Surging spending in the health sector has been a honey pot attracting a range of outfits – from drug developers through to next-generation equipment and software suppliers targeting the digital revolution now underway in the sector.

But building a sustainable business isn’t easy, as software developer Alcidion has found.

Alcidion (ASX:ALC) — which makes management systems for hospitals and clinics — came to the ASX at the start of 2016.

Yet it is only now, thanks to a couple of large acquisitions, beginning to look like it may succeed in building a sustainable business.

The purchase of New Zealand’s Oncall Systems for up to $NZ3 has been followed by the acquisition of MKM Health for up to $16 million. Both deals are a mix of cash and shares.

And since MKM Health is already profitable, with rapidly growing revenues, the two deals might just be sufficient to nudge Alcidion into the black.

Indicative of high hopes held for the deal, MKM boss Kate Quirke has been elevated to the position of chief executive of the expanded group. Existing chief executive Ray Blight has been kicked upstairs to executive chairman.

These two acquisitions have bulked up the suite of online services Alcidion now offers, giving it a software package which it hopes will be more attractive for hospitals — its main end-market.

Alcidion Group shares (ASX: ALC) over the past year.
Alcidion Group shares (ASX: ALC) over the past year.

MKM already has a foot in the door in the UK, for example, which is more than twice the size of Australia and New Zealand combined.

Of equal note, the UK’s National Health Service is allocating £4 billion ($7.1 billion) to transition to a paperless environment, which is a powerful siren call for software groups globally.

Additionally, the expanded Alcidion is now beginning to look at ways of cracking the Asian market, where healthcare spending is surging.

“It is a significant acquisition for us,” Alcidion’s Ray Blight said of the MKM deal, since it will treble staff numbers while bringing an international operator with a profitable presence in offshore markets into the fold.

MKM has been growing revenue at a compound 25 per cent, for example, which it hopes will continue.

“With MKM, we have more horsepower in delivering IT projects,” Blight said. “MKM’s Patientrack product allows for collation of patient data in a digital form at the bedside, which sits well with our existing product portfolio.

“It’s transformational for the group,” he said.

“We’re expecting positive cashflow,” says Duncan Craig, the chief financial officer, of the prospects for the expanded group in the new financial year, while refraining from signalling whether a profit will be turned, to avoid giving any firm market guidance.

Following the recent acquisitions, the aim for now is on ramping up sales, with tenders in the UK seeking suppliers of software which is able to ‘track patients’ through the system, which could see demand for Alcidion’s software gain traction there.

“Alcidion is brilliant at engineering but a small Adelaide-based company with not a strong sales growth record” has found it tough going, he said of the group’s experience to date.

Investors have begun to focus on Alcidion’s growth prospects, with the share price ticked up towards 6c in recent dealing, from lows at around 3.6c as recently as April.

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