Telus Health acquisition of Nightingale is a positive for QHR, says Paradigm

The $14-million acquisition of Nightingale by Telus Health is a positive development for QHR (TSXV:QHR), says Paradigm Capital analyst Christopher Lam.
This morning, Nightingale announced it had entered into a definitive agreement to sell the Canadian assets required to serve its Canadian customers to Telus Health for $14-million.
“Telus Health is Canada’s most established provider of health information technology solutions,” said Nightingale CEO Sam Chebib. “We share their vision for innovation, continuous improvement and the critical role technology continues to play in evolving the health care system in Canada. “Our customers can look forward to taking advantage of Telus Health’s wide range of products and expertise, backed by a world-leading telecommunications infrastructure.”
Lam says despite the fact that QHR sat this one out it will likely end up winning because much of Nightingale’s customer base may eventually become QHR customers, especially considering the recently proposed agreement between Telus and QHR to cross-sell products.
“As we have stated previously, we did not expect QHR to be a serious bidder for Nightingale given NGH’s significant cash burn and heavy debt burden,” says Lam. “Based on our viable customer estimate of 2,100 physicians and a 50% retention rate, Nightingale was only worth $3.75M to QHR. Nightingale was the third-largest EMR provider (behind QHR and TELUS) in Canada by doctor count and we expect significant customer churn as a result of this deal. We believe TELUS will eventually consolidate its multiple EMR platforms and do not think the Nightingale system will be chosen as the lead product. As such, we expect Nightingale customers to start shopping now for a longer-term solution like QHR.
In a research update to clients today, Lam maintained his “Buy” rating and one-year price target of $2.25 on QHR, implying a return of 13 per cent at the time of publication.
Disclosure: Cantech Letter’s Nick Waddell owns shares of QHR.