11 UK social care case management public tender contracts for which it competed in the year to August.

Corelogic's financial figures look robust too, increasing revenues by 25% to £9.6 million on which it turned in a 40% hike in pre0tax profit to £1.4 million. Assuming that earnings before, interest, tax, depreciation and amortisation (EBITDA) was up by the same proportion, the £23.5 million asking price implies 12.6-times trailing EV/EBITDA, according to Magebuyte's analysis. That's no bargain but it goes to show that using technology and software to create the joined-up NHS politicians and the public seem to want is a hot spot for investment, for businesses and private investors alike.

Issue Date: 15 Dec 2014